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Novus Aviation Ltd v Alubaf Arab International Bank BSC(c) [2016] EWHC 1575 (Comm) – a case involving issues of contractual certainty

Novus is a case applying a number of contractual principles, including the issues surrounding contractual certainty.

Novus arranges finance for the acquisition and leasing of commercial aircraft and earns a commission on these services. The Defendant bank, based in Bahrain, was sued for allegedly repudiating an agreement to provide funding to Novus to finance the acquisition of a Malaysian Airlines Airbus 330-300.

To remove the deal from the funding market, Novus required a commitment letter from Alubaf, which in due course was duly signed, but, for reasons connected with the treatment for accountancy purposes of special purpose companies which would need to be incorporated under the arrangement, Alubaf withdrew from the transaction and argued on a number of grounds that there was no binding agreement.

Alubaf relied upon a number of clauses in the commitment letter to support a claim that commitment letter was void for uncertainty, including:

  1. that Alubaf’s commitment was “conditional upon satisfactory review and completion of documentation for the purchase, lease and financing”;
  2. that time was of the essence and that all transaction documentation would be completed at least four weeks prior to the aircraft’s expected delivery date with each party acting timely in the execution of the documentation;

Applying the principles of Hillas & Co Ltd v Arcos Ltd (1932) 43 LJ Rep 359, the court observed that it should strive to construe the terms of the contract as having a practical meaning where the parties had intended the document to have contractual effect.

The Court concluded that, as a matter of construction, the question of the review and the documentation were conjunctive and not disjunctive because the court concluded that a general review without specifying the subject matter would not be “businesslike”.

As to the question of the satisfactory review of the documentation, there would be no difficulty in principle in deciding whether or not the documentation was to be considered “satisfactory” by Alubaf – this was merely a question of fact.

However, the right to reject the documentation was not unqualified and where a contractual discretion or decision was reserved to one party which materially affects the other party’s interests, that power needs to be applied in good faith for the purpose for which it was conferred, and must not be exercised arbitrarily, capriciously or unreasonably (in the sense of irrationally).

The clause requiring time to be of the essence did not detract from the exercise of that judgment – indeed it was complimentary, since inferentially it was the timely nature of the process which enabled the proper review.

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