Neutral Citation Number: [2009] EWHC 583 (Ch)
Case No: HC08C03499
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 25/03/2009

Before :

MR JUSTICE PETER SMITH
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Between :

	JSD Corporation PTE Ltd	Claimant	
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	(1) Al Waha Capital PJSC
(2) Second Waha Lease Ltd	
Defendants	

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Mr S Adair (instructed by Radcliffes Le Brasseur) for the Claimant
Mr B Shah (instructed by Trowers & Hamlins) for the Defendants

Hearing dates: 5th March 2009
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Judgment

Peter Smith J : 
INTRODUCTION

1.	This judgment arises out of a hearing before me to consider 3 applications:-
1)	The Claimant’s application for summary judgment by notice dated 18th February 2009.
2)	The adjourned return date on the freezing injunction granted by Warren J on 16th December 2008 and continued (subject to minor variations) by a consent order made by Lewison J on 18th December 2008 (“the Freezing Injunction”).
3)	The Claimant’s application by notice dated 2nd March 2009 to extend the Freezing Injunction to cover the Defendant’s shareholding in Second Waha Lease Ltd (“Second Waha”) and to join Second Waha as a Defendant.
2.	The Freezing Injunction presently relates only to an Airbus 320-200 bearing the manufacturer’s serial number MSN-313 (“Aircraft 313”) which is located in an airfield in Southend in Essex.
3.	The necessity to join Second Waha (an Isle of Man incorporated company) arises from the fact that after the injunction proceedings were instituted it was revealed that Second Waha actually owned Aircraft 313.  The entirety of the shareholding in Second Waha is held by the Defendant (“Waha”).  It is incorporated in the United Arab Emirates (“UAE”).  The Claimant (“JSD”) is a company incorporated in Singapore.  
4.	This case has been extremely well argued by both sides and I find the arguments and cases presented of great clarity and assistance.
BACKGROUND
5.	JSD is seeking the return of $4,500,000 paid to Waha as deposits (so described in the documentation) in relation to the proposed purchase of a used Airbus 320-200 bearing the manufacturer’s serial number MSN-345 (“Aircraft 345”).  The sale did not proceed and JSD contends it received nothing at all for its money.  Waha is refusing to repay the monies and contends it is entitled to retain the monies in accordance with the terms of the agreement in writing set out in a letter of intent dated 6th December 2007 (“the December Letter”).  The dispute essentially is over the meaning and effect of that document.  A copy of it is annexed to this judgment.
6.	Although Waha opposed the continuation of the Freezing Injunction and the joinder of Second Waha it ultimately indicated it did not oppose a continuation of the Freezing Injunction if final judgment was not obtained.  Nor did it oppose the continuation of a varied Freezing Injunction in the event that JSD obtained judgment in some figure.  If the latter occurred the Freezing Injunction would be modified because post judgment a Freezing Injunction is an aid to execution and not an injunction against dissipation.  Ordinarily also the cross undertaking in damages would be discharged post judgment.
7.	Counsel for Waha also appeared for Second Waha and did not oppose the relief sought by JSD in respect of the continuation of the Freezing Injunction and the joinder of Second Waha and appropriate relief in respect of Waha’s shareholding in it.  The purpose of JSD’s application was as an aid to the primary injunctive relief, namely to restrain the disposal of or dealing with Aircraft 313 before it successfully enforced the proceedings or until trial (if that was appropriate) of the Action.
8.	Thus the only matter outstanding for consideration in the judgment at the end of the submissions was whether or not JSD is entitled to summary judgment in the Action.
THE ISSUES
9.	The claim arises out of the December Letter.  There are a number of background facts which led up to the creation of that document.  In or about August 2007 JSD and Waha (then called Oasis International Leasing Company PJSC) entered into negotiations for the sale and purchase of Aircrafts 313 and 345.  By a letter of intent dated 20th September 2007 (“the September Letter”) the parties recorded their intentions to sell and purchase the aircraft.  The September Letter contained both statements of intent and contractually binding obligations.  
10.	Pursuant to it JSD paid a payment of $1,000,000 to Waha.  It was described in the document as a deposit.  However on or about 18th October 2007 JSD decided not to proceed with the purchase and the sum of $1,000,000 became refundable according to the terms of the September Letter.  
11.	Prior to the repayment of that figure JSD expressed an interest in purchasing just Aircraft 345 under a new arrangement.  To this end the parties commenced negotiations and signed a second letter of intent dated 6th December 2007 (“the December Letter”).  
12.	As will be seen it too contained both:-
1)	Certain stated intentions, which JSD and Waha expressly agreed were not to be legally binding on them; and
2)	Contractual obligations contained in clauses 5, 11, 13 and 15 which JSD and Waha expressly agreed were to be legally binding upon them.
TERMS OF THE DECEMBER LETTER 
13.	The preamble to the letter recorded that upon its acceptance it recorded the understanding agreed between JSD and Waha in respect of the sale by Waha or its nominee of Aircraft 345 to JSD or its nominee.
14.	Clause 1 identified the Aircraft.  Clause 2 identified the purchase price ($17,650,000).  Clause 3 provided for the method of payment and provided for Waha to effect on a “best effort” basis assistance in sourcing finance to enable JSD to fund the acquisition.  It provided also that if such financing was not successfully obtained and provided JSD paid a further sum of $6,090,000 in addition to the deposits identified in paragraph 5 by the delivery date then Waha would allow JSD to pay the balance over 18 equal monthly instalments from the delivery date but subject to a charge of interest rate at LIBOR plus 5% per annum.
15.	The major relevant paragraph is paragraph 5 which is as follows:-
“5 DEPOSIT

This Clause 5 is legally binding.

