HH JUDGE MACKIE QC:
- This is a claim for damages of some £5.1 million for breach of contract offset by a counterclaim which is admitted in part. The Claimant airline ("Jet2") had a contract with the Defendant ("Tarom"), the Romanian national airline. Tarom was to carry out periodic maintenance of Jet2's Boeing 737 aircraft. The arrangement worked satisfactorily from 2004 until around the end of 2006. In September 2007 each party accepted that the contract was at an end but claimed that this was the result of breach by the other. Tarom says that it was justified in terminating for Jet2's alleged failure to pay bills. Jet2 denies this and says that Tarom repudiated both by its purported termination and also by its earlier repudiatory conduct.
The Background
- On 26 July 2004 Jet2's predecessor and parent company Dart Group plc and Tarom entered into an Agreement ("the Agreement") by which Tarom would provide base maintenance services (in effect, heavier services like C-Checks) to B737 aircraft until 26 July 2007. In April 2005 the Agreement was novated to Jet2 which, under a right contained in Article 16 to which I will refer below, in December 2006 extended the Agreement so that it was to run until 26 July 2010.
- Jet2 is an airline based in Leeds. Its fleet included some twenty B737s which, on average, require a C-Check once every two years. C-Checks are extensive, they have to be carried out in the hangar and the aircraft is taken out of service. It is particularly important for leisure airlines such as Jet2 to schedule C-Checks during the European winter from September to Easter a period when, unlike the summer, not all aircraft will be needed in service.
- Tarom, as an airline, had facilities in Romania to service its own aircraft. Tarom also had facilities and capability to provide the heavier service requirements for third parties such as Jet2. At the outset Tarom had a highly skilled workforce which it was able to hire out to third parties at what were, in international terms very competitive rates. It seems from a presentation Tarom gave to Jet2 in 2004 that Tarom anticipated that it would be able to carry out about sixteen C-Checks per year on the B737 fleet.
- Although the Agreement gave rise to minor problems from time to time it operated to the reasonable satisfaction of both parties until the latter part of 2006. From late 2006 until the spring of 2007 there were delays in completing C-Checks on three of Jet2's aircraft. Jet2 attributed this to the loss by Tarom of skilled maintenance staff to other airlines particularly within the European Union after Romania joined on 1 January 2007. Tarom contends that some of the delays were Jet2's own fault.
- Before turning to these and later events in more detail I will summarise the relevant parts of the Agreement.
The Agreement
- There is little between the parties on the construction of the Agreement or how it operated in practice but its terms are important to the issues in other ways. The Agreement runs to 39 pages and while it had some legal input is apparently mainly the product of negotiation between business people.
- Article 1 deals with interpretation setting out a considerable number of defined terms the most relevant of which are;
""Aircraft" / "Aircraft Fleet"– in essence, any Boeing 737 operated by Jet2, in respect of which Tarom might be asked to perform Work pursuant to an RFS.
"RFS"– a Request for Service, defined by the example appended to the Agreement.
"Term"– 3 years, but extendable under Article 16, which gave Jet2 a unilateral option to extend for a further 3 years on the same terms unless the parties agreed variations before the end of the first 3 years;
"Work" – services requested by Jet2 under an RFS or otherwise carried out under the Agreement. In practice this was base maintenance work, known as or carried out during the course of C-Checks;
"Work Commencement Slots" – called by the parties "slots" or "WCSs", but defined as dates set out in Appendix F and in respect of which an RFS is delivered.
"Working Day" included Saturday mornings and excluded any day which was a public holiday in Bucharest.
- Article 2 deals with the scope of services. The Agreement is to apply "in relation to each such Aircraft as the Customer may from time to time at its election specify is an Aircraft to which this Agreement is to apply, in relation to the Work specified in an RFS relating to such Aircraft issued by the Customer to the Contractor. Any RFS issued by the Customer must be delivered to the Contractor not later than 60 days prior to the Work Commencement Date for that Aircraft specified in the RFS".
- By Article 2.4 the Contractor holds open Work Commencement Slots exclusively for the use of the Customer. The Customer will however lose its rights in relation to a slot if it has not by a specified due date elected to issue an RFS for Work to be commenced on an Aircraft on the date of that Work Commencement Slot. Article 2.4 also requires the customer by no later than 1 June in each year to pay to the contractor US$10,000 for each of the Work Commencement Slots available to the Customer during the twelve months commencing on the next following 31 August for a Check other than a 6C-Check and US$20,000 for each of the Work Commencement Slots available to the Customer during twelve months commencing on the next following 31 August for a 6C-Check.
- Article 3 deals with charges and payment requiring all sums due to be paid in US dollars and for 50% of the agreed fixed price for an RFS, less any deposits paid, to be paid on or prior to the delivery of the Aircraft for its checks.
- Article 12 deals with "Term and Termination" and the relevant sub Articles read as follows:-
"12.1 This Agreement shall subsist for the Term and the terms and conditions of this Agreement shall apply to all Work carried out (or which should in accordance with this Agreement and/or any applicable RFS have been carried out) during the Term. This Agreement may be terminated as follows:
b) notwithstanding the above provisions, by notice from the Contractor to the Customer having immediate effect, when the Customer is in default in the punctual payment of any sum due to Contractor and, following receipt of written notice of default from the Contractor, fails to cure the default within twenty (20) business days after the receipt of such notice.
12.3 This Agreement may be terminated or cancelled at any time by mutual written consent of the Parties.
12.4 In the event of this Agreement being terminated by notice or otherwise, such termination shall be without prejudice to any rights and liabilities accrued prior to the termination.
12.6 Any termination by a Party by reason of the other Party's default or by reason of insolvency or similar circumstances affecting the other will be without prejudice to all the other rights and remedies of such Party by reason of the other's default."
- Article 13 entitled "Miscellaneous" provides that the Agreement is subject to English law and the jurisdiction of the English courts. It also provides:
"13.9 Nothing in this Agreement is to be construed as imposing on the Customer any obligation to have any services performed by Contractor on any of its Aircraft Fleet or any part thereof, unless and until the Customer in its discretion issues an RFS in respect of services on the particular Aircraft therein specified. Notwithstanding the foregoing Customer agrees that it will not during the Term have scheduled maintenance of the nature described in this Agreement carried out by any other contractor unless either (i) Customer has reasonably determined that Contractor is likely to be unable to complete such scheduled maintenance by the due date required by Customer or (ii) in relation to any Aircraft on which Contractor shall have previously completed Work under this Agreement Contractor has failed to complete such Work by its Scheduled Completion Date (as the same may have been extended by Article 4.2)."
- Appendix F contained a list of planned dates for particular WCSs for the 7 aircraft scheduled for service by Tarom in 2004/5. It is agreed that the dates slipped for the 4 later ones. For subsequent winter seasons starting on 1 September, the slots were such dates as Jet2 might specify in a notice by at least 9 months beforehand (i.e. by 1 December), as confirmed in a second notice by 3 months in advance (i.e. by 1 June). The second notice could add further dates.
