The Commercial Court has held that an aviation contractor was not entitled to the value of aircraft engine parts that were being refurbished by a subcontractor because the subcontractor’s obligations ended when the sub-contract was terminated.

In Gamit Limited v Saudi Arabian Airlines Corporation and MTU Maintenance Hannover GMBH [2011] EWHC (Comm), the contractor, Gamit, entered into an agreement with the maintenance sub-contractor, MTU, to refurbish four jet engines owned by Saudi Arabian Airlines (Saudi) that were due to be installed on an aeroplane used by the King of Saudi Arabia. Gamit had already agreed with Saudi under the main contract that it would keep any engine parts that were replaced as part of the overhaul. Under the sub-contract, MTU agreed that parts removed during the overhaul “shall be listed and repaired/overhauled where applicable and as agreed between the Parties and returned to [Gamit’s] facility.”

Because of delays in sourcing new replacement parts, some original parts that would have been returned to Gamit were instead refurbished and reinstalled on the engines. Saudi failed to pay Gamit’s invoices during the course of the refurbishment, and consequently Gamit did not settle MTU’s demands for payment, which came in response to purchase orders from Gamit. MTU then terminated the sub-contract on the ground that non-payment was a repudiatory breach. Following its non-payment to Gamit, Saudi purported to terminate the main contract, apparently in order to substitute another contractor, Jet Aviation, from Switzerland. (Jet and MTU subsequently entered into a sub-contract almost identical to the one in dispute.) Gamit obtained summary judgment against Saudi for repudiatory breach of the main contract. It then brought a claim against MTU for the value of the engine parts that were reinstalled on the aircraft instead of being replaced with new parts and returned to Gamit. Gamit also claimed that it took title of the engine parts pursuant to the main contract but that these were converted by MTU.

Mr Justice David Steel held that purchase orders placed under the sub-contract merely triggered the carrying out of work, and did not create separate obligations. Therefore Gamit’s failure to pay MTU was a repudiatory breach that terminated the sub-contract, and MTU’s future obligations did not continue after termination. Clear language would be needed if the contract were to operate differently and keep MTU under an obligation to continue to perform after termination. Even if there was an ongoing obligation on MTU to continue to overhaul the engines after termination, it was not established that MTU was in breach of that obligation by failing to install new replacement parts before the re-delivery date. With regards the alternative claim on conversion, Steel J held that transfer of title could only arise at the conclusion of the overhaul and so there had been no conversion by MTU.