Currently an amount of US$1,000,000 (United States Dollars one million) (the “First Deposit”) that is held by Seller’s legal counsel and escrow agent (Trowers & Hamlin) following earlier negotiations between Purchaser and Seller, shall become non-refundable upon signing of this Letter.  Purchaser shall give immediate instructions to the escrow agent for the amount to be paid to Seller’s account.

No later than 12 December 2007, Purchaser shall pay to the Seller a further deposit of US$1,000,000 (United States Dollars one million) (the “Second Deposit”).  The Second Deposit shall be held by the Seller on a refundable basis pending execution of the Sale and Purchase Agreement.  Thereafter, or in any case after 4 January 2008, it shall become non-refundable, except in the case of the total loss of the Aircraft or Seller default, which shall result in the refund of the Deposit.

No later than 21 December 2007, Purchaser shall pay to the Seller a further deposit of US$1,000,000 (United States Dollars one million) (the “Third Deposit”).  The Third Deposit shall be held by the Seller on a refundable basis pending execution of the Sale and Purchase Agreement.  Thereafter, or in any case after 21 January 2008, it shall become non-refundable, except in the case of the total loss of the Aircraft or Seller default, which shall result in the refund of the Deposit.

No later than 21 January 2008, Purchaser shall pay to the Seller a final deposit of US$1,500,000 (United States Dollars one million five hundred thousand) (the “Fourth Deposit”).  The Fourth Deposit shall be held by the Seller on a refundable basis pending execution of the Sale and Purchase Agreement.  Thereafter, or in any case after 15 February 2008, it shall become non-refundable, except in the case of the total loss of the Aircraft or Seller default, which shall result in the refund of the Deposit.

On execution of this Letter and receipt of the First Deposit by the Seller, Seller shall remove the Aircraft from the market and shall not offer it to any other party for sale or lease until the transaction is terminated after Seller giving notice to Purchaser of a default under the terms of this Letter or, after its signature, of the Sale and Purchase Agreement.”