- The operation of the complex machinery of the Agreement caused the parties little difficulty and the practice was as follows ( which I adapt from the skeleton argument of Mr Thompson and Mr Sharpe):
a. By 1 December each year, Jet2 had to notify Tarom of the maintenance slots ('Work Commencement Slots' or 'WCS' or just 'slots') it required in the year beginning on 1 September of the following year.. In practice, this took the form of a broad statement of how many maintenance bays (or lines) would be required, and when (e.g. 2 lines for the winter).
b. The December notification was subject to alteration and confirmation by 1 June the following year. By that date Jet2 would provide Tarom with a maintenance plan showing the dates of each proposed WCS, by aircraft and C-Check type (e.g. C1 or C2 or C6).
c. By 1 June Jet2 would pay Tarom slot deposits of US$10,000 or US$20,000 (depending on the type of C-Check) to secure the slots requested (Art. 2.4).
d. In practice the scheduling plan continued to be subject to adjustments, including the switching of aircraft. Tarom were accommodating and allowed Jet2 to re-allocate deposits where necessary.
e. In relation to each aircraft, Jet2 would prepare a draft Request for Services ('RFS') (in the form of Attachment No. 1 to the Agreement). In accordance with Art. 2.1, Jet2 would send Tarom this draft RFS setting out (in a 'workscope') the tasks required for a given aircraft, with a calculation of the "Aircraft Down Time", according to Appendices H & I, and a corresponding Scheduled Completion Date.
f. The workscope would include routine maintenance work according to the Boeing Maintenance Planning Document ('BMPD'), other maintenance required or recommended by Airworthiness Directives ('ADs') or Service Bulletins ('SBs'). Appendix G provided a formula for calculating the cost of such routine work, based upon the man hours in the BMPD / AD / SB documents multiplied by a factor of 1.8 for BMPD or 2 for AD/SB hours, at a rate of US$26 per man hour. The workscope might also include other optional work desired by Jet2 ('Customer Requests') – which was also to be priced at US$26 per man hour.
g. Tarom would then calculate the offered price of the requested maintenance according to the draft RFS, Art. 2.1 and Appendix G of the Agreement. As the hourly rate was set at US$26, the only negotiations would be in relation to the number of man hours which the optional requested tasks were expected to take.
h. Art. 2.1 provided for the finalised RFS for a given aircraft to be issued 60 days before the start of the WCS, the price having been agreed. In practice, it was common for an RFS to be finalised after this deadline.
i. Once the RFS was agreed and received, Tarom would invoice Jet2 half of the agreed price, less the deposit already paid, which invoice was due for payment on or before delivery of the aircraft (Art. 3.1(a)).
j. Upon delivery of the subject aircraft, the first third of the scheduled maintenance period was designated a Work Inspection Period during which Tarom might notify Jet2 of any extraordinary defects so as to enable the parties to agree any reasonable extension of the Scheduled Completion Date (Art. 4.2).
k. In the course of the C-Check, there would be "ground findings" of defects on the aircraft entailing extra work, done against Non Routine Cards ('NRCs'). Also, once the aircraft was inducted at Tarom, Jet2 might make additional requests for work (as permitted under Art. 11 and para G of Appx 1 to the RFS) ('Customer Requests'). Work over and above the RFS, i.e. NRCs and Customer Requests, was sometimes referred to generically as 'Additional Work'.
l. The agreed price for the RFS was calculated so as to include an allowance for a fixed number of hours and amount of materials to be spent on NRCs (Appendix G)
m. Tarom was required to engage working on a Jet2 aircraft in its facility at least 30 people at all times during the working day, 5½ days a week, and to take all possible action to complete the work in the time agreed in the RFS, working outside of normal working hours if necessary (Arts. 4.6, 4.9).
n. Art. 9 provided for a representative of Jet2 to be stationed at Tarom. Throughout the operation of the Agreement this was Mr Peter Lloyd. His role involved monitoring the maintenance work, authorising NRCs (under Art. 4.8), agreeing the price for Additional Work (usually by reference to the hours it should have taken), and liaising between Jet2 and Tarom. Upon completion of the work, Tarom would release the Aircraft to Jet2 (Art. 5). The Agreement envisaged payment against an invoice for the second 50% of the RFS price before release (Art. 3.1(b), 5.4), but in practice Tarom allowed credit on those invoices and many were paid after release of the aircraft.
o. After completion of the work on an aircraft, 'working papers' would be sent to Mr Lloyd detailing hours and materials spent on Additional Work and third parties / subcontractors (most importantly, Boeing). Mr Lloyd would negotiate and then approve these papers, from which the price for the Additional Work could be calculated at the hourly rate of $26 (Art. 3.1 and Appendix G, §3), taking account of the NRC Allowance.
p. Separate invoices for ground findings, Customer Requests and third party work would then be raised by Tarom. These invoices were payable within 30 days, if undisputed.
Facts Agreed or Not Greatly in Dispute
- While some of the delays were contributed to by Jet2 and others were exacerbated by problems with Romanian customs the main difficulty for Tarom appears to have been in recruiting and retaining competent labour in a context where the Agreement contained a labour rate of $26 per man hour fixed in 2004 (to which it could be held by Jet2 until July 2010), which even then had been competitive. The Agreement, particularly once extended, was economically unattractive to Tarom which indicated in late 2006 a wish to renegotiate the terms.
- In January 2007 Jet2 applied for and obtained CAA approval to carry out its own C-Checks at Leeds Bradford Airport because, it says, of the need to do work which Tarom should have done under the Agreement but was unwilling to carry out. Jet2 had leased a hangar at the airport from 1 May 2006 and from February 2007 carried out some C-Checks.
- Jet2's concerns about delays and Tarom's wish to renegotiate led issues to be considered at a higher level than before. On 18 January 2007 Mr Serban Radovanovici, Vice President for Maintenance and Engineering of Tarom, wrote to Mr Andrew Menzies, the Technical Director of Jet2 proposing a meeting to negotiate amendments to the Agreement. On 16 March Mr John White, General Manager of Projects and Planning at Jet2, sent a maintenance plan for the 2007/2008 season to his opposite number at Tarom. A meeting between Mr White, Mr Ionascu and Mr Manciu of Tarom took place on 20 March. As an email dated 20 March illustrates Mr White left that meeting with the impression that Tarom was continuing to lose manpower. What had been a staff of 200 was down to 120. Tarom were offering in effect only a single line of maintenance throughout the year when Jet2 required two lines in winter and one in summer. The needs of Tarom's own aircraft were increasing. Mr White concluded that, leaving contractual issues aside, Jet2 would have to look for another base maintenance provider to supplement Tarom unless things improved fast.
- Important meetings took place in Bucharest on 11 April involving Mr Meeson, the chief executive of Jet2 and a substantial shareholder, Mr Menzies and Mr White of Jet2 and Mr Dumitrescu, a senior Tarom executive, Mr Radovanovici, Mr Sever Bucur, then Chief Inspector of Quality Control at Tarom and Ms Paula Mitrea. Jet2 prepared notes of these meetings without Tarom's knowledge. The notes are therefore not an agreed minute. Further the note of the second meeting was prepared by Mr White from what Mr Menzies had told him had happened. The notes need to be read in their entirety and in context. Each side places emphasis about different parts of the discussions. Jet2 relies on the disclosure by Tarom of the labour difficulties it was experiencing because pay was so low and on an observation apparently made by Mr Radovanovici that with all the clauses in the contract as currently written Tarom could not guarantee Jet2 two lines of maintenance. He also apparently added that he was not sure that Tarom would have enough manpower to service their own airline maintenance requirements. Tarom relies on an entry that suggests that Tarom accepted that all Jet2 checks could be carried out by it. Jet2 insists that this was only Tarom agreeing that it had to do its maintenance tasks itself and not farm them out to another company. I conclude that the notes were honestly prepared and that despite some limitations are a reasonably fair account of the discussions which took place. This was clearly intended to be a negotiation session which at one point seemed to be moving towards an agreed renegotiation of the Agreement. One would have expected there to be exaggeration on both sides in the course of negotiation. Further, as Jet2 reiterated, "any discussions held today and in the future are SUBJECT TO CONTRACT".
