On 31 October 2024, Paul Stanley KC, sitting as a Deputy High Court Judge, handed down judgment in SATA Internaçional – Azores Airline SA v (1) Hi Fly Limited and (2) Aircraft Engine Lease Finance Limited [2024] EWHC 2762 (Comm). The claims and counterclaim for debt turned on the proper construction of a tripartite lease novation agreement and whether it should be rectified for either common or unilateral mistake.

SATA, a regional government owned Azores airline, was the lessee of an Aircraft, originally owned and leased by Hi Fly, a major Portuguese charter airline. Upon Hi Fly agreeing to sell the Aircraft to AELF, the parties entered into a tripartite Lease Novation Agreement (‘Novation’) in order to novate the Lease to AELF. A dispute arose between SATA and Hi Fly as to who, under the terms of the Novation, payments under the Lease were due in a defined period prior to the transfer of ownership of the Aircraft.

SATA brought proceedings against Hi Fly, claiming sums due under the Lease in respect of maintenance carried out on the Aircraft. Hi Fly counterclaimed alleging that, on a proper construction of the Novation, all payments of rent and maintenance reserves due under the Lease remained payable to Hi Fly up until the point of novation. Alternatively, if Hi Fly was wrong on construction, the Novation should be rectified for common, or unilateral, mistake.

The Court found that, although on its proper construction the Novation transferred Hi Fly’s right to be paid rent and maintenance reserves in the material time to AELF, the Novation should nevertheless be rectified for common mistake. While this was (as the Court noted) an unusual finding to make in a commercial context, it was persuaded on a review of all of the evidence during a 5-day trial, that it was clear that the relevant decision-makers of all three parties had subjectively intended, and shared between themselves a common accord, that all sums due under the Lease would remain payable to Hi Fly until the execution of the Novation and sale of the Aircraft. The Court considered the requirements for rectification for both common and unilateral mistake following the decision of the Court of Appeal in FSHC Group Holdings Ltd v GLAS Trust Corpn Ltd [2020] Ch 365.

The successful Defendant (Hi Fly), and the Third Party (AELF), were represented by James Duffy KC and Ruth Flame, instructed by Simmons & Simmons LLP.

The judgment is available here.