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Vietjet Aviation Joint Stock Company v FW Aviation (Holdings) 1 Ltd
Factual and Procedural Background
This appeal concerns the purchase in 2018 and 2019 of four Airbus 321 passenger aircraft by the Appellant, a Vietnamese airline ("Appellant"). Two aircraft were "New Engine Option" (NEOs) and two were "Current Engine Option" (CEOs). The Respondent is a Jersey-registered company part of a UK-headquartered investment group specializing in distressed credit assets since 2021.
The aircraft were purchased under financing arrangements structured as Japanese Operating Lease with Call Option ("JOLCO"), funded 75% by syndicated loans from commercial banks and 25% by Japanese equity investors entitled to tax advantages. The aircraft were owned by special purpose vehicles ("SPVs") established under Japanese law, with the Japanese investors as beneficial owners and the lenders providing loan facilities secured by mortgages and security assignments.
The aircraft were leased to the Appellant via a lease and sub-lease structure involving Appellant’s subsidiaries. Non-payment of rent constituted an event of default, triggering rights including lease termination and termination payments. The lenders’ recourse was limited to security rights, including mortgages, security assignments of lease rights, and deregistration authorisations.
Following Appellant's failure to pay rent during Covid-related operational restrictions, the lenders served termination notices in October 2021, which the trial judge found valid. The lenders' rights and loan assignments were subsequently transferred to the Respondent and its subsidiaries, who exercised security rights to sell the aircraft. Appellant initially refused to redeliver the aircraft but later complied under a consent order. Subsequent litigation addressed liability, quantum of damages, and various contractual and tax treaty interpretation issues. The trial judge ruled largely in favor of the Respondent, granting permission to appeal on multiple grounds. This appeal concerns those orders and related legal questions.
Legal Issues Presented
- Whether the Termination Notices served by the Security Trustees validly terminated the leases and sub-leases under clause 19.1 of the leases.
- Whether the assignee entity (FWC) qualified as a "financial institution" and thus a permitted assignee and successor Security Trustee under the Loan Agreements.
- Whether FWC qualified as a permitted assignee under the double tax treaty requirement in the NEO Loan Agreements.
- Whether FWC was disentitled from treaty benefits under the anti-abuse provision (Article 11.7) of the double tax treaty.
- Whether the trial judge erred in attributing the conduct of certain Appellant executives in shareholder litigation to Appellant itself.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| The Argo Fund Ltd v Essar Steel Ltd [2006] EWCA Civ 241 | Definition and scope of "financial institution" in loan agreements; broad meaning including entities engaged in commercial finance. | The court adopted the broad meaning of "financial institution" as defined in Argo v Essar to determine that FWC qualified as a financial institution for the purposes of the Loan Agreements. |
| Sunport Shipping Ltd v Tryg Baltica International (UK) Ltd (The Kleovoulos of Rhodes) [2003] EWCA Civ 12 | Principle of construction: settled meanings of expressions in contracts should be applied consistently. | Supported the approach that the term "financial institution" in the Loan Agreements should be construed in line with established judicial meaning. |
| GE Financial Investments v Revenue and Customs Commissioners [2024] EWCA Civ 797 | Principles for interpreting double tax treaties in good faith, according to ordinary meaning, context, object and purpose, and international law. | Applied to interpret the double tax treaty provisions relevant to FWC’s status as an exempt resident under the treaty. |
| Royal Bank of Canada v HMRC [2023] EWCA Civ 695 | Interpretation of double tax treaties according to the Vienna Convention on the Law of Treaties. | Reaffirmed principles of treaty interpretation applied in assessing the double tax treaty issues. |
| Fothergill v Monarch Airlines Ltd [1981] AC 251 | International conventions should be interpreted broadly and not restricted by technical domestic rules. | Supported an international, broad construction of the treaty provisions. |
| Fowler v HMRC [2020] UKSC 22 | Use of OECD commentaries as persuasive aids in interpreting tax treaties. | Guided the court’s approach to interpreting the double tax treaty provisions. |
| Czech Republic v Diag Human SE [2025] EWCA Civ 588 | Combined operation interpretation of treaty terms considering context and object. | Applied to confirm the approach to treaty interpretation. |
| Lake v Lake [1955] P 336 | Appeals lie only against decisions or orders, not reasons or findings not challenged in result. | Applied to determine that an appeal cannot be brought against a reasoning aspect not challenging the decision itself. |