16.	According to clause 5 the $1,000,000 being held by Waha as the sum repayable under the September Letter was appropriated upon signing of the December Letter to the seller.  The payment was said to be non-refundable under any circumstances.  
17.	Clause 5 continued by providing that JSD should make three further payments totalling £3,500,000,000 between 12th December 2007 and 21st January 2008.
18.	Provision is made in respect of each payment that after a specified date the money so paid (being described as a deposit) shall become non-refundable “except in the case of the total loss of the Aircraft or Seller default which shall result in the refund of the Deposit”.
19.	There is no explanation in the December Letter of the meaning and effect of the phrase “Seller default”.  The final relevant part of clause 5 provided that upon execution and receipt of the first deposit Waha was required to remove the aircraft from the market and not to offer it to any other party for sale or lease until the transaction was terminated after Waha giving notice to JSD of a default under the terms of the letter or after its signature of the Sale and Purchase Agreement.
20.	Clause 7 dealt with the sale and delivery date and required the parties to work to execute the transaction documents as soon as possible following receipt of the second deposit with Waha to tender the aircraft for inspection but with a proviso in clause 7 (e) that if Waha failed to deliver the aircraft on the Delivery Date or amended Delivery Date as per paragraphs 7 (c) and 7 (d) then Waha “shall refund all money paid whether deposits (referred to in paragraph 5 above) or otherwise in full to [JSD] within 5 working days”.  The Delivery Date was stated to be on or around 15th February 2008.
21.	Clause 8 dealt with delivery location and clause 9 dealt with conditions precedent.  Clause 10 dealt with delivery condition.  Clause 11 (legally binding) provided that each side would pay their own costs.  Clause 12 dealt with documentation but had a clause “[Waha] and [JSD] each agree to negotiate in good faith towards the prompt execution of such documentation.  The documentation shall be governed by the laws of England”.
22.	Clause 13 provided a mutual confidentiality agreement.  
23.	Clause 14 stipulated when the December Letter became effective.
24.	Clause 15 provided “the terms of this Letter do not and are not intended to create binding legal obligations on the parties hereto with the exception of this clause and clauses 5, 11 and 13 which clauses shall be governed by English law and are subject to the jurisdiction of the English Courts”.
25.	This clause explains why a Singapore company is suing in this country in respect of the claim it has against a UAE company.
26.	JSD in its evidence (and this is not challenged) set out legal advice it has had about suing in the UAE.  The effect of the advice is summarised in the first affidavit of Susanna Charlotte Heley dated 16th  December 2008 (paragraph 15) to the effect that UAE courts have jurisdiction to hear any claim against any company registered or resident in the UAE.  However as a matter of policy UAE courts do not have regard to choice of law and/or jurisdiction clauses and will deal with a claim against the UAE company even if the parties agree the Courts of another state have exclusive jurisdiction.  Finally the UAE courts will not enforce a foreign judgment in cases where under their own civil procedure they have jurisdiction.
27.	It follows that even though English law and English jurisdiction were chosen by the parties a judgment obtained in this jurisdiction will not be enforced by the UAE courts.  That was the fundamental basis for seeking the Freezing Injunction in respect of Aircraft 313.  JSD contended that any judgment would be valueless unless it could be enforced against assets outside the UAE.  The injunction was necessary, of course, because there would be nothing absent the injunction to prevent Waha or Second Waha removing the aircraft out of the jurisdiction.
OPERATION OF THE DECEMBER LETTER
28.	JSD made all the payments required of it under the December Letter.  
29.	Negotiations ensued about the form of the proposed Sale and Purchase Agreement.  Those negotiations went beyond the Delivery Date.  
30.	By March 2008 Waha had become restive.  Accordingly David Edwards Waha’s then Senior Lease Director sent an email on 4th March 2008 to JSD.  In that email he complained that it was 2 weeks since the last draft of the SPA was sent and that Waha had not received any response.  It said that Waha had been extremely patient and were concerned that JSD was not able to close the transaction within an acceptably reasonable timeframe.   The purpose of the email was stated to give notice that Waha would continue to work in good faith to achieve a signing of the SPA by close of business London time 7/03/08, failing which they would by notice terminate the transaction with immediate effect.  On 10th March 2008 Mr Edwards sent a further email purporting to terminate the December Letter agreement.  That email attracted a reply from JSD expressing exasperation with Mr Edwards and asking for a refund of the full deposit plus £1,760,000 compensation with immediate effect.  Mr Edwards replied on 12th March 2008 declining to make the repayments and referring to clause 5 which stated that the four deposits totalling $4,500,000 were non-refundable except in case of loss of aircraft or seller default.
31.	It will be seen that the December Letter, apart from termination by Waha on account of default by JSD, provides for no other method of termination.  
32.	It is in effect a lock in agreement whereby the parties have locked themselves in to an agreement of exclusivity to attempt to negotiate a sale of Aircraft 345.  In my view it has contractual effect as regards clauses expressly made  legally binding.  Under its terms JSD has to make payments and observe confidentiality.  Waha for its part has to observe confidentiality and more importantly not advertise the aircraft for sale and not accept an offer.  
33.	As there is no provision for termination apart from default, the duration of the letter of intent in my opinion is for a reasonable time whereupon either party if a reasonable time has elapsed can terminate the same on reasonable notice.  
34.	I am not in a position at the Part 24 stage to determine the effect of the exchange of emails referred to above.  In my judgment absent a breach by JSD Waha had no right to terminate the December Letter unless a reasonable time had already elapsed and it gave reasonable notice terminating by the agreement.   The principles as to termination of an agreement with no duration are summarised in Chitty “Contracts” paragraph 13-027 and in particular Staffordshire AHA v South Staffordshire Waterworks & Co [1978] 1 WLR 1387.    
35.	Both parties accept that for the purpose of the present application it is not possible to determine whether the December Letter arrangement was validly terminated by Waha pursuant to those documents.
36.	It is possible however to determine that the justification for termination set out in Waha’s Defence is not sustainable.  
37.	In paragraph 18 of its Defence Waha asserted that it was an implied term under the December Letter that JSD and it would co-operate and negotiate in good faith to finalise the documentation for the SPA of Aircraft 345.
38.	There is no such duty known to English law see Walford v Miles [1992] 2 AC 128 H.L.  That is not to say that lock in or exclusivity agreements cannot be negotiated successfully post the Walford case.  The cases are summarised in Megarry & Wade “Law of Real Property” (7th Edition) paragraph 15-01.  It has been said a breach of a lock out agreement does not sound in substantial damages but is rather limited to wasted costs see Moroney v Isofam Investments SA [1997] EGCS 178.  However in Dandara Holdings Ltd v Co-operative Retail Services Ltd [2004] EWHC 1476 the Court considered a claim for damages for breach of an exclusivity/lock in agreement on the basis of a loss of a chance to negotiate the purchase of the property the subject matter of the agreement.  On the facts the Court held that there was no breach.  