- Jet2 was clearly very concerned about Tarom's ability to maintain the 737 fleet and on 29 April Mr White made contact with JAT Tehnika in Belgrade, following a recommendation, and arranged a meeting. Shortly after that Mr Radovanovici sent draft proposed amendments to the Agreement to Mr Menzies and Mr Meeson. On 6 May Jet2 put in G-CELD for a C-Check with Tarom and on 9 May sent a draft RFS for G-CELB.
- On 16 May Mr Menzies and Mr White visited JAT in Belgrade and formed a favourable impression. Mr Menzies reported that JAT appeared more than capable of carrying out Jet2's 737 maintenance and "with their superior working practices to those of Tarom, we should have quicker turn times … they are far more streetwise and knowledgeable than Tarom were three years ago – concerning current labour rates and the findings on older aircraft". On 23 May Tarom sent a quote for G-CELB to Mr White with a view to induction on 15 June 2007 which Jet2 accepted that day. On 24 May Jet2 paid $170,000 to Tarom as WCS deposits for the 2007/2008 season. On 30 May JAT confirmed to Jet2 that in principle it would be able to service the Jet2 fleet at Euros 35 per man hour. On the following day Mr White sent to JAT the RFS for G-CELB.
- On 18 May Mr White chased Mr Ionascu of Tarom for the quote for G-CELB and when responding Mr Ionascu said "…… be aware that we'll not commit ourselves for any new a/c until the amendment to the contract …… be agreed and signed".
- On 31 May Mr Radovanovici sent an email, which is important in this case, to Mr White as follows:-
"With regard to your e-mail message of May 28, 2007 advising us about an amount transferred into our account we hereby inform you that in the absence of an answer from your side to the draft Amendment as you mentioned in your company's letter dated May 16, 2007, it is difficult for us to accept any amount for Work Commencement Slots. We consider it is premature at this time to agree upon Work Commencement Slots since we did not yet agree upon the terms governing an extension of the existing Agreement. We would have expected that your desired maintenance slots for the upcoming period to be discussed and agreed between the parties before JET2.COM making any payment for such slots.
However, based on the attached statement of accounts, your company is owing us USD80,902.74 (overdue) and there is also an amount of USD110,172.12 due on or before June 10, 2007. Considering the above we deem appropriate that, out of the USD 170,000.00 we apply the sum of USD80,902.74 in order to zero the balance of overdue amounts and the remaining USD89,097.26 being applied against the amount due June 10, 2007. In these circumstances please instruct your bank to take actions in order to pay us also the due balance of USD21,074.86 not later than June 10, 2007 so that all outstanding invoices issued under the Agreement to be settled until that date.
As regards the slots for maintenance, in order to allow both parties to start discussions for the works to be performed on certain aircraft over the winter 2007/2008 we would appreciate to receive your acceptance on the wording of the Amendment on or before the end of this week. We are confident that you will expedite the matter in due course, as the draft Amendment was sent to you on May 04, 2007 and your Chief Executive Officer assured us by his letter dated May 16, 2007 that JET2.COM will send the answer in a timely manner."
- On 5 June emails from Jet2 sought reconciliation of the $80,902.74 said to be due and also insisted that the $170,000 be allocated to reservation of WCSs and not to payment of what were said to be debts. On 7 June Tarom replied to clarify the $80,902.74 sending a list of six invoices allegedly overdue. None of them were. On 10 June Jet2 paid Tarom $74,433.35. On 15 June Tarom delivered G-CELD back to Jet2.
- On 31 July 2007 Jet2 signed an agreement with JAT in a form very similar to that of the Agreement and then paid Euros 49,000 to JAT as WCS deposits for the 2007/2008 season.
- In July and August Tarom increased its efforts to obtain a renegotiated Agreement but by this time, with JAT available, Jet2's bargaining position had improved and it steadfastly refused the proposed amendments. These efforts included two letters which Tarom wrote on 26 and 27 July 2007. On 26 July Mr Birla, president and chief executive officer of Tarom wrote asking Jet2 to extend the deadline for renegotiation of the agreement. The last paragraph read "we are waiting to receive your reply today 26 July 2007 by close of business. In the absence of your answer as hereby requested we express our legitimate intention to renounce unequivocally to the Agreement". Mr Meeson replied and did so by close of business making the point that while discussions could continue in the absence of agreed amendments the Agreement would continue on the same terms as before. Mr Birla responded on 27 July reiterating the importance of achieving a renegotiated agreement as the current wording was "rendering us unable to perform properly and such situation would be of nature to impair our interests as well as yours".
- By this time some, if not all, at Jet2, were under the impression that JAT with whom an agreement was about to be signed would replace Tarom. As Mr White put it in a "very confidential" email of 26 July to a colleague, copied to Mr Menzies, the new agreement with JAT "will replace the current Agreement we have with Tarom". Another email and a letter to the CAA included similar sentiments.
- On 10 September 2007 Tarom wrote to Jet2 as follows:-
"Dear Sir,
I hereby inform you that the Agreement dated 26 July 2004 terminates by effect of the contractual terms stipulated in art.12.1.b as follows:
According to art.12.1.b of the Agreement, the contract terminates when the Customer does not perform his essential obligation, of making the punctual payment of any sum due to Contractor corresponding to the invoices issued by the Contractor.
Based on the attached statement of accounts, your company owes us the amount of USD191,080.86.
Your company was noticed of default, in writing, regarding its unpaid debts since the 31st of May 2007. By that notice you were informed that you have several unpaid invoices and you were specifically asked to perform your contractual obligation in due time. According to the same notice, we proposed you to compensate the amount of USD169,993.97 – transferred, in advance, for the reservation of work slots – in order to perform your obligation of payment of due invoices, but you informed us several days later that you do not agree such compensation.
As a consequence of your contractual behavior and due to the fact that you failed to cure the default in due time, according to the provisions of art.12.1.b of the Agreement, we are forced to terminate the contractual relations.
The amount of USD169,993.97, paid in advance for the reservation of work slots and the amount of USD74,427.29, paid for the aircraft that did not arrive in Bucharest as scheduled, will be returned to you, as soon as you will make the payment of all your debts, We hereby remind you that according to art.12.5 of the Agreement, in case of termination of the Agreement under art.12, that your company is obliged to make the payment for all work performed to this date."
- On 18 September Mr Meeson replied to Mr Birla as follows:-
"Thank you for your letter dated 10 September 2007. We agree that our agreement has come to an end, although we must disagree with your assertion as to the basis for it so doing. It is our position that our agreement terminated in April 2007 when you made it clear that you would (for both commercial and practical reasons) be unable to continue to perform the agreement on its current terms. Following the exercise of our contractual option to extend, this was contrary to Article 16.
In circumstances where, as you agree in your letter, you owe Jet2.com Limited substantially more that we owe you, we are not prepared to first send further monies to you before reimbursement of the sums due to us. Please now deduct the sum of US191,080.86 from the US244,421.36 owed to us and forward the outstanding amount of US53,340.40 by return. Our rights are fully reserved."
- On 22 October 2007 Tarom sent an updated statement of account claiming $252,395.82 from Jet2.
The Claims of the Parties
- Tarom claims that the email of 31 May 2007 was a notice under Article 12.1(b) of the Agreement pursuant to which it validly terminated the contract on 10 September 2007. However Tarom concedes as, given the documents and undisputed facts it must, that the US$110,172.12 referred to in the 31 May email was not due until 10 June and that of the US$80,902.74 as at 10 September 2007 only two items were arguably due, a claim for bank charges of US$275.39 which was never invoiced, and has been abandoned and $6,194 under an invoice for an engine change done at Leeds in July 2006. At the trial this invoice and its context received close scrutiny from each side.
