In 2008, ACG Acquisition XX LLC (Lessor) entered into an operating lease (the Olympic Lease) with Olympic Airlines SA (Lessee) under which it agreed to lease a Boeing 737 aircraft for a term of five years. The Lessor undertook that the aircraft would be airworthy and in a condition suitable for immediate operation in commercial service and that it would comply with the detailed requirements specified in the lease as to the condition of the aircraft on delivery (Delivery Condition).
The aircraft was delivered on 19th August 2008. The Lessee signed a Certificate of Acceptance, which, under the Olympic Lease, was formally deemed to constitute delivery. The aircraft then went into service on 23rd August 2008. The Hellenic Civil Aviation Authority (the CAA) duly became the competent authority for the aircraft and granted the aircraft a Certificate of Airworthiness.
On 6th September 2008, just 15 days after it entered into service, the aircraft was grounded when broken cables that controlled the spoilers on one wing were found. While trying to repair the broken cables, the Lessee discovered 14 separate categories of defects, including defects which affected other flight control surface mechanisms such as the ailerons. The state of the aircraft was such that, on 11th September, 2008, the CAA took the step of withdrawing the aircraft’s Certificate of Airworthiness. Even after the aircraft had spent months at Europe Aviation, a maintenance and repair organisation (MRO) nominated by the Lessor, the CAA still refused to grant it a Certificate of Airworthiness. The Lessee claimed that the cost of the work which would be required to render the aircraft airworthy would exceed the value of the aircraft and this claim was not challenged by the Lessor.
The Lessee claimed that it was under no obligation to pay rent, there having been a total failure of consideration. Alternatively it claimed that it was entitled to counterclaim substantial damages (including in respect of its liability to pay rent) which would more than extinguish its rental obligations. The Lessor responded that the terms of the lease, and, in particular, the acceptance certificate executed by the Lessee, precluded it from making any claim in respect of the aircraft’s delivery condition or to set off any amounts against the rental, which remained payable in full. The Lessor applied for summary judgment.