39.	Waha served a counterclaim for breach of this supposed implied term.  
40.	Such a claim is not sustainable not only on the basis of the Walford case but also on the terms of the December Letter itself.  Clause 12 provided for the parties to agree to negotiate in good faith towards the proper execution of documentation.  That clause is expressly stated to be non binding in any event. 
41.	Faced with the legal and factual evidence Mr Shah who appears for Waha did not oppose a striking out of paragraph 18 of the Defence and the consequential Counterclaim.  
42.	That means that Waha has no basis for asserting that JSD is in breach of the December Letter.  
43.	As I said above JSD accepts that it is impossible at Part 24 stage to determine whether or not the purported termination by Waha as set out above was either justified or a repudiatory breach of the December Letter which was accepted by JSD.  
GROUNDS FOR CLAIM
44.	JSD claims to be entitled to the return of the monies for 3 broad reasons.  First it submits Waha has committed a “seller default” as defined in clause 5 so that it is disentitled from retaining the payments other than the first one which had no such provision.  Second it contends that although the payments are described as deposits they are in truth penalties.  It submits they are penalties because they cannot sensibly be described as a genuine pre-estimate of the loss that Waha might sustain if JSD broke the terms of the December Letter.  
45.	Third it contends that the payments were made in advance of negotiating the sale agreement contemplated by the December Letter and that there is therefore no consideration for the payments as they are payments made when there is no binding agreement and no consideration.
46.	Reliance was made on the well known decision of Chillingworth v Esche [1924] 1 Ch 97.  I can deal with that point quite shortly.  In my judgment consideration was provided for the payments.  It was the exchange of mutual obligations declared to be legally binding under the December Letter.  Thus JSD in exchange for making the payments received obligations by Waha as to confidentiality and more importantly to take the aircraft off the market whilst the agreement was running.  JSD for its part provided an obligation to make the payments and the confidentiality agreement.  There is thus a valid contract.  It is not in my judgment a case where the payments are made on a subject to contract basis in respect of a future negotiated agreement.  It is therefore more akin to the decision of Branca v Cobarro [1947] KB 854 which provided that the agreement drawn up was “this is a provisional agreement until a fully legalised agreement drawn up by a solicitor and embodying all the conditions herewith stated is signed”.  The Court held that constituted a binding agreement.  It seems to me that the binding parts of the December Letter are precisely the same as it expressly sets out.  I therefore reject JSD’s submission that the payments were made without consideration.  
BREACH BY WAHA
47.	JSD contends Waha committed 3 breaches of the agreement as follows:-
1)	There was alleged to be a breach of clause 5 because Aircraft 345 was advertised for sale on the www.speednews.com website.  This was first advertised on or about 1st May 2007.  Waha admits that it was advertised and that it “inadvertently forgot to remove the advert”.  It avers that it did not market Aircraft 345 or offer to sell or lease to anyone during the period.  It also avers that no offers were received by it from speednews.  It should also be noted that this advertisement was not discovered by JSD until after the dispute had arisen.  Thus whilst Aircraft 345 was advertised during the entirety of the period that the December Letter was in operation neither party noticed it and it had no impact whatsoever. 
2)	The second breach relied upon was that JSD contended that it was an implied term of the December Letter that if Waha failed, refused or was unable to sell the aircraft the deposits would be repayable in full.  
3)	The third breach is the purported termination by the letter dated 10th March 2008 which JSD contended was not a valid termination but a repudiatory breach.
PRINCIPLES APPLICABLE TO PART 24 APPLICATIONS
48.	The Court can give summary judgments against a Claimant or Defendant on the whole of a claim or on a particular issue if it considers that either the Claimant or the Defendant as the case may be has no prospect of succeeding or  successfully defending the case or there is no other compelling reason why the case or issue should be disposed of at a trial.  
49.	The expression “no real prospect of succeeding/successfully defending” has been the subject matter of a number of judicial pronouncements summarised in the Civil Procedure 2008, Volume 1 at paragraph 24.2.3.  The hearing of a Part 24 Application is not a trial; the burden of proof is not a balance of probabilities but “it is the absence of reality”; further if the issue is a question of law which can be decided shortly the Court should decide that point if it has before it all the evidence necessary for proper determination and is satisfied the parties have had an adequate opportunity to address the point in argument.  
50.	This is particularly significant in my view with the question as to whether or not the failure to advertise was a seller default for the purpose of clause 5.  I will consider and apply those principles in coming to the conclusions necessary in respect of the varied allegations raised by the Claimant and the Defence of the Defendants.  In so doing I bear in mind the cautionary observations of Mummery LJ in the Bolton Pharmaceutical Company 100 Ltd v Doncaster Pharmaceuticals Group Ltd [2006] EWCA Civ 661 at paragraphs 4-18 (rubbishy Defences and cocky Claimants).
BREACH 2
51.	With an agility which makes oral argument so challenging both to the advocates and the Judge, Mr Adair, who appears for JSD, primarily based his arguments for this on the evidence of Mr Edwards the Defendants’ Senior Lease Manager.  In paragraph 22 of his affidavit dated 27th February 2009  Mr Edwards challenged Ms Heley’s affidavit in respect of the failure to remove Aircraft 345 from the website.  He said that was not a breach of the December Letter on the following basis:-
“However, the concept of seller default in the December Letter of Intent relates to the failure of the seller to deliver the aircraft to a purchaser in accordance with the delivery conditions.  This is reflected in the September Letter of Intent which states:
The Deposit shall…. Become non-refundable except in the case of the total loss of the Aircraft or Seller default due to failure to present the Aircraft in the Delivery Condition which shall result in the refund of the Deposit.
I believe that Mr Balasingam understood this to be the case.  In addition, in an e-mail dated 3 December 2007 (p.25), Mr Balasingam asked what would happen to the deposit in the event that the aircraft failed technical acceptance and he were to reject the aircraft.  Mr dahmen confirmed that the failure to deliver the aircraft in accordance with clause 5 of the December Letter of Intent was a seller default which entitled Mr Balasingam to the return of its deposit (p.26).  I therefore believe that Mr Balasingam understood that the default for which he would be entitiled to the return of his deposit would be if Al Waha failed to deliver Aircraft 345 in the correct condition.”