- Tarom also claims that it had a right to terminate the Agreement at common law because of Jet2's admitted failure to pay, by the time of termination on 10 September, the $110,172.12, the invoices for G-CELP which had not been due at the time of the 31 May email.
- Jet2 contends that Tarom had no right to terminate the agreement and as a result the 10 September letter operated as a renunciation. Tarom says that it had the right to terminate but accepts that if it is wrong about that then the 10 September letter was indeed a renunciation. Jet2 did not persist with its claim that the Agreement had terminated in April.
- Jet2 claims that what it says were representations by Tarom from March 2007 onwards, in particular at the meetings in March and April and in the correspondence, showed an intention not to go on with the Agreement after the summer of 2007 and that Jet2 accepted that renunciation by its letter of 18 September.
- Tarom rejects this claim based on the representation from March 2007 onwards by Jet2 but contends that if it is wrong about that Jet2 affirmed the agreement and lost its right to accept the repudiation. It relies in particular on Jet2 having sent G-CELD for maintenance on 1 May, the payment of $170,000 for slot deposits on 24 May, the sending of a maintenance planning schedule on 29 May, the sending of an RFS for G-CELB on 9 May and the acceptance of a quote from Tarom for that on 24 May and by the terms in which it wrote to Tarom on 5 June and 26 July.
- By a late amendment Tarom also claims, in the alternative, that the agreement was terminated by the parties by mutual consent as provided by Article 12.3.
- I now turn to the evidence and then to the competing submissions of the parties.
Evidence
- Jet2 called as witnesses Mr Meeson, Mr Menzies, Mr White, Mr Peter Lloyd and Mr Peter Goulding, General Manager of engineering administration. As all the witnesses in this case, while seeing things from their own side's point of view, were honest and straightforward and doing their best to assist the court and had few disagreements about the facts I refer only to the oral evidence which is controversial or directly relevant.
- Mr Meeson said that Tarom's service had been generally satisfactory but serious delays had begun from about November 2006. The delays had been serious and Jet2 had had to lease in aircraft at a loss to fly its summer 2007 commitments. The delays had also led to the need to carry out maintenance at a higher cost in Leeds. The facility at Leeds continued to be used for a significant period to clear the consequences of the backlog of maintenance caused by Tarom's delays in the 2006/2007 season. Jet2 was aware of its right under the Agreement to use other maintenance providers particularly if Tarom performed unsatisfactorily. It was almost panic that caused Mr Meeson to intervene personally and visit Tarom for the meeting on 11 April. Mr Meeson said that it was clear from the meetings that there were serious issues but Jet2 was determined to carry on with the Agreement and to give some assistance to Tarom. Jet2 became extremely worried and sought out slots in other reputable heavy maintenance organisations. Mr Meeson did not agree with everything set out in the notes of the 11 April meeting but accepted that Tarom did not at any point say that it was not going to perform the existing agreement despite its wish to renegotiate the terms. When Tarom sent a draft agreement to Jet2 on 4 May 2007 Mr Meeson saw this as simply part of the negotiations. The effect of the occasional letters from Tarom through the summer was to create continued uncertainty as to whether and how Tarom was going to perform its obligations. While Jet2's position hardened in this period Mr Meeson still wanted to continue to work with Tarom.
- It was put to Mr Meeson that by the summer Jet2 had decided not to use Tarom anymore as was clear from a number of factors, particularly explicit internal emails. Mr Meeson said that whatever the perception amongst more junior operational staff Jet2 did indeed wish to keep the agreement alive because of its highly attractive terms. He put it as follows:-
"I was the chief commercial officer of the company. I am not at the moment now actually. We have appointed a new chief commercial officer. I am still chief executive. I was chief commercial officer. $26 an hour was mega mega attractive. We were having a very bad year. The accounts show a loss of 17 million, okay. I really would have loved to have used Tarom, okay. On the other hand, I have to think about safety and practicalities. So whatever this says, whatever the words say, I would love to have used Tarom. However, I had to set my staff on a course to arrange maintenance and do all the other organisation necessary at their level of middle management with other companies because we could be well up whatever creek it is."
- Mr Menzies' account of events was very similar to that of Mr Meeson but he had been involved in more of the technical detail. He accepted that at the April meetings Tarom had not said that it did not want to do maintenance for Jet2 or that Jet2 could never have two lines available to service its aircraft. The deposit paid by Jet2 for twelve aircraft on 24 May 2007 was to secure slots for the 2007/2008 season for work which he hoped Tarom would carry out. In cross-examination Mr Shah for Tarom put to Mr Menzies his email of 31 July 2007 where he said, with reference to Tarom "we will not be continuing with them", Mr White's email of 1 August stating "JAT will effectively replace Tarom" and a letter from Mr Smith of Jet2 to the CAA dated 17 August 2007 which stated "our relationship with Tarom as a Base Maintenance provider has finished". Mr Menzies insisted that this was not the position of Jet2's senior management or of those responsible for entering into contract. His own email will have been sent to focus the staff on concentrating on the task in hand the placing of maintenance work with JAT.
- When asked about Jet2's position once the agreement with JAT had been signed Mr Menzies said this:-
"I knew in this world, where you don't get any communication they were going to jack us in. And they did send us a termination letter and thank goodness I had the foresight to go ahead and get it organised, or where would I have been in September? I don't know. As you see in previous emails, JAT said to me first come first served. I had to do something. … We were still hoping that Tarom would come up with the goods at $26 an hour as we had discussed. And come up with the labour to do the work on the aeroplanes. But again, it is to do something about it. I had no other option but to get a back stop."
- Mr White, as General Manager of projects and planning was more involved in the detail than Mr Meeson or Mr Menzies. He emphasised the seriousness of the delays in the 2006/2007 season. He too recognised that while matters became very serious at the time of the meetings in March and April there was no suggestion from Tarom that it was not going to perform existing obligations although it was pressing hard for a renegotiation. Mr White accepted that in the summer of 2006 he had sent some fourteen RFS to Tarom for the 2006/2007 season and that although Jet2 paid deposits for twelve slots for the 2007/2008 season no RFS had been sent to Tarom. Jet2 had accepted Tarom's quote for G-CELB but the aircraft was in fact sent to Leeds for maintenance in August 2007 as Jet2 were concerned about delay.
- Mr Lloyd is an aircraft engineer and, as I have said, was the technical representative for Jet2 at Tarom between February 2004 and the summer of 2007. He has been based at JAT since August 2007. He sets out details of what he saw as Tarom's increasingly poor performance and the company's unwillingness to communicate about future plans. He also deals at some length with invoicing procedure on the question of whether invoice 4637519 ever got to Jet2. The fact that Mr Lloyd left Tarom on 15 June 2007 and went to JAT on 6 August is of itself some indication of Jet2's perception of these two companies at the time.
- Mr Radovanovici, Mr Bucur and Ms Ioana Forsea, an Engineer in the Technical Department, gave evidence for Tarom. Mr Radovanovici and Mr Bucur were commendably honest, frank and straightforward witnesses. Ms Forsea sought to assist the court and was very ready to accept that there were errors in her witness statement about the accounting and invoice matters with which she dealt. I had a sense that those errors were the responsibility not of Ms Forsea but of others within Tarom or its advisers.