| Cie Noga d'Importation et d'Exportation SA v Australia and New Zealand Banking Group Ltd [2002] EWCA Civ 1142 | Distinction between appealable decisions and non-appealable reasoning; limits on appellate jurisdiction. | Applied to reject jurisdiction over ground 5 which challenged reasoning only. |
| In Re W (a Child) (Care Proceedings: Non-Party Appeal) [2016] EWCA Civ 1140 | Exceptional appellate jurisdiction where findings engage ECHR rights. | Distinguished and found inapplicable to the present case. |
| Nuclear Electric Plc v Bradley [1996] 1 WLR 529 | Tax law distinction between trading and investment income. | Applied in interpreting the double tax treaty’s carve-out for investment activities. |
| Simmons Properties Ltd (in liquidation) v Commissioners of Inland Revenue [1980] STC 350 | Assets cannot simultaneously be trading stock and permanent investment. | Supported the distinction between trading and investment activities relevant to treaty interpretation. |
Court's Reasoning and Analysis
The court conducted a detailed analysis of the contractual provisions, statutory law, and treaty interpretation principles to resolve the issues presented.
Regarding the validity of the Termination Notices (Ground 1), the court found that the Security Assignment (Lessor) expressly assigned to the Security Trustee the right to terminate leases upon non-payment of rent. Clause 3 of the Security Assignment granted these rights unconditionally and without qualification by an Enforcement Event. Clause 7 provided additional powers exercisable only after an Enforcement Event but did not limit the rights assigned by clause 3. The court rejected the argument that termination rights were conditional on a loan default or Enforcement Event, emphasizing the commercial rationale and the structure of co-extensive rights allowing the Security Trustee to act during the operational lease period. Consequently, the Termination Notices were validly given.
On whether FWC was a "financial institution" (Ground 2), the court applied the broad definition established in Argo v Essar, which includes any legally recognised entity carrying on commercial finance business. The court rejected narrower interpretations proposed by the Appellant, noting that the Loan Agreements adopted standard LMA wording, reflecting the broad meaning. FWC’s business of acquiring loans and realising their value fell squarely within this definition. Therefore, FWC qualified as a permitted assignee and successor Security Trustee.
Grounds 3 and 4 concerned the double tax treaty between the UK and Japan. The court interpreted the treaty according to established principles of international treaty interpretation, including the Vienna Convention and relevant case law. It found that FWC was an exempt resident under Article 22.5, carrying on a trading business rather than "making or managing investments" for its own account, which is excluded from treaty benefits unless banking, insurance or securities business. The court accepted that FWC’s activity of acquiring and enforcing loan security was trading activity, consistent with UK tax law distinctions between trading and investment income.
The court also rejected the Appellant’s argument that FWC was disentitled under the anti-abuse provision (Article 11.7) because there was no finding that FWC’s incorporation or loan assignment was for an abusive purpose. The court emphasized that taking advantage of treaty benefits is not prohibited unless contrary to the treaty’s object and purpose. Since the loans were accelerated and no interest payments were expected, the anti-abuse provision did not apply.
Ground 5 challenged the attribution of certain shareholder litigation conduct to the Appellant. The court held it lacked jurisdiction to entertain this appeal because the Appellant did not challenge the underlying decision, only a part of the reasoning. The appellate jurisdiction extends only to decisions or orders, not reasoning or findings that do not affect the outcome. The court distinguished a prior case where exceptional jurisdiction was exercised due to ECHR rights, which were not engaged here. Thus, ground 5 was dismissed for lack of jurisdiction.
Holding and Implications
The appeal is dismissed on all grounds.
The court upheld the trial judge’s findings that the Termination Notices validly terminated the leases, that FWC qualified as a permitted assignee and Security Trustee under the Loan Agreements, and that FWC met the double tax treaty requirements. The anti-abuse provision did not apply to disqualify FWC. The court declined to entertain the appeal against the attribution of conduct to the Appellant on jurisdictional grounds.
The direct effect is to confirm the Respondent’s entitlement to possession and monetary relief as determined below. No new precedent beyond the application of established principles was set by this decision.
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