52.	Mr Adair initially objected to Mr Shah making reference to the exchange of emails referred to by Mr Edwards but, with another agile act, withdrew his opposition because the emails supported him in a contention that the contractual terms of the December Letter carried by implication a suggestion that if at the end of that agreement no aircraft was delivered the deposit monies so called would be retained.  
53.	In its Defence Waha denied there was any such implied term.
54.	Mr Edwards (who took no role in the negotiations and execution of the December Letter) in my view plainly suggested that the non delivery of the aircraft would be seller default under its terms.  I cannot believe he intended to say that.  It would non suit Waha.  It would also operate against its Defence.  
55.	Nevertheless its wording is plain and in my view it constitutes an admission on the part of Waha that non delivery is an occasion of seller default requiring the return of a deposit monies (save the first $1,000,000).  
56.	Mr Shah applied to withdraw that concession.
57.	Prior to the implementation of the CPR it was accepted that a party needed permission of the Court to withdraw an admission and whilst a party may withdraw a submission it might be estopped from doing so or it might be prevented from doing so if the other party is prejudiced and that prejudice is greater than that suffered by the party seeking to withdraw it see H Clarke (Doncaster) v Wilkinson [1965] Ch 694, 703 and Gale v Superdrug Stores Plc [1996] 1 WLR 1089, 1091, 1097 and 1099EE.   The CPR now makes express provision addressing an attempt to withdraw an admission in CPR 14.1 (5) which states the permission of the Court is required to amend or withdraw an admission.  Whilst there is an elaborate procedure for withdrawal of admissions made before the commencement of the proceedings where the admission is made after the commencement of the proceedings the only point noted is that the Court might attach conditions.  The principles as to permission to withdraw admissions are summarised in paragraph 14.1.8.
58.	I conclude that it would be right to permit Waha to withdraw admissions contained in Mr Edward’s affidavit.  The reasons are as follows.  First, not to do so would cause prejudice and injustice to Waha.  If the admission is allowed to stand it means that Waha would be found liable on the basis of a provision which in my judgment does not actually exist in the agreement.  I should say that Mr Edwards is not qualified either factually or legally to offer an opinion as to what the December Letter means.  First, factually he had no role in the negotiations.  Second, as a matter of law even if he had his opinion as to what it meant it is not admissible.  Third, the documents he relied upon are antecedent negotiation documents.  In fact a later email shows that the relevant repayment provisions found their way into clause 7 (e) at the behest of JSD and thus became non binding.  Given that it is impossible in my judgment (like the good faith allegation) to imply in the contractually binding part of the December Letter a clause that is the same as one in the non binding part.  In any event as a matter of law the evidence of antecedent negotiations is not admissible to construe a document.  
59.	By way of contrast in my view JSD would suffer no prejudice other than the irrelevant prejudice of losing the opportunity to obtain a judgment which it does not merit.  There may be a question as to costs as a condition of the withdrawal of the admission.
BREACH 3
60.	The third breach relied upon by JSD is an allegation that by its conduct in March 2008 as set out above Waha committed a repudiatory breach of the December Letter.  JSD acknowledges I cannot determine that issue now.  
61.	I therefore conclude that the only breach established by JSD is the continued advertisement of the aircraft in speednews.  
BREACH 1
62.	The arguments are straightforward.  JSD submited that Waha should be held to the strict wording of clause 5.  The advertisement was a clear seller default and it did not matter whether the breach was trivial or not known by JSD.  The clause did not seek to distinguish between categories of seller default.  It could (for example) it was argued have distinguished between a breach which was sufficiently serious to amount to a repudiatory breach, which if accepted would discharge the contract, from a breach which would be non repudiatory which would only sound in damages.  Further it was argued that if the strict wording of seller default was not applied that way it created a potential injustice.  The wording of the terms of the agreement are clear and it cannot be right that Waha should be entitled when it committed a breach, however trivial, to retain the deposit monies (save the first).  
63.	Waha argues however that one must look at the consequences of the breach.  If for example it is submitted the advertisement was noted the day after the December Letter and immediately removed it could not be contended that was a breach entitling JSD to the return of the deposit.  
64.	This is not an issue which needs any further elaboration at a trial.  There is no more evidence to be led, no further submissions need be made; it is simply a question as to whether or not the un-noticed and inadvertent advertisement of Aircraft 345 constituted a seller default for the purposes of clause 5.
65.	I have come to the conclusion that it was.  My reasons are fourfold.  First, the wording of the contract does not elucidate as to what seller default is.  Nevertheless it is in my view to be equated with the description identified in Stroud “Judicial Dictionary of Words and Phrases” page 657 “in a contractual context it embraces every failure by the Defendant to perform his contract unless prevented by superior forces over which he has no control…..”  Second, both parties are commercial organisations and entered into the December Letter with the benefit of legal advice.  If it was contemplated that some but not all instances of the seller default would not apply, they could have made the position clear.  I see no reason in the context of a freely negotiated commercial contract, negotiated at arms length between two apparently sophisticated and wealthy organisations, that the wording should not be given its clear effect.  Third, I have to bear in mind the overall position under the December Letter.  The payments required to be made by JSD are substantial.  If they are not to be regarded as penalties (see below), the termination of the December Letter (otherwise than by breach by seller default) would mean that Waha would obtain a large amount of money as a price for simply entering into the December Letter and keeping the aircraft off the market for the duration of that agreement.  That makes it a very expensive lock in agreement in my view.  Given the expensive nature of that agreement it is right in my view to give strict effect to the provisions so that if there was a seller default, however small and however un-noticed, it means precisely what it said.  Finally, the provision that was broken was a very important one from JSD’s point of view.  It locked Waha into the agreement and it would make a nonsense of the importance of that clause if Waha broke it but was nevertheless not in seller default for the purpose of clause 5.  
66.	For all of those reasons I therefore conclude that Waha was in seller default for all the payments (save the first one) and is not entitled to retain them.
PENALTY