- Mr Radovanovici accepted that Tarom had held itself out as being able to meet Jet2's requirements for base management. Two bays had been occupied by Jet2 aircraft for between 75% and 85% of the winter seasons of 2005/2006 and 2006/2007 when seven aircraft had been serviced. He accepted that a similar commitment would be necessary to service the expected demand from Jet2's twenty B737s which needed C-Checks approximately every two years. He broadly agreed that Tarom would have had great difficulties in servicing Jet2's requirements in the 2007/2008 season and perhaps in succeeding years. Mr Radovanovici accepted that the 31 May email had been drafted not by his department but by the Contracts department working with the Finance and Legal departments. It seems that these departments took control of Tarom's strategy from late spring 2007 until after the Agreement had come to an end. Mr Menzies had been troubled by the silence after the end of May. Mr Radovanovici explained that he had not been permitted to talk to Jet2, from the end of May onwards, about contractual matters and that is why there had been so little contact between senior personnel.
- Mr Bucur dealt with comparative costs and pricing and I do not need to summarise his evidence at this point. He pointed out that Tarom was unaware that Jet2 had contracted with JAT until after the Agreement had come to an end.
- Ms Forsea dealt with how the RFS system worked in practice and with the invoicing procedure and its history. She readily accepted when taken to documents that some parts of her statement were inaccurate. She dealt with the $6,194 in detail explaining why no invoice had been included in statements sent to Jet2 in the last three months of 2006.
- I will deal separately with evidence about the quantum of the damages claimed by Jet2.
Did Tarom validly terminate the agreement under Article 12.1(b) of the Agreement?
- Mr Shah submits that Article 12.1(b) does not require any particular form of notice other than writing. It does not have to say that it is a notice of default or that it is served under Article 12.1(b). It is enough to say that there is an amount outstanding and that Jet2 must pay it.
- Mr Thompson for Jet2 argues that a notice must on its face be clear that it has the effect of putting the Agreement at risk of termination and the email did not do that. He cites the views of Lord Denning when a similar situation arose in Italmare Shipping v Ocean Tanker Co [1982] 1 WLR 158.
- Although the Article provides for no specific formal notice the consequences of a failure to comply are severe, resulting in the termination of the Agreement. The parties cannot have intended termination to be brought about without Jet2 knowing or having reason to know the significance of the alleged notice. The email came from out of the blue. There is no evidence that Tarom, at the time of sending the email, intended it to be a notice under the Article. The email does not say it is such a notice. If Tarom had wished the email to be a valid notice then, without having to observe any particular formalities, it should have made it quite clear what the nature and purpose of the communication was.
- Tarom has to concede that no sum due at the time of the 31 May email remained unpaid as at 10 September 2007 apart from, arguably, the $6,194. The issue received detailed argument at the trial. There is no doubt that $6,194 is a fair price for an engine change carried out by Tarom for Jet2 in July 2006. There are some records of its existence as a liability but no proper and continuous record of it as an invoice. Tarom did not chase it before or even after 31 May 2007. When, in response to the 31 May email Jet2 asked Tarom to account for the $80,902.74, Tarom did not respond with details of the $6,194 or with any other debt due at the time of the email. It is must be implicit that if a notice under this Article does not set out accurately the sums allegedly due that Tarom would provide proper substantiation when asked. For this reason too the email was not a valid notice. (It seems to be common ground that despite the unsatisfactory invoice position Jet2 remains liable to pay Tarom $6,194 for the work.)
Did Tarom have a common law right to terminate the Agreement by reason of Jet2's admitted failure to pay by 10 September 2007 US$110,172.12 under invoices for aircraft G-CELP
- Jet2 admits these invoices and concedes that they fell due for payment by the beginning of July 2007.
- The issue is whether time for payment of this debt was of the essence for the contract and a condition. Mr Shah relies on the reasoning of Rix LJ in Stocznia v Latco [2002] 2 Lloyd's Rep 436 at paragraphs 76 to 81. In that case the Court of Appeal held that a payment condition was just that and that a failure to pay entitled the seller to terminate at common law. Mr Shah says that Article 12(1)(b) shows that the parties regarded punctual payment as a condition of the contract. Jet2 had a grace period of 21 business days but after that Tarom had the right to terminate. Further Jet2 was notified of the invoices twice, on 31 May and 7 June 2007.
- Mr Thompson submits that time is not expressly made of the essence. There is nothing in the circumstances of this case to make time of the essence either. Article 3.3 provides for payment of interest on outstanding debts and Article 12.1(b) cannot have the effect of making time of the essence. These provisions indicate that neither party had any intention of making time for payment a condition. Tarom can only terminate for breach of a condition at common law if time is of the essence. Time will only be of the essence if this is expressly provided (and it is not in the Agreement) or, as it is put in Chitty on Contracts Volume 1 30th edition 21-013 ,"where the circumstances of the contract or the nature of the subject matter indicate that the fixed date must be exactly complied with".
- Time for payment was not of the essence. The payment provisions in the agreement do not suggest that time was of the essence. This was a long-term contract for the provision of services in return for the payment of money. There is nothing in the Agreement or the surrounding circumstances to show that the parties intended that it was essential for money to be paid by any particular time. The Agreement was not like, for example, some charter parties where prompt payment is essential so that the parties can establish their respective obligations to others up and down a chain. As I see it this contract is a world away from that with which the court was concerned in Latco.
Renunciation
- If, as I have concluded, Tarom had no right to terminate the Agreement it is now common ground that the letter of 10 September was a renunciation. Jet2 was entitled to accept that renunciation as terminating the Agreement and to claim damages for breach. Although Jet2's letter gave a reason for accepting that the Agreement was terminated which is no longer relied upon it was still valid acceptance of Tarom's repudiation. For example the position is summarised by Rix LJ at paragraph 32 of Latco:-
"It is established law that, where one party to a contract has repudiated it, the other may validly accept that repudiation by bringing the contract to an end, even if he gives a wrong reason for doing so or no reason at all".
Was the Agreement terminated by mutual written consent?
- Mr Shah, by a late amendment, sought to argue that the exchange of letters of 10 and 18 September constituted mutual consent between the parties to terminate the agreement under Article 12.3.
- Tarom unilaterally purported to terminate the Agreement and Jet2 accepted that it was at an end. There was no prior Agreement by the parties that the Agreement should terminate. Tarom said that the Agreement had ended because of Jet2's breach. Jet2 had accepted that it had ended because of Tarom's breach. That is not termination by mutual consent so this argument fails.
Did Tarom's representations after March 2007 evince an intention not to go on with the Agreement after the summer of 2007?
- I take this formulation from Mr Thompson's written closing submissions. He also seems to rely on what is said to be Tarom's refusal to agree to make two bays available for Jet2's aircraft in the 2007/2008 season. This claim is set out in Mr Thompson's pleading as amended at the start of the trial. He says that the continuing representations by Tarom set out in negotiations and in particular in the March and April meetings and in the letters of 26 and 27 July amounted to an anticipatory breach of the Agreement. The pleading says that "in addition, throughout the first half of 2007 the Defendant's performance of its obligations under the Agreement became slower and less reliable and the work on aircraft was increasingly completed later than scheduled. For the avoidance of doubt the Claimant makes no claim for this under-performance".
- This further claim was apparently brought in to fend off aspects of Tarom's case on damages. Mr Shah responds by arguing that there was no anticipatory breach and, if he is wrong about that, Jet2 affirmed the Agreement. As Mr Thompson put it " The relevance of these new amendments is that it would permit Jet2 more clearly to rely upon earlier breaches of the Agreement by TAROM."
