In Helice Leasing S.A.S. v PT Garuda Indonesia (Persero) Tbk¹, the English Commercial Court recently decided that the claimant aircraft leasing company (Helice) must arbitrate its claim against airline PT Garuda Indonesia (Persero) Tbk (Garuda) for more than US$5,150,000 in unpaid lease rent under the rules of the London Court of International Arbitration (the LCIA) instead of being able to proceed by court action. The court upheld the parties’ arbitration agreement pursuant to the terms of the lease agreement despite conflicting references in the lease agreement which referenced the lessor having the option to “proceed by appropriate court action” following the occurrence of an Event of Default² and endorsed the “one-stop shop” principle set out by the House of Lords in Fiona Trust & Holding Corp v Privalov³ – the parties to a contract are likely to have intended any disputes arising out of that contract to be decided in the same forum.

Facts of case

The underlying proceedings concerned a claim for unpaid lease rent in respect of a Boeing 737-800 aircraft which had been brought by Helice against Garuda following Garuda’s consistent failure to make monthly rent payments when due between January and October 2020, resulting in a total outstanding amount of over US$5,150,000 plus interest.
Garuda responded to Helice’s claim by applying to the English High Court to:

1. set aside service of the claim form on the basis that it was not validly served on Garuda’s place of business in the UK at the time;
2. stay proceedings in favour of arbitration as it was brought in breach of the parties’ arbitration agreement pursuant to the lease agreement;
   and
3. stay proceedings on the basis that Indonesia is the most appropriate forum to hear the dispute.

This article will briefly consider points 1 and 3 before focusing on point 2 in more detail.

Service of the claim form

The claim form was served in mid-July 2020 on Garuda’s address in Hammersmith, London, which was Garuda’s place of business in the UK at that time according to information on the Companies House website. In its application to set aside service, Garuda stated that from 1 February 2020, its place of business in the UK has been an address in Hounslow but due to the COVID-19 pandemic it did not file the address change with Companies House until the beginning of July 2020, resulting in its updated address not appearing on the Companies House website before August 2020.

Deciding (i) that there could be no doubt that the contents of the claim form had been communicated to Garuda given it had acknowledged service of the claim form and (ii) that the risk of delay in an address change being published on the Companies House website should be borne by the company rather than the public as the public must be able to rely on the information published on the Companies House website as a matter of public record, the judge held that the claim form had been validly served.

Forum non conveniens

On the forum non conveniens application, the court concluded that Garuda had failed to discharge its burden of proof to show that Indonesia was clearly or distinctly the more appropriate forum, a high burden for Garuda to prove, dismissing factors such as the state of registration, habitual base and current location of the aircraft in Indonesia as irrelevant and instead pointing to the following:

1. Garuda has a place of business in the UK, whereas Helice does not have a place of business in Indonesia;
2. the lease agreement and other operative documents are in English and governed by English law;
3. both parties are able to communicate in English whereas no one representing Helice can speak Bahasa; and
4. the English courts are able to resolve disputes notwithstanding any further lockdowns given their ability to operate remotely whereas no evidence has been adduced as to the operation of the Indonesian courts during the pandemic.

Arbitration vs court proceedings

Finally, Garuda argued that the court proceedings should be stayed and the matter referred to arbitration on the basis of clause 15.2 of the lease agreement pursuant to which the parties had agreed that:

“any dispute arising out of or in connection with this Lease Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Rules of the London Court of International Arbitration.”

Helice resisted the application and referred to clause 13.2 of the lease agreement which provided that following the occurrence of an Event of Default:

“Lessor may at its option (and without prejudice to any of its other rights under this Lease Agreement or that may arise by operation of Applicable Law), at any time thereafter… proceed by appropriate court action or actions to enforce performance of this Lease Agreement or to recover damages for the breach of this Lease Agreement.”

Helice contended that this provision constituted a carve-out to the arbitration agreement and intended to provide the lessor with additional rights given that they were granted “without prejudice” and that the references to “court” and “action” were indicative of court litigation not arbitration.

Albeit accepting that clause 13.2 of the lease agreement was “not happily worded,”4 the judge dismissed Helice’s arguments and granted the stay of proceedings, finding that the parties objectively intended to refer any dispute to arbitration:

“[…] in clause 13.2, they were intending to confirm that in the case of an Event of Default, [Helice] would have all of the rights set out in that clause, which included proceeding to arbitration to enforce performance of the lease or to recover damages, and that would not prevent it from seeking the other items of relief listed in clause 13.2.”⁵

The judge also noted that if the parties had intended for clause 13.2 to constitute a carve-out to clause 15.2 in giving the lessor the right to, at its option, take certain disputes to court, one would have expected for clause 15.2 to have been made subject to clause 13.2, particularly where the carve-out was so extensive and would have applied to any Event of Default.

The court noted that to give the contract a “business common sense construction”6 the reference to “court action” in clause 13.2 must reasonably have been intended by the parties to mean action before the LCIA and stated that support for its interpretation could also be found in Garuda’s representation pursuant to the lease agreement that the lessee’s submission “to the non-exclusive jurisdiction of the courts as set out in section 15.2 [is] valid and binding” given that the court identified in clause 15.2 was the LCIA.

Further, the judge noted that Helice’s interpretation of clause 13.2 was “likely a recipe for confusion, cost and delay”7 were certain disputes relating to the lease agreement to be resolved by way of arbitration and others to be decided in court and also contrary to the “one-stop shop” construction of jurisdiction clauses established by the House of Lords in Fiona Trust & Holding Corp v Privalov.⁸

Lastly, the court considered the issue of whether there actually was a dispute capable of being referred to arbitration given that Garuda had never put forward any defence to the claim for unpaid lease rent and admitted in correspondence with Helice that monies were due and owing by it. Applying previous authorities, the judge concluded that Garuda’s failure to pay the outstanding amount was sufficient for the matter to constitute a dispute.

Conclusion

The decision is a good example of contract interpretation under English law and illustrates that the court’s paramount consideration will always be the objective intention of the parties, looking at both the language of a provision and also the commercial context in which it was drafted.

The case also upholds the “one-stop shop” principle set out by the House of Lords in Fiona Trust & Holding Corp v Privalov⁹ which provides that the construction of a jurisdiction clause should be based on the presumption that the parties are likely to have intended any dispute arising out of their contractual relationship to be decided in the same forum and illustrates the court’s inclination for promoting one-stop adjudication in order to avoid unnecessary delay, costs and procedural complexities.