67.	I have already determined that the payments were not made without consideration.  They were made as part of the contractual obligations set out in the December Letter.  Once again this seems to me to be perfectly logical and in the context of this agreement, negotiated as I have set out above, I can see no reason why the parties should not be held to the clear wording of the effect of the document.  The parties clearly (at least in this aspect) set out what clauses were intended to be binding and those that were not.  The payments were made under clause 5 which was intended to be legally binding and that is the price for the lock in.
68.	JSD’s argument is that, although the payments are characterised as deposits for them to be legally retainable, they must be regarded as a penalty unless the provision can be justified as being a payment of liquidated damages based on a genuine pre-estimate of the loss which an innocent party will incur by reason of the breach.
69.	JSD contends there is only one exception to the general rule namely agreements for sale of land.  There a payment of a deposit does not fall within the general rule and can be validly forfeited even though the amount of the deposit bear no reference to the anticipated loss to the vendor flowing from the breach of contract.  This flows it is said from the decision of Howe v Smith [1884] 27 Ch D 89 C. A. and Workers Trust Bank Ltd v Dojap Ltd [1993] AC 573 P.C.
70.	Deposits as appear from those cases are paid to secure performance.  It is well established that if a purchaser of land defaults (subject to the power to relieve in the case of land under section 49 (2) Law of Property Act 1925) a vendor is entitled to retain and forfeit the deposit.  Conversely a vendor is generally not entitled to retain and forfeit the deposit when the contract goes off because of his default.  
71.	There are 2 important aspects of the December Letter which should be appreciated.  First, if the deposits are to secure performance then they are only securing performance under the December Letter.  To say that the amount so secured is disproportionate with the obligations it is intended to secure is a serious understatement.  Second, according to its wording under clause 5 the “deposits” become retainable by Waha even if there is no default on the part of JSD.   If the December Letter is validly terminated after the expiration of a reasonable time but no aircraft is purchased there would be no acquisition of the aircraft which the deposit could be applied to.  Thus JSD pays $4,500,000 for a lock in agreement.  That is precisely what clause 5 says.  It is not suggested that JSD did not know and understand what the document said.  Indeed it is significant on this aspect that the September Agreement provided for a refund of the lesser deposit paid.  Merely because JSD however signs a document which provides for a deposit to be non-refundable does not in my view disentitle it from arguing that it is nevertheless a penalty.  Otherwise nobody who agreed a provision which was penal could subsequently challenge it.  
72.	Equally, in appropriate circumstances the agreement to pay a figure which is forfeited on default does not bar a person from seeking relief against forfeiture.  Section 49 (2) LPA 1925 does not of course apply nor does the inherent power of the Courts to grant relief apply because there is no transfer or creation of proprietary or possessory rights see Sport International Bussumb v Inter footwear Ltd [1984] 1 WLR 776 H.L. and Chitty paragraph 148.  
73.	It is clear that the Workers Trust case gave recognition to the fact that exceptionally in the case of contracts for the sale of land a 10% deposit cannot be challenged as a penalty.  It can also operate on that basis in decisions which appear to be harsh see Union Eagle Ltd v Golden Achievement Ltd [1997] 2WLR 341 PC.  It was held applying Workers Trust that a 10% deposit was not a penalty and could be retained by a vendor who rescinded when the purchase price arrived 10 minutes late time being of the essence under the contract.  
74.	Nevertheless if the amount of the deposit exceeds 10% in the case of land the Privy Council suggested that it would only be capable of being forfeited if it was reasonable i.e. it was not a penalty.  If it is a penalty then the whole of the deposit is repayable and not just the amount required to leave a reasonable 10% figure.
ARE THE PAYMENTS DEPOSITS?
75.	The December document said they were.  If they were deposits they were deposits under the legally binding obligations of the December Letter.  If they are not such payments there is no consideration for them and they are recoverable in any event see Chillingworth above.  
76.	The other possible argument is that the payments are not deposit payments at all to secure the modest obligations under the December Letter but payments towards the aircraft in which case they will be recoverable because there is no binding contract for the sale of the aircraft and there is therefore no consideration for the payments.  Alternatively they are payments in exchange for the binding obligations under the lock in agreement.  If that is correct I would only observe that JSD is paying a very large sum indeed to secure the benefit of the lock in.  
77.	If they are payments to secure that contract then it would be anomalous if the contract having terminated without any default on the part of JSD it could not recover the payment.  I say that because it is well established, for example, that if part payments under a contract are made and the contract is terminated on account of buyer’s default, the buyer may nevertheless recover any pre-payment or instalments paid in part payment of the price subject to a cross claim by the seller for damages for breach of contract see Chitty 26-154.
78.	This tangled web of argument and counter argument arises out of the fact that the December Letter addresses the situation prospectively on the naive assumption that the parties will proceed to a binding SPA.  It does not address the circumstances that arise if it does not, save in the case of seller default or total loss of the aircraft.  On its literal construction Waha is entitled to the first $1,000,000 as soon as it is paid whether or not it commits a subsequent breach of the agreement and the balance after a certain period of time even if no contract for an ensuing aircraft sale occurs.
79.	I cannot believe that the parties necessarily intended that.  If my disbelief is correct then one would give effect to the wording of the December Letter and the payments are described as deposits.  If they are deposits to secure performance then if there is no breach and the December Letter terminates without breach JSD should be entitled to a return of the deposits.  If it committed a breach then the deposits would be forfeit (provided they were not penalties).  Against that it can be argued that the wording of clause 5 should simply be given effect to i.e. that the payments are non-refundable unless there has been one of the occurrences identified in clause 5.
80.	I have come to the conclusion that it is impossible to resolve this conundrum at the Part 24 stage.  It seems to me there must be more evidence led about the surrounding circumstances of the December Letter before any construction can be arrived at.  That evidence also should extend to customary practice in the airline industry to address the question as to whether or not the payments, if they are deposits,  are reasonable in all the circumstances.
81.	I therefore conclude that JSD’s application for summary judgment on the basis that the payments are a penalty fails.
82.	This does not have any impact except in respect of the first payment because I have determined that there has been seller default entitling JSD to recover the balancing payments.  I will therefore grant judgment for return of those sums but determine that there is an issue to be tried as to the repayment of the first $1,000,000.  
83.	The injunction should continue as amended on a post judgment basis.