- The emphasis of Mr Thompson's argument appeared to change as the trial moved forward. In his closing submissions his position was as follows. The parties were well aware that to service the forthcoming winter season Tarom would need to commit to two bays full-time. While it had the space to do this it lacked the manpower. The parties were well aware of this as early as March 2007. C-Checks on four aircraft in the first few months of 2007 ran seriously late. There was a pregnant silence after 31 May because Mr Radovanovici was forbidden to talk to Jet2 directly about changes to the Agreement. As late as 27 July Tarom was confessing to its problems and stating "the current wording of the Agreement is rendering us unable to perform properly…"
- Mr Shah submits that there was no renunciation or anticipatory breach. The Agreement does not guarantee a specific number of lines. It would obviously be more difficult for Tarom which had maintained six aircraft in the winter of 2004/2005 and eight in the winter of 2005/2006 to deal with thirteen for 2006/2007 and more thereafter as Jet2's fleet, and its demands, increased. No one within Jet2 considered that Tarom had made it clear at the meetings in March or April that it was not going to perform the Agreement. Mr Radovanovici made it clear that Tarom would be able to guarantee two lines sometimes but not permanently throughout the winter. The submission of draft amendments to the Agreement by Tarom was not a repudiatory act; it was accepted to be all part of a good faith negotiation. The threat in the letter of 26 July would take effect only in the absence of a response from Jet2 which arrived that day. The letter of 27 July was part of the negotiating process and seen by Mr Meeson simply as part of the "uncertainty". As late as 17 August Tarom was still seeking to continue negotiations by accepting an earlier Jet2 draft which it had initially resisted. By this time Jet2 was not interested.
- Mr Shah also relies on other matters which he says indicate that Jet2 did not understand Tarom to be renouncing the Agreement or that if there had been a renunciation Jet2 unequivocally affirmed the Agreement. Jet2 sent a maintenance plan to Tarom on 29 May for twelve aircraft. In evidence Mr White said that despite earlier problems he felt that Tarom would probably be able to do these aircraft for Jet2. There are no internal emails from Jet2 in this period indicating a view that Tarom was not going to maintain Jet2's aircraft. Within Jet2 it was clear that Mr Meeson and Mr Menzies wanted to keep the Agreement alive because the rate was so favourable. At no point between April and September was Jet2 giving considered thought as to whether to affirm the Agreement or accept a repudiatory breach. After the April 2007 meetings Jet2 sent G-CELD to Tarom for maintenance. Jet2 paid deposits on twelve aircraft on 24 May 2007 which it later insisted be addressed to securing maintenance slots at Tarom and not be used for paying debts. On 24 May Jet2 accepted Tarom's quote on G-CELB (albeit for a different season). On 29 May 2007 Jet2 sent Tarom a maintenance plan for twelve aircraft as this was required before the 1 June deadline provided for in the Agreement. Correspondence from Jet2 in July and August 2007 made it clear that the Agreement continued as extended and there were to be no amendments other than those agreed in writing.
Affirmation – Jet2's Response
- Mr Thompson cites authority to show that the law encourages an injured party to see if an agreement is salvageable and gives it a period of time in which to consider its position and keep the contract in being for the moment. Internal debate is irrelevant. The only issue is what is communicated by one party to the other by its words or conduct. The authority relied upon by Mr Thompson is as follows:-
"where the conduct of the promisor is such as to lead a reasonable person to the conclusion that he does not intend to fulfil his obligations under the contract when the time for performance arrives, the promisee may treat this as a renunciation of the contract and sue for damages forthwith" Chitty (vol.1, §24-026);
"[87] In my judgment, there is of course a middle ground between acceptance of repudiation and affirmation of the contract, and that is the period when the innocent party is making up his mind what to do. If he does nothing for too long, there may come a time when the law will treat him as having affirmed. If he maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his contract partner persists in his repudiation, then he has not yet elected. As long as the contract remains alive, the innocent party runs the risk that a merely anticipatory repudiatory breach, a thing 'writ in water' until acceptance can be overtaken by another event which prejudices the innocent party's rights under the contract – such as frustration or even his own breach. He also runs the risk, if that is the right word, that the party in repudiation will resume performance of the contract and thus end any continuing right in the innocent party to elect to accept the former repudiation as terminating the contract." Latco per Rix LJ (at [87]);
"this contract, especially during the winter break between two racing seasons, did not present the typical case where mere delay may demonstrate a decision to affirm... The present case concerns a complex and medium term relationship, which a takeover has destabilised, and where it necessarily and legitimately takes time for the consequences to become clearer and for the innocent party to consider his position. That is the middle ground between acceptance of a repudiation and affirmation of a contract which I discussed in the earlier Stocznia case" Force India Formula One Team v Etihad Airways [2010] EWCA Civ 1051 per Rix LJ (at [122]).
"The Court should not adopt an unduly technical approach to deciding whether the injured party has affirmed the contract and should not be willing to hold that the contract has been affirmed without very clear evidence that the injured party has indeed chosen to go with the contract notwithstanding the other party's repudiation....the Court should generally be slow to accept that the injured party has committed himself irrevocably to continuing with the contract in the knowledge that if, without finally committing himself, the injured party has made an unequivocal statement of some kind on which the party in repudiation has relied, the doctrine of estoppel is likely to prevent any injustice being done.
"Considerations of this kind are perhaps most likely to arise when the injured party's initial response to the renunciation of the contract has been to call on the other to change his mind, accept his obligations and perform the contract. That is often the most natural response and one which, in my view, the court should do nothing to discourage. It would be highly unsatisfactory if, by responding in that way, the injured party were to put himself at risk of being held to have irrevocably affirmed the contract whatever the other's reaction might be, and in my judgment he does not do so. The law does not require an injured party to snatch at repudiation and he does not automatically lose his right to treat the contract as discharged merely by calling on the other to reconsider his position and recognize his obligations." Moore-Bick J, as he then was, in Yukong Line v Rendsburg Investments Corp [1996] 2 Lloyds Law Rep 604, 608 first col.
- Mr Thompson submits that the law allows, even encourages, the injured party to see if the agreement is salvageable. The Court does not expect or push the injured party to snatch at accepting repudiation, although the injured party takes a risk that some intervening act (including the injured party's own breach) will rob him of the chance to accept the repudiation and water, in which the renunciation was written, will flow on. The innocent party has a period, the length of which depends on the circumstances of the case, in which to consider his position and maintain the contract in being for the moment, and during which he may encourage the other party to reconsider his position and commit to performing his obligations. These submissions about the law are not controversial but their application to the facts of this case is.
- Mr Thompson says the period between April and September 2007 was the break between maintenance seasons. What was said or agreed about work for the late running 2006/2007 fleet (such as G-CELD) is irrelevant. So is the fact that Tarom might be able to service G-CELB in the middle of summer, the quiet period. What Jet2 said about its obligations to pay Tarom's invoices for services already performed is also irrelevant. So is the fact that Tarom might have been extremely willing to negotiate amendments to the Agreement and carry out work on different terms. The issue was whether or not Tarom was willing to perform under the existing contract.
Was there a renunciation and no affirmation?
