De Haviland Aircraft awarded $42m damages in contract dispute

The aircraft manufacturer de Haviland has been awarded $42m damages in a claim for

breach of a purchase agreement for the sale of 25 planes.

The issue arose after the customer SpiceJet had difficulty finding finance for the deal.

The agreement was therefore amended by a change order so that the Scheduled Delivery Months for aircraft 9 to 25 were suspended with the parties agreeing to find an amicable solution to revised terms and conditions.

SpiceJet had paid for and accepted delivery of aircraft 1 to 5 but then failed to make the pre-delivery payments (PDPs) in respect of aircraft 6 to 20 and to take delivery of aircraft 6 to 8.

De Haviland served notices terminating the agreement and claimed $42.95m liquidated damages in respect of all the undelivered aircraft.

De Haviland argued that the change order did not suspend SpiceJet’s obligation to make PDPs for aircraft 9 to 20 in respect of which invoices had already been delivered, and it was entitled to terminate the agreement in its entirety.

SpiceJet argued that the suspension of the Scheduled Delivery Months had automatically suspended its obligation to make the PDPs and so it was not in default in respect of aircraft 9 to 20.

In respect of aircraft 6 to 8, it submitted that it had been prevented from complying with the agreement because de Haviland had breached its obligations under a letter of agreement to help in arranging finance for the purchase of each aircraft.

The High Court found in favour of de Haviland.

It held that although there was an agreement for variation of the Scheduled Delivery Months in the change order, there was no agreement to excuse payment of the invoices in respect of those PDPs which were already due.

The failure to make the PDPs for aircraft 9 to 20 had entitled de Haviland to terminate the agreement in its entirety because there was a default in respect of more than four aircraft. De Haviland was entitled to damages, which were set at $42.95m.

Please contact Mark Pelopida if you would like more information about the issues raised in this article or any aspect of contract law.