JSD Corporation Pte Ltd
Attn. Mr. Kumar Balasingam
491 River Valley Road
#14-02 Valley Point Tower
Singapore 248373

Dear Sir

This letter, upon its acceptance, will record the understanding we have reached between us in respect of the sale by Oasis International Leasing Company pjsc or its nominee (the “Seller”) to JSD Corporation Pte Ltd or its nominee (the “Purchaser”) of one used 1992 Airbus A320-200 aircraft as described below, subject to the principal terms and conditions as set forth below.

1.	AIRCRAFT

One Airbus A320-200 bearing MSN 345 as further described in Exhibit I hereto attached and equipped with two CFM56-5A3 engines with serial numbers 731675 and 731648 respectively (the “Aircraft”), together with maintenance and operating records, data and related documents pertaining the Aircraft (the “Records”).  The Aircraft is currently on lease (the “Lease”) to Onur air Tasimacilik A.S. (the “Current Lessee”).

2.	PURCHASE PRICE

The Purchaser shall pay to the Seller on the Delivery Date a purchase price of US$17,650,000 (United States Dollars Seventeen million six hundred fifty thousand).  The Purchaser’s obligations must be guaranteed by a guarantor acceptable to the Seller.

3.	PAYMENTS

All payments and sums to be paid between Seller and Purchaser shall be made without, and free and clear from, all taxes and duties whatsoever including without limitation withholding taxes, sales taxes and VAT.  Payments to Seller shall be made to a bank account to be advised by Seller.

Each party shall bear its own taxes, sale taxes, VAT, stamp or documentary taxes or taxes on income, profits or gains whatsoever and howsoever arising.  Each party will be responsible for researching its own tax position in relation to the transaction and, in the event that either party identifies a potential tax liability, the other party shall co-operate in good faith and to such extent as may reasonably be expected with a view to mitigating or avoiding the incidence of such tax liability.

On the Delivery Date, PurchaserPurchaser shall pay to Seller the balance of the Purchase Price, less any Deposits paid already in accordance with paragraph 5 below.

As requested, Seller shall on “best effort” basis assist in sourcing financing for the Purchaser to fund the acquisition of the Aircraft.  Should such financing not be successfully obtained, and provided that a total amount of at least US$6,090,000 (United States Dollars six million ninety thousand) in addition to the Deposits paid as per paragraph 5 below shall have been paid on the Delivery Date, then the Seller shall allow the Purchaser to pay the balance over 18 equal monthly instalments from the Delivery Date.  The Seller shall charge the Purchaser an interest rate of LIBOR + 5.0% per annum in consideration of the financing, to be paid monthly.  Purchaser may prepay any such financed amount without penalty (compensating for break-funding cost only).

4.	ESCROW

Left blank intentionally.

5.	DEPOSIT

This Clause 5 is legally binding.

Currently an amount of US$1,000,000 (United States Dollars one million) (the “First Deposit”) that is held by Seller’s legal counsel and escrow agent (Trowers & Hamlin) following earlier negotiations between Purchaser and Seller, shall become non-refundable upon signing of this Letter.  Purchaser shall give immediate instructions to the escrow agent for the amount to be paid to Seller’s account.

No later than 12 December 2007, Purchaser shall pay to the Seller a further deposit of US$1,000,000 (United States Dollars one million) (the “Second Deposit”).  The Second Deposit shall be held by the Seller on a refundable basis pending execution of the Sale and Purchase Agreement.  Thereafter, or in any case after 4 January 2008, it shall become non-refundable, except in the case of the total loss of the Aircraft or Seller default, which shall result in the refund of the Deposit.

No later than 21 December 2007, Purchaser shall pay to the Seller a further deposit of US$1,000,000 (United States Dollars one million) (the “Third Deposit”).  The Third Deposit shall be held by the Seller on a refundable basis pending execution of the Sale and Purchase Agreement.  Thereafter, or in any case after 21 January 2008, it shall become non-refundable, except in the case of the total loss of the Aircraft or Seller default, which shall result in the refund of the Deposit.

No later than 21 January 2008, Purchaser shall pay to the Seller a final deposit of US$1,500,000 (United States Dollars one million five hundred thousand) (the “Fourth Deposit”).  The Fourth Deposit shall be held by the Seller on a refundable basis pending execution of the Sale and Purchase Agreement.  Thereafter, or in any case after 15 February 2008, it shall become non-refundable, except in the case of the total loss of the Aircraft or Seller default, which shall result in the refund of the Deposit.