- Both parties knew that Tarom's performance was less than the Agreement required from January to September 2007. From March it was clear that things would not get better in the short-term but the picture was confused because Tarom was indicating that performance would not improve unless the Agreement was renegotiated. Where a contract requires the performance of services (as opposed to perhaps simply the payment of money) on unattractive economic terms the party benefiting from this arrangement will often, for pragmatic reasons, not insist on enforcement of its full legal rights. A successful business does not have to depend upon rigorous or legalistic enforcement of rights. Sensibly Jet2 was considering agreeing to different terms while reserving all its rights unless and until it did so. Taken in context it seems to me very unlikely that anything renunciatory was said at the meetings in March or April. The discussions were part of a negotiation and the fact that they were not seen at the time as being an anticipatory breach of contract is both unsurprising and significant. Tarom's lack of contact with its customer once the Contract Department took over the running of the Agreement was unbusinesslike but not of itself, or as part of the wider picture, any indication by Tarom that it would refuse to comply with its obligations. The July letters were ill-judged but were seen by Jet2 in their context and similarly not taken to be a renunciation of legal obligations. Throughout this period, in many of the ways identified by Mr Shah, Jet2 was continuing to treat the Agreement as alive. I recognise of course the existence of the middle ground between the acceptance of repudiation and affirmation of the contract identified by Rix LJ and emphasised by Mr Thompson. But this is not a case where one can fairly say that the innocent party was "making up his mind what to do". While Jet2 is entitled to rely on grounds of termination which it did not identify in September 2007 and the test is an objective one, evidence of how a party saw the situation and its intentions must be relevant to the question of whether or not, during the period in question it is or is not making up its mind what to do. Mr Meeson was asked whether Jet2 was in its correspondence in August 2007 laying a trap for Tarom to bring about termination of the Agreement. Mr Meeson responded, I am sure truthfully, as follows:-
"No, we were not. We wanted this agreement to continue. We wanted to pay $26 an hour for the many hundreds of thousands of man hours we would incur over the next three years".
It is clear this remained Jet2's position until Tarom purported to terminate on 10 September. It was not waiting to make up its mind
, it was determined to hold Tarom to its bargain. The questions of renunciation and affirmation are inextricably linked when a period of frequent dealing between the parties is being examined. There may well have been times in the months relied on by Jet2 when it could have treated acts or omissions by Tarom as being repudiatory but for good business reasons it did not wish to do so. To the extent that there was repudiatory conduct by Tarom it was affirmed by Jet2 who wanted the Agreement to continue.
Jet2's Claim for Damages
- It follows from my conclusions about liability that in principle Jet2 can recover damages from Tarom. There are big differences between the parties both about the principles behind and details of Jet2's claim some of which narrowed in the course of the trial. There is a risk of confusion when approaching damages in this case. Jet2 responded to inadequate performance by Tarom, which itself may or may not have been a breach of contract but which is not part of the claim for damages in this case, by taking on C-Check type heavy maintenance at Leeds, rather than just routine work, and by contracting with JAT. The shortcomings which led to these steps occurred in the period before 18 September when Jet2 accepted Tarom's repudiation. This has led Jet2 at times to appear to claim for losses in the period before 18 September and Tarom to argue that since Jet2 had decided before the date of acceptance of the repudiation to place maintenance with JAT and at Leeds, Tarom's liability is greatly diminished. Neither position seems to me to be correct.
- As I see it the question is as put by Mr Thompson by the end of the trial. Which of the C-Checks for which Jet2 claims in the action would Jet2 have had serviced by Tarom if Tarom had not renounced the Agreement? The task of the court is helpfully summarised in a case relied on by Mr Thompson. In Durham Tees Valley Airport –v- bmibaby [2011] 1 Lloyds LR 68 Patten LJ said[1] at [79]:
"The court, in my view, has to conduct a factual inquiry as to how the contract would have been performed had it not been repudiated. Its performance is the only counter-factual assumption in the exercise. On the basis of that premise, the court has to look at the relevant economic and other surrounding circumstances to decide on the level of performance which the defendant would have adopted. The judge conducting the assessment must assume that the defendant would not have acted outside the terms of the contract and would have performed it in his own interests having regard to the relevant factors prevailing at the time. But the court is not required to make assumptions that the defaulting party would have acted uncommercially merely in order to spite the claimant. To that extent, the parties are to be assumed to have acted in good faith although with their own commercial interests very much in mind."
- This illustrates that the suggestion by Mr Shah that Jet2 is limited to losses caused by the termination of the contract as such is not correct.
- It is equally clear, as Mr Shah submits, that damages are assessed as at the time of the acceptance of the repudiation. They are not backdated, where there has been a gap (as there would have been on Mr Thompson's alternative renunciation case) between repudiation and acceptance. Mr Shah's argument, starts with the judgment of Lord Esher in Johnstone v Milling (1886) 16 QBD 460 at 467. and is borne out , for example, by Yukong to which I have referred above, at 607. I also agree with Mr Shah that nothing in the judgments of the Court of Appeal in The Mihalis Angelos [1971] 1 QB 164 alters the position. A passage in the judgment of Lord Denning can be read as suggesting the contrary but needs to be seen in the context of the point being addressed and of a case where the acceptance immediately followed the repudiation. The other judgments, particularly that of Megaw LJ (at 209 H), do not disagree with Lord Denning on that point, and make the position explicit. Since the issue does not arise because of my decision that there was no relevant renunciation I do not develop this point in detail. It is clear however that there is no cause of action until the anticipatory repudiatory breach has been accepted.
- The question therefore is what damages Jet2 suffered as a result of not being able to have the benefit of the Agreement from 18 September 2007 until what would otherwise have been its expiry date on 26 July 2010. This involves taking a view, assuming that Tarom was willing to comply with its obligations under the Agreement, about which if any aircraft C-Checks Jet2 would have asked Tarom to carry out in that period and how much extra, if anything, Jet2 has had to pay others to do the work instead.
- Jet2 attaches schedules to its Re-Amended Particulars of Claim claiming some US$7,881,283.36. Jet2 claims that in order to mitigate its losses it leased (or rather continued to lease) the bay at Leeds and carried out work which would otherwise have been done by Tarom and also as a result had to engage JAT to do checks which would otherwise have been performed by Tarom but at much higher prices. The schedules set out comparative costs of labour and materials. As I read the schedules Jet2 claims for what is the difference in cost between having 13 C-Checks carried out at Leeds and 18 done by JAT and what the cost would have been if Tarom had done the work.
- Apart from questions of principle there are disputes between the parties in an agreed list of issues on quantum. These thirteen issues include, as regards Leeds, hangarage costs, permanent staff costs, man hours, inspection tasks, materials, projected additional work and interior work as well as projected additional work by JAT and aircraft downtime. These questions were touched on at the hearing but not addressed in any detail. At this point I deal only with some broader questions between the parties.
- Tarom claims that it would not have been legally obliged to maintain Jet2's aircraft for the winter 2007/2008 because Jet2 had given neither notice of WCS in accordance with Appendix F of the Agreement nor served RFS for any of its aircraft as required by clause 2.1. Jet2 gave no notice of proposed dates of work by 1 December 2006. Mr White sent an email in 22 December 2006 stating that the two lines were required by Jet2 between October 2007 and April 2008 but this did not comply with Appendix F.
- Mr Thompson responds that the requirement to give notice by 1 December was not of the essence of the Agreement. The obligation was only to give dates not further details and given the commercial realities this was not something Tarom needed to know. The deadlines of 1 December 2004 and 2005 passed without Jet2 setting dates and no complaint was made by Tarom at any point. Further notice on 1 December 2006 would have been premature because the Agreement was not extended until 19 December.
- As to the RFS Mr Shah contends that Tarom were under no obligation to do work unless a WCS was served for each aircraft, under Article 2, 60 days prior to commencement. In contrast to the fourteen RFS sent in the summer of 2006 Jet2 served none in July 2007, Mr Shah says, because it had decided that the work should be done by JAT or at Leeds.
