Wells Fargo Trust Company, National Association (as owner trustee) & Anor v VB Leaseco Pty Ltd (administrators appointed) & Ors [2022] HCA 8

Summary Take away

“Providing a creditor lessor with an opportunity to take possession of an aircraft object, wherever it is located, is sufficient for a debtor airline in insolvency to comply with the obligation to “give possession” under the Cape Town Convention. Such obligation to “give possession” does not require the debtor airline, in the circumstances, to go further and redeliver the aircraft objects to the creditor lessor at a specified location in accordance with the contractual terms of the relevant lease agreements”.

Introduction

In March 2022, the High Court of Australia, the highest court in Australia, gave its judgement with respect to Virgin Australia’s administrators’ obligation to “give possession” of an aircraft object, subject to a registered international interest, to a creditor of Virgin Australia under Article XI (2) of the Aircraft Protocol to the Convention on International Interests in Mobile Equipment (the Cape Town Convention).

The Court held that the obligation of a debtor/insolvency practitioner under Article XI (2) would be satisfied when the creditor was provided the opportunity to take control of the aircraft object at its current location and the debtor/insolvency practitioner will not be obliged to redeliver an aircraft object to the redelivery location specified in the contractual agreement between the parties.

Background

VB Leaseco Pty Ltd., a company under the Virgin Australia group, leased aircraft engines from Wells Fargo Trust Company, National Association (in its capacity as owner trustee, under various lease agreements). The beneficial owner of the aircraft engines was Willis Lease Finance Corporation.

Each lease agreement between VB Leaseco and Wells Fargo set out the rights of Wells Fargo upon the occurrence of an event of default, including the right to require VB Leaseco to redeliver the aircraft engines to a location in Florida specified by Wells Fargo. Such redelivery conditions and procedures were the same as those required upon the expiration or termination of the Lease Agreements.

Following the appointment of administrators of VB Leaseco, Willis Lease made a demand for redelivery of the Aircraft Engines to a specified location in Florida at the expense of VB Leaseco. The administrators rejected this request stating that Article XI (2) of the Aircraft Protocol allowed them to accord Willis Lease with the opportunity to take possession of the Aircraft Engines wherever they were and not for them to deliver the same.

Conclusion

This is an important decision which has clarified the extent of an insolvency practitioner’s obligations with respect to redelivery of aircraft objects under the Cape Town Convention and Aircraft Protocol. This case is important to financiers and lessors of aircraft property and insolvency administrators globally.

It is not only relevant to airlines, lessors and other aircraft finance and leasing industry participants operating in Australia but will be of interest and provides judicial guidance to all industry participants located or operating in Cape Town Convention Contracting States.