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Hajj gone wrong; How a London Court awarded $22 million damages against Azman

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A London High Court earlier this month (5th of June) awarded damages worth $22 million against Azman air services limited over a breach of contract with Tripple Seven Limited.

Azman Air is one of the fastest growing privately owned Nigerian airline and was founded in 2010 by business mogul Abdulmunaf Yunusa Sarina. The airline company began its operations in 2014 with its first flight from Kano to Abuja and currently operates return flights domestically in the country.

The hearing on the case between the two parties took place at the London Court of Justice, business and property court of England and Wales.

Background of the story

Tripple Seven is the registered owners of two Boeing 777-200 ER aircraft (MSN 27251 and MSN 27252) and Oon 20th June 2016, they entered into a five-year lease agreement on the two aircraft to Azman Air services.

Azzman on its part intended to use the two aircraft to transport passengers from West Africa to the Kingdom of Saudi Arabia to for the Hajj and Umrah pilgrimages. In Nigeria, Hajj pilgrimages are thought to be very lucrative for local airlines.

Earlier on May 11, 2016, the National Hajj Commission of Nigeria NAHCON had confirmed that Azman was approved to participate in the airlift of pilgrims to and from Saudi Arabia for the 2016 Hajj.

Meanwhile, this was not the only approval which was required in order to participate in the 2016 Hajj airlift; the approval of the Saudi authorities was also required. NAHCON on the 15th June 2016, sent a letter to Azman informing it that the General Authority of Civil Aviation of Saudi Arabia GACA had excluded it from participation in the 2016 Hajj airlift due to its inability to meet Saudi economic, security and safety requirements.

Azman did not receive this letter until some hours after it had signed the lease agreements with Tripple Seven on 20th June 2016. The airline company, however, sought to persuade GACA to rescind its decision and to approve Azman to participate in the airlift for the 2016 pilgrimage, but these attempts were not successful.

Tripple Seven, however, tendered the two aircraft for delivery to Azman on 28th June 2016 and 4th July 2016 respectively. Azman, however, informed Tripple Seven that it was not in a position to take delivery of the two aircraft, because it was no longer able to participate in the 2016 Hajj airlift, which was the major reason or for Azman’s entry into the lease agreements.

Triple seven reportedly terminated the lease agreements in accordance with the provisions of the lease agreements because y reason of Azman’s failure to accept delivery of the aircraft and to pay the first installment of the rent due under the lease agreements.

Tripple Seven then approached a court seeking damages for breach of the lease agreement.

Azman’s Defence

The only substantive defence advanced by Azman to Tripple Seven’s claim was that the Claimants are not entitled to damages because the lease agreements were void at common law for common mistake.

The mistake in Azman’s view is that both parties had executed the lease agreements because they had expected an approval to airlift for Hajj. were expected an approval to participate in the Hajj airlift on the basis of the

The mistake being that it was believed or understood by both parties that Azman was expected to or would be approved to participate in the 2016 Hajj airlift, which was the or a major purpose of the lease agreements, but in fact at the time of the execution of the lease agreements, such approval had been withheld by GACA.

It also claimed that the lease agreements were signed on 20th June 2016 at 10.00 am (Dubai time) (7.00 am Nigeria time) whereas he was informed of GACA’s decision to exclude from the 2016 Hajj airlift by email at 11.17am (Nigeria time) (3.17 pm Dubai time), after the lease agreements were signed.

The court decision

In an interesting judgment, the court ruled that the shared mistaken assumptions were not sufficiently fundamental and did not render the lease agreements essentially and radically different from the parties’ original understanding, nor did they render the agreements impossible to perform.

The judge cited a number of factors in support of this conclusion, including:

  • The 2016 Hajj airlift represented a relatively short proportion of the overall term of the leases.
  • Azman would have still earned a substantial profit during the remainder of the term of the leases if it was successful in obtaining approvals for the subsequent Hajj airlifts.
  • The revenue for the 2016 Hajj airlift was important, but not sufficiently important so as to be fundamental to the performance of the agreements as a whole.
  • There was no evidence that Azman’s failure to obtain GACA’s approval for the 2016 Hajj airlift meant that such approval was likely to be denied in the remaining years of the lease agreements.

“For the reasons explained above, the lease agreements are not void for a common mistake and the Claimants are entitled to damages in the following sums: (1) US$16,246,020.00, (2) US$5,612,958.92, and (3) US$148,910.06. The total sum recoverable by the Claimants is US$22,007,888.98. In addition, the Claimants are entitled to interest on these sums calculated in accordance with clause 8.2 of the lease agreements.”

The court also noted that the fact that both parties were induced to enter into the contracts by their shared mistaken assumption was a necessary, but not sufficient condition to render those contracts void for common mistake.

On the facts, the court found that the parties had entered into the leases on the assumptions that:

  • The Nigerian regulatory authority had approved Azman’s participation in the 2016 Hajj airlift,
  • GACA might or might not provide its approval.
  • Azman expected to obtain GACA’s approval
  • GACA’s decision had not yet been made.

Meanwhile, at the time the leases were concluded, GACA had already decided not to allow Azman to participate in the 2016 Hajj airlift, although Azman did not discover this until later.

The court ruled that the third and fourth listed assumptions were therefore invalid at the time the contracts were made. The court accordingly found that there was a common mistake as to an existing state of affairs at the time of formation of the contracts.

The court considered the leading cases on the pre-requisites for a contract to be held void on the grounds of common mistake, and distilled the following six principles:

  • At the time the contract was made, the parties must have substantially shared an assumption as to the existence of a certain state of affairs.
  • That shared assumption must have been fundamental to the contract.
  • That shared assumption must have been wrong at the time the contract was made.
  • By reason of the assumption being wrong, the contract or its performance would be essentially and radically different from what the parties believed to be the case, or impossible to perform, having regard to the shared assumption. In other words, there must be a fundamental difference between the assumed and actual states of affairs.
  • The parties, or at least the party relying on the common mistake, would not have entered into the contract had the parties been aware that the shared assumption was wrong.
  • The contract must not have made provision in the event that the common assumption was mistaken.

The court held that the shared mistaken assumptions were not sufficiently fundamental and did not render the lease agreements essentially and radically different from the parties’ original understanding, nor did they render the agreements impossible to perform. The judge cited a number of factors in support of this conclusion, including:

  • The 2016 Hajj airlift represented a relatively short proportion of the overall term of the leases.
  • Azman would have still earned a substantial profit during the remainder of the term of the leases if it was successful in obtaining approvals for the subsequent Hajj airlifts.
  • The revenue for the 2016 Hajj airlift was important, but not sufficiently important so as to be fundamental to the performance of the agreements as a whole.
  • There was no evidence that Azman’s failure to obtain GACA’s approval for the 2016 Hajj airlift meant that such approval was likely to be denied in the remaining years of the lease agreements.

“For the reasons explained above, the lease agreements are not void for a common mistake and the Claimants are entitled to damages in the following sums: (1) US$16,246,020.00, (2) US$5,612,958.92, and (3) US$148,910.06. The total sum recoverable by the Claimants is US$22,007,888.98. In addition, the Claimants are entitled to interest on these sums calculated in accordance with clause 8.2 of the lease agreements.”

The court also noted that the fact that both parties were induced to enter into the contracts by their shared mistaken assumption was a necessary, but not sufficient condition to render those contracts void for common mistake.

Read the full court judgment here.




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