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Aircraft arrest and judgment in default – Court of Appeal rules in contractual claim

In the recent Court of Appeal case of Dubai Financial Group LLC v National Air Services Limited, the appellant, NAS, succeeded in having a default judgment set aside in respect of a dispute concerning a Gulfstream aircraft. The claim arose out of a purchase agreement for a 50% share in the aircraft, which agreement provided an option for DFG at any time after 36 months to require NAS to repurchase the share for a fair market value, provided that no material default by DFG had occurred or was continuing under the related operative documents including an aircraft management agreement by which NAS was required to manage the use of the aircraft. The purchase agreement was governed by English law and was subject to the jurisdiction of the English courts.

By a notice dated 21 January 2011, DFG sought to exercise the option requiring NAS to repurchase DFG’s share in the aircraft. A dispute arose regarding the valuation of the aircraft, following which DFG’s solicitors wrote a series of letters to NAS, all of which went unanswered. In December 2011, DFG issued proceedings, claiming damages in excess of US$10m plus interest, being the alleged fair market value due under the agreement for the repurchase of the share. Permission was granted by the court of first instance to serve the claim form and particulars of claim on NAS outside the jurisdiction, in Saudi Arabia. Attempts to serve through diplomatic channels were unsuccessful and finally DFG, through one of its lawyers, purported to serve NAS directly at its premises in Saudi Arabia one year later, in December 2012. No acknowledgement of service was received and in July 2013 DFG filed an application for judgment to be entered in default, which application was successful, with judgment being entered in the sum of US$10.4m.

More than a year after judgment in default was granted, in October 2014, the Aircraft landed at Luton Airport, where it became the subject of an arrest order, in execution of the judgment. The court subsequently authorised the seizure and sale of the aircraft. This action clearly gained the attention of NAS and just one week after the arrest NAS filed an application to set aside the default judgment, arguing that the claim form had not been validly served. The court held in December 2014 that the claim form had been validly served and the judge refused to set aside the default judgment, albeit that the amount of the judgment was reduced to US$9.6m. It was this refusal to set aside the default judgment that was the subject of the appeal by NAS to the Court of Appeal.

The Court of Appeal considered whether service of proceedings had been validly made. It found that the absence of a response pack with the claim form was not fatal to good service, however it rejected the court of first instance’s finding that it was too late for NAS to raise an arguable defence to DFG’s claim and on this basis the Court of Appeal set aside the default judgment, on condition that the sum in dispute should be paid into court or held in an account in the name of both parties’ solicitors pending resolution of DFG’s claim. The Court ordered that NAS should have seven days from the handing down of the judgment to acknowledge service.

This ruling is a reminder that obtaining judgment in default is not always an end in itself, but it can be a useful tool in bringing an unresponsive party to the table, particularly when used in conjunction with the power to arrest such a valuable mobile asset as a business jet.

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