Whilst the background is generally well known, by way of summary, the dispute related to four Airbus A321 aircraft which were each financed and leased via a Japanese Operating Lease with Call Option (JOLCO) structure, utilising 75% commercial debt and 25% Japanese equity. The aircraft were owned and leased by Japanese special purpose vehicles (“Owner SPVs”) to special purpose vehicles owned by VietJet (the “VietJet SPVs,” together with the Owner SPVs, the “SPVs”), who onward leased the aircraft to VietJet on back-to-back leasing terms. The obligations owed by the SPVs to the finance parties were secured by, amongst other things, security assignments by which VietJet and the VietJet SPVs assigned their rights under each head lease and sublease agreement to the applicable security trustee.

Due to COVID-19 pandemic-related disruptions, VietJet defaulted on lease payments around mid-2021, which triggered events of default under the lease agreements. Lease termination notices were issued by the security trustees (the “Termination Notices”), requiring the return of the aircraft in accordance with return conditions, and the making of specified termination payments, contained in the lease agreements. In October 2021, FitzWalter Capital Partners (Financial Trading) Limited (“FWC”) took assignments of the loans for each aircraft and was appointed as a successor security trustee shortly thereafter, with FWA then in turn taking over this role (and the lease termination and enforcement process) a few days later.

VietJet continued to operate the aircraft for about a year (without paying rent) following the service of the Termination Notices. FWA initiated foreclosure and the sale of the aircraft from December 2021, with the aircraft finally being exported from Vietnam between June and October 2024. FWA pursued English High Court proceedings for (amongst other things) damages against VietJet relating to the lease defaults and termination values due as a consequence of the early termination of the lease periods. This culminated in a quantum award of U.S.$181.5 million being made in FWA’s favour. VietJet appealed.

Pertinent Legal Issues on Appeal
VietJet appealed the High Court's ruling on several grounds, two of which we consider in more detail below:

• Ground 1. Whether the leasing of the aircraft had been validly terminated.
• Ground 2. FWC’s status as a “financial institution” (and the meaning of “financial institution” under the loan agreement).
  
  

Ground 1: Validity of Lease Terminations

Each head lease and sublease agreement contained standard events of default, which included non-payment of rent. There was no dispute that a lease event of default had occurred when the Termination Notices were served.

Rather, VietJet argued that the security trustees’ rights to serve a Termination Notice was limited under the default and remedies clause of the security assignments, such that the security trustees could only serve a notice following the occurrence of an enforcement event (being a loan event of default or the loan becoming or being declared due and payable)—due to the limited recourse nature of the loan agreement, it was common ground that an enforcement event had not occurred (notwithstanding the lease default).

Conversely, FWA’s position was that the right to issue a Termination Notice had been assigned absolutely and unconditionally by way of security pursuant to the assignment clause of the security assignment at the time of entering into the security assignments, that consequently the default and remedies clause supplemented (as opposed to qualifying or restricting) the enforcement rights of the security trustees, and that the Termination Notices had therefore been validly served.

The High Court agreed with FWA. In support of this conclusion, it pointed to fact that the default and remedies clause was expressed as being without prejudice to any other rights under (amongst other documents) the applicable lease agreement, and that the assignment clause was clear that it intended to be available to the security trustees in circumstances where a “Co-Extensive Right” (which included the right to terminate the leasing of the aircraft under the lease agreements) was available to the borrower.

The Court of Appeal unanimously upheld the High Court’s ruling on this point, reaffirming that the assignment clause of the security assignments assigned—unconditionally—the right to terminate the lease agreements to the security trustees. The default and remedies clause was an independent clause that conferred additional powers on the security trustees which were conditional upon the occurrence of an enforcement event; it did not limit the rights assigned pursuant to the assignment clause.

Ground 2: FWC’s Status as a “Financial Institution”

VietJet disputed that FWC was a “financial institution,” and, by extension, that FWC was a (i) permitted assignee in connection with the assignment of the loans to FWC in the case of the NEO aircraft and (ii) a permitted security trustee successor in connection with FWC assuming the role of security trustee in the case of all four of the aircraft.

VietJet’s position was that FWC was not a financial institution, arguing that a financial institution “would share at least some and perhaps all of the key characteristics of banks, being commercial lenders, of a certain size and substance and subject to regulation.” This was rejected by the High Court, and then the Court of Appeal, who upheld the wide interpretation of “financial institution” established in The Argo Fund Ltd v Essar Steel Ltd, namely “a legally recognised form or being which carries on business in accordance with the laws of its place of creation and whose business concerns commercial finance.”

The Court also placed weight on the fact that the loan “financial institution” language reflected the Loan Market Association (LMA) standard form wording (as deliberately revised by the LMA in November 2021 to “ … bank or other financial institution … ” in order to remove grounds for dispute as to the range of entities that could qualify as a “financial institution”)—and that by adopting this wording the parties must have intended the same wide interpretation.