Protea Leasing Ltd. v Royal Air Cambodge Company Ltd., Court of Appeal - Commercial Court, December 12, 2002, [2002] EWHC 2731 (Comm)

Reporting Judge: [2002] EWHC 2731 (Comm)

President: Protea Leasing Ltd. v Royal Air Cambodge Company Ltd.

Linked as:

Extract

Protea Leasing Ltd. v Royal Air Cambodge Company Ltd., Court of Appeal - Commercial Court, December 12, 2002, [2002] EWHC 2731 (Comm)

[2002] EWHC 2731 (Comm) Case No: 1999 Folio 1118

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 12th December 2002

B e f o r e :

THE HONOURABLE MR JUSTICE MOORE-BICK

- - - - - - - - - - - - - - - - - - - - -

Mr. Iain Milligan Q.C. and Mr. Akhil Shah (instructed by Slaughter and May) for the claimant

The first defendant did not appear and was not represented

Mr. William Wood Q.C. and Mr. Philip Reed (solicitor advocate) (instructed by Norton Rose) for the second defendant

- - - - - - - - - - - - - - - - - - - - -

JUDGMENT

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version may be treated as authentic.

The Hon. Mr. Justice Moore-Bick

Mr Justice Moore-Bick:

1. Introduction

1. The first defendant, Royal Air Cambodge Company Limited (``RAC''), was incorporated in Cambodia on 7th December 1994 to act as the national air carrier of Cambodia. The third defendant, Naluri Berhad, formerly known as Malaysian Helicopter Services Berhad, agreed to become a minority shareholder in RAC and to provide financial and managerial support for the new company pursuant to the terms of an agreement with the Kingdom of Cambodia and RAC dated 28th December 1994 (``the Shareholders' Agreement''). The Shareholders' Agreement provided that the business of RAC would be managed and operated by the second defendant, Malaysian Airline System Berhad (``MAS''), a wholly-owned subsidiary of Naluri, in accordance with the terms of a Management Agreement entered into contemporaneously with the Shareholders' Agreement. It also provided that RAC would be the sole provider of domestic and international airline services within Cambodia.

2. RAC began commercial operations in 1995 employing four aircraft: two Boeing 737-400s and two ATR-72 200s. The Boeings were leased from MAS and the ATRs from the claimant, Protea Leasing Ltd (``Protea''). The ATRs, identified as aircraft Nos 204 and 207, were turbo-prop aircraft manufactured by a French company, Avions de Transport Regional GIE (``ATR''), which established Protea as a separate company for the purposes of leasing, and thereafter selling, the aircraft to its customer. RAC originally took over the leases of these two aircraft from Kampuchea Airlines which had previously been the airline operating in Cambodia, but the contractual arrangements were revised in September 1996 when RAC took a third ATR, aircraft No. 108, on lease from Protea. As a result the relevant contracts for present purposes are to be found in three lease agreements in substantially identical terms each dated 18th September 1996.

3. From the very beginning RAC's financial position was weak, partly because Naluri failed to provide the injections of capital called for by the Shareholders' Agreement. Many of the services that it required to support its operations were provided by MAS under the Management Agreement, but MAS was entitled to recover the cost of those services from RAC together with commission. In the event, RAC's ability to finance its operations depended to a large extent on the willingness of MAS to extend credit to it in steadily increasing amounts. However, in July 1997 an event occurred that was to have serious long-term consequences for RAC. A coup d'état was launched by one of Cambodia's joint prime ministers, Hun Sen, who, after some days of fighting in and around Phnom Penh, ousted his rival, Prince Rannaridh, and obtained control of the government. The coup brought a number of changes in its wake. The chairman of RAC, Mr. Vichit Ith, was replaced by a nominee of the new government, Mr. Pan Chantra. More importantly, however, the new government introduced an ``open skies'' policy, revoking RAC's monopoly status and requiring it to compete with other airlines on both domestic and international routes. Moreover, although the hostilities surrounding the coup were short lived, they had a serious effect on the tourist trade on which RAC depended for much of its income. To cap it all, July 1997 saw the beginning of the so-called `Asian economic crisis' which put additional pressure on RAC's slender financial resources.

4. It will be necessary to consider RAC's financial position in greater detail at a later stage, but it is sufficient for present purposes to say that following the events of July 1997 the overriding concern of its management was to keep the company going in the hope that it would eventually prosper. Some creditors, such as suppliers of fuel and ground services, had to be paid promptly to enable it to continue in operation at all. Others could more easily be kept waiting. Throughout the period with which this case is concerned the two main creditors in terms of recurring liabilities were the lessors of the aircraft, MAS and Protea....

See the full content of this document