On execution of this Letter and receipt of the First Deposit by the Seller, Seller shall remove the Aircraft from the market and shall not offer it to any other party for sale or lease until the transaction is terminated after Seller giving notice to Purchaser of a default under the terms of this Letter or, after its signature, of the Sale and Purchase Agreement.

6.	RESERVES

The Seller will keep any remaining maintenance reserves which have not been applied in paying for maintenance costs at the time of delivery to the Purchaser.

7.	SALE AND DELIVERY DATE

a)	Both parties will work to execute the transaction documents as soon as possible following receipt of the Second Deposit (the “Anticipated Sale Date”).  The date on which delivery is expected to occur (“Delivery Date”) on or around 15 February 2008, immediately upon completion of an Engine Shop Visit of engine with serial number 731648.

b)	The Seller shall tender the Aircraft and Records for inspection prior to delivery.  Such inspection shall be completed within ten business days and may include an acceptance flight of reasonable length, not exceeding a total duration of two block hours and a borescope inspection for Engine serial number 731675.

c)	On completion of the inspection if the Aircraft fails generally to accord with the Delivery conditions applicable to it and such failure affects the Aircraft’s airworthiness or safety, then the Purchaser may reject the Aircraft by delivering a rejection notice to Seller within 72 hours after completion of the inspection.  If the Purchaser does not deliver a rejection notice to Seller within this period of time, Purchaser will be deemed to accept the Aircraft, subject to fulfilment by the Seller of all applicable terms and conditions of the Sale and Purchase Agreement.

d)	If Seller corrects any deficiencies as listed in the Purchaser’s rejection letter within 15 banking days after the delivery of a rejection notice the Purchaser must accept the Aircraft failing which it will be deemed to have accepted the Aircraft.

e)	Should the Seller fail to deliver aircraft on Delivery Date or the amended Delivery Dates as per paragraphs 7c and 7d above then Seller shall refund all money paid whether as deposits (referred to in paragraph 5 above) or otherwise, in full to the Purchaser within 5 banking days.

f)	The details and timing of the pre delivery inspection process will be set out in the Sale and Purchase Agreement.

g)	Signature of the Acceptance Certificate shall confirm the Purchaser’s unconditional and final acceptance of the Aircraft and confirmation that the Aircraft to which it relates meets the Delivery Condition.

8.	DELIVERY LOCATION

The Delivery Location shall be Abu Dhabi (United Arab Emirates)

9.	CONDITIONS PRECEDENT

The obligation of the Purchaser and the Seller to complete the transaction contemplated by this Letter shall be subject to the satisfaction or waiver by the party for whose benefit inserted on or prior to the Delivery Date of the following conditions:

i.	signature by the Seller and the Purchaser of a legally binding Sale and Purchase Agreement for both Aircraft (which, upon signature, will replace this Letter);
ii.	Seller representation and warranty that it has good and marketable title, free and clear of all liens and encumbrances;
iii.	customary closing legal opinion from Purchaser’s counsel;
iv.	Seller agrees to allow Purchaser to carry out cabin reconfiguration and refurbish work at its own cost after signing this letter while the aircraft is, provided this is logistically possible and permitted by the relevant authorities and maintenance organization(s).
v.	no total loss occurring with respect to the Aircraft between the date hereof and the Sale Date;
vi.	timely payment by Purchaser of all the Deposits as per paragraph 5; and
vii.	approval of the terms and conditions of the transaction by the Boards of Directors of Seller, to be satisfied before the Sale and Purchaser Agreement is signed.

10.	DELIVERY CONDITION
a)	The Aircraft will be delivered a condition that is consistent with the return conditions contained in the Lease to the Current Lessee as detailed at Exhibit II of this Letter.
b)	left blank intentionally.
c)	For the sake of clarity, any amounts paid to Seller by Current Lessee in connection with the expiration of the Lease and return of the Aircraft shall be retained by the Seller.
d)	Subject to the Purchaser entering into such documentation as the manufacturer may require, the Purchaser may procure that the benefit of any remaining manufacturer warranties relating to the airframes or engines are assigned to the Purchaser.
11.	COSTS

The Seller and the Purchaser shall each bear its own legal and professional costs associated with documenting this transaction.  Registration costs shall be for the account of the Purchaser.

12.	DOCUMENTATION

It is the intent of the Seller and the Purchaser that documentation incorporating the terms of this Letter and other terms normal to such transactions as are contemplated by this Letter, will be executed on or before 4 January 2008.  The Seller and Purchaser each agree to negotiate in good faith towards the prompt execution of such documentation.  The documentation shall be governed by the laws of England.

13.	CONFIDENTIALITY

The terms and conditions set out in this Letter shall remain confidential between the parties and each party acknowledges that this Letter contains commercially sensitive information and agrees not to disclose same except to their respective Boards of Directors, advisers and employees or potential financiers of the Aircraft or as otherwise agreed between the parties or required by applicable law.  No press release may be made by either party without the other party’s consent to the release and its content.

14.	VALIDITY OF TERMS

This Letter of Intent is valid for acceptance on or before 9 December 2007.

15.	CONTRACT

The terms of this Letter do not and are not intended to create binding legal obligations upon the parties hereto with the exception of this Clause and Clauses 5, 11 and 13 which clauses shall be governed by English law and are subject to the jurisdiction of the English courts.

SIGNED FOR AND ON BEHALF OF	SIGNED FOR AND ON BEHALF OF	
JSD CORPORATION PTE LTD	OASIS INTERNATIONAL LEASING COMPANY PJSC