- Both parties sensibly conducted the Agreement commercially and with operational give and take without insisting on strict compliance with deadlines. This is fortunate as the Agreement had numerous potential pitfalls for parties taking a legalistic approach. The 1 December deadline had never been complied with, it was not of the essence.
- On 29 May 2007 Mr White sent to Tarom an email together with a bank transfer to Tarom for US$170,000. This was notice that slots were being reserved under Article 2 of the Agreement. On 31 May Tarom responded that it was "difficult for us to accept" payment for WCS and that it was "premature" to agree them. There is nothing in these formalistic points. Jet2 did what it could to comply with its WCS obligation (and when rebuffing Jet2 Tarom did not rely upon the absence of a notice by 1 December). If the Agreement had continued and Tarom had complied with its obligations it would not have been able to refuse performance by reason of the absence of a 1 December notification or by reason of the absence of the WCS which Jet2 had done its best to produce. Tarom had rejected Jet2's attempt to give the requisite notice for a reason- seeking renegotiation- not permitted by the Agreement.
- Next Tarom contends that Jet2 was not using it for maintenance after June 2007 but had moved instead to JAT and its own facility at Leeds. Mr Shah argues that Jet2 cannot show that the position would have changed. Jet2 decided to take a more expensive route, as it was entitled to with a non-exclusive agreement. It made this more expensive choice before September 2007. Mr Shah points out that the Leeds hangar was leased and utilised well before termination and CAA approval obtained. JAT was engaged by the end of July and was to receive seven aircraft for the following season with the rest going to Leeds. Given JAT's good performance it was likely that Jet2 would continue to use them.
- Mr Thompson responds that heavy maintenance at Leeds had been introduced for the 2006/2007 season reluctantly because of Tarom's poor performance. Jet2 had turned to JAT reluctantly only towards the end of April 2007 when Tarom's future performance was in doubt. While Jet2 did book seven slots with JAT the deposit, Euros 7,000 per aircraft was very small given that the average C-Check costs about US$500,000. Further Jet2's wishes and choices before 10 September 2007 have to be seen in the light of its growing belief that Tarom would not perform and indeed might only accept future aircraft at a higher labour rate of Euros 32 per hour. Further maintenance plans produced for JAT in July 2007 still show that Jet2 expected to use Tarom in 2008/2009.
- The evidence is that with the exception of G-CELH for which no claim is made for 2007/2008 Jet2 had made no plans which were technically irrevocable to have all C-Checks done by JAT or at Leeds. But for obvious, prudent, business reasons Jet2 was all set for its C-Check maintenance in the coming season to be done in that way as the evidence of Mr Meeson and Mr Menzies makes clear. Mr Shah emphasises that I must take the situation as it was by 10 or 18 September, earlier failings of Tarom being irrelevant. That is correct but when taking a view about how far if at all Jet2 would have used Tarom from September 2007 until July 2010 I must assume that Tarom would have performed its obligations under the Agreement when called upon to do so. This means assessing Tarom as it should have performed from then on, not on the basis of its earlier shortcomings. I then have to evaluate some imponderables.
- By the time Tarom's repudiation had been accepted plans for the 2007/2008 season were well advanced but it would still have been open to Tarom to hold itself ready, negotiations having failed, to continue to honour its obligations under the Agreement notwithstanding the low fixed hourly rate. By this stage it seems that Jet2 was largely committed for the coming season for reasons which were the fault of Tarom but not causally connected to acceptance of the repudiation. As Mr White saw it JAT had been "pencilled in" and, given the lack of reassurance from Tarom as late as August 2007, it was more likely than not that JAT would perform the work. I have no reason to doubt that assessment. If that reassurance had come in and/or Jet2 had been able to assume that Tarom would comply with its obligations under the Agreement I consider that Tarom would have got some, but since this was happening at a relatively late stage, not all of the work. Presumably some things were at an advanced stage and it might have been commercially unwise, having signed up JAT and paid deposits for Jet2 to give them no work for the season after all (apart from G-CELH). It seems from the schedules that for the 2007/2008 season four aircraft went to Leeds and six to JAT. The fact that the technical and operational staff (although, as I accept, not senior management) had largely written off Tarom suggests that in practice Jet2 were unenthusiastic about using Tarom. Mr Menzies had sought to focus staff on to JAT and away from Tarom. I conclude however that if Tarom had expressed its willingness to perform and shown that it was taking some steps to do so, at least some but not all these aircraft would have been placed with it over the 2007/2008 season. I will hear more argument about that before taking a final view.
- Having accepted the evidence of Mr Meeson and Mr Menzies that they wished to continue to use Tarom if only because the man hour rate was so attractive it seems clear that aircraft would have been placed with Tarom in the remaining seasons until July 2010. JAT proved an admirable substitute although an expensive one – according to Mr Meeson JAT was costing US$187 per flight hour while Tarom was US$105. The only evidence to show that the overall cost as between Tarom and JAT was comparable was based on an increased hourly rate for Tarom of €32 per hour and therefore does not help. It seems to me that if Tarom performed to the standard required by the Agreement it would have received much if not most of the maintenance work until July 2010. However I suspect that Jet2 had seen the dangers of putting its maintenance eggs in one basket and, notwithstanding that it was more expensive, would have continued to give a share of the work to JAT.
- I express these views in an attempt to narrow the debate about quantum, an issue which has received detailed attention in some areas but not in others.
Counterclaim
- Jet2 does not dispute that Tarom has a valid counterclaim. There was an issue about quantification of the claim but Jet2 having agreed to judgment being entered against if for $227,316.55 Tarom no longer presses the approximately US$18,000 which had been in dispute.
- Mr Shah seeks to re-amend the counterclaim to put forward a claim for contractual late payment interest charges on invoices going back to 2004. While the interest provision in the Agreement is clear the fact of what invoices were sent and when is not. There is no material before the court to enable it to determine this claim brought by late amendment. This will have to be pleaded just like any other money claim.
Conclusion
- I therefore conclude that Tarom's letter of 10 September 2007 was not a valid termination of the Agreement but was a repudiation of it which Jet2 accepted on 18 September. I do not accept that Tarom's representations and communications, seen in context and set against the position and approach of Jet2, constituted a renunciation which it was open to Jet2 to accept. Tarom is liable to pay damages to Jet2 along the lines that I have indicated but subject to further argument particularly about the many points of quantum not yet addressed. The points remaining open may be time consuming to resolve, particularly those of detail and the parties must try to do their best, if not to agree these matters, to narrow the points of difference. As in many cases the sums turning on the imprecise points where the judge must do 'the best he can' are likely to be higher as well as more uncertain than those which detailed argument and/or further evidence can determine with some precision.
- I shall be grateful if Counsel will, not less than 72 hours before hand down of this judgment, let me have corrections of the usual kind and a draft order, preferably agreed, and a note of any points which they wish to raise at the hearing. I am grateful to Counsel and solicitors for the admirable way in which this trial was prepared and presented.
POSTSCRIPT.
At Paragraph 76 I should have made explicit what I thought, perhaps wrongly, was implicit. After the developments in the summer a showdown of some kind was imminent and inevitable. It came in the form of Tarom's attempt to terminate rather than in some initiative from Jet2. However a company like Jet2 was not going to sit by and incur additional costs for servicing its fleet in the coming season without holding Tarom to its bargain in some way or another. I say this in a postscript, rather than correct the text, because it has occurred to me only having read the pre judgment notes of Counsel.
