Vietjet Aviation Joint Stock Company v FW Aviation (Holdings) 1 Limited

This case came out of a large cross-border aircraft financing structure, but the commercial pattern is familiar in many business deals. A business needs a valuable asset. The asset is funded through lenders and special purpose vehicles. The operating business then pays rent or instalments over time.

That structure can feel remote while the deal is working. The customer deals day to day with the supplier or lessor and may assume that relationship is the real centre of the contract. But when payments stop, the wider finance structure matters. Lenders, security trustees and later assignees may all have rights that become active after default.

VietJet operated four aircraft acquired through a Japanese operating lease structure. Ownership, lending and leasing were split across multiple entities and documents. When Covid restrictions disrupted operations in Vietnam, VietJet fell into arrears and sought payment deferrals. Before those talks produced a solution, the lenders sold their positions to the FitzWalter group, which then moved to enforce the security package.

The main fight was not whether rent had gone unpaid. The court recorded that there was no dispute that an event of default had occurred through non-payment, and that the lessor would have been entitled to terminate if it still held the relevant rights.

The real question was who held those rights at the critical moment. Under the financing structure, the lessor had granted security assignments. VietJet argued that the security trustees had not been assigned the termination right strongly enough to serve the notices themselves. If that argument had succeeded, the termination notices would have failed even though arrears existed.

There was also a second major argument about who could step into the lenders’ shoes. FitzWalter’s special purpose subsidiary took assignments of the loans and later became successor security trustee. VietJet said that entity did not fall within the permitted contractual class. The court therefore had to interpret the wording used for permitted assignees and successor security trustees, including the phrase “financial institution”.

The Court of Appeal dismissed VietJet’s appeal on all grounds. It upheld the trial judge’s conclusion that the termination notices were valid. On the court’s reading of the security assignment wording, the assigned property was drafted broadly enough to include the lessor’s rights under the leases, including rights to enforce and terminate.

That meant the security trustees could serve the notices after the payment default. The court’s approach was closely tied to the actual wording used in the documents. It did not treat the right to terminate as something too personal to the original lessor where the drafting had already transferred that right into the security structure.

The court also upheld the finding that FitzWalter’s special purpose subsidiary qualified as a permitted assignee and as a permitted successor security trustee. In doing so, it relied heavily on the contractual wording and earlier authority about the meaning of “financial institution”. It rejected the narrower interpretation advanced by VietJet. The court also rejected a further treaty-related challenge concerning the NEO aircraft.

Finally, it held there was no jurisdiction to hear an appeal aimed only at one part of the judge’s reasoning where VietJet was not challenging the result of the order itself.

This decision shows how much turns on drafting in a financed transaction. The court examined the security assignment language in detail, including the definition of assigned property and the remedies available to the security trustee. Because the wording captured the lessor’s rights under the leases and rights to enforce performance and terminate, the court treated those rights as having passed into the security structure.

That matters for businesses because many operators focus on the commercial front-end document, such as the lease, supply agreement or equipment contract, but not the linked finance and security documents. In practice, those linked documents may decide who can act against you after a default.

If the drafting is broad, the original commercial counterparty may no longer be the only party with power to terminate, repossess or sue. If the drafting is narrow, an assignee may have fewer rights than expected. Either way, the wording controls.

A practical example is equipment finance. A business may think it is simply hiring machinery from a supplier. But the supplier may have assigned payment and enforcement rights into a finance structure. If the business misses instalments, the party issuing notices may be a lender, trustee or later investor rather than the supplier’s account manager. This case is a reminder to read the whole structure, not just the front page commercial terms.

Most small and medium businesses will never use an aircraft JOLCO structure, but many will sign contracts with similar risk mechanics. Examples include financed equipment leases, vehicle fleets, technology infrastructure, warehousing assets, manufacturing machinery and other high-value operating assets.

If the asset is essential to your business, the enforcement clauses deserve as much attention as the price. A missed payment may not just create a debt. It may also trigger termination, return obligations, accelerated sums and a fight over possession.

The practical lesson is to map the whole enforcement chain before signing. Ask who owns the asset, who funds it, who holds security, who may receive an assignment, and who can issue notices if you default. Then test the consequences of a short payment delay. If the answer is immediate termination, return of the asset and a large formula payment, you need to understand that risk before the deal starts, not after cash flow tightens.

This is especially important where the contract is operationally critical. If losing the asset would stop trading, delay customer delivery or interrupt production, the default and assignment clauses are not boilerplate. They are core commercial risk terms.

One of the most useful parts of the decision for ordinary businesses is the court’s treatment of who counted as a permitted assignee or successor security trustee. The dispute turned on contractual wording, including whether FitzWalter’s special purpose subsidiary qualified as a “financial institution”. The court accepted that it did.

The wider lesson is not that every investor or special purpose company will always qualify. It is that definitions in finance documents can be broader than a business user expects. A company does not need to be the original lender to become important. If the contract allows transfer to a defined class of entities, a later buyer of the debt may be able to enforce the deal.

For a business owner, this means assignment clauses should be read as risk clauses, not admin clauses. If your contract says rights may be transferred to a bank, financial institution or similar category, ask what that means in practice. Could the debt be sold to a distressed investor? Could a replacement trustee enforce aggressively after default? Could notices come from an entity you have never dealt with before?

Those questions are easier to ask before signing than after arrears arise.

The numbers in this case show why default clauses need commercial attention. The arrears that triggered the termination notices totalled about US$8 million across the four aircraft. But the later quantum judgment referred to in the Court of Appeal decision was for approximately US$181 million, with a further quantum hearing still to come.

For a business owner, the exact figures are less important than the pattern. A payment default under a long-term financed contract can explain a much larger claim than the missed instalments themselves. That can happen because the contract may provide for termination payments, accelerated obligations, damages or return costs.

This is why businesses should stress-test default scenarios before signing. Ask what happens if revenue drops for three months. Ask whether there is a cure period. Ask whether a short-term arrears position can trigger immediate termination. Ask how any termination sum is calculated. If the formula is complex, get it explained in plain English.

Many disputes feel sudden only because the financial consequences were buried in drafting that nobody modelled at the start.

If your business is negotiating a high-value financed contract, use this case as a drafting checklist. The aim is not to eliminate all enforcement rights, which is rarely realistic, but to make sure the risk is visible and commercially manageable.

Start with the parties. Confirm who owns the asset, who is lending against it, who holds security and who may be appointed later. Then review the default mechanics. Look for payment triggers, grace periods, notice requirements, cure rights and any automatic acceleration language.

Next, review the assignment provisions. Check whether rights can be transferred without your consent and whether the permitted class of transferees is broad. If the asset is central to operations, consider whether you need tighter controls, longer notice periods or practical handover arrangements.

Finally, review the remedy package as a whole. Termination, return obligations, possession claims and formula-based payments often work together. A short review before signing can prevent a much larger dispute later. This case shows how quickly arrears can become a fight over possession, assignment rights and substantial monetary claims.

The court also dealt with a narrower procedural point that can matter in commercial litigation. VietJet tried to challenge one aspect of the trial judge’s reasoning about related shareholder proceedings, even though it was not appealing the actual result on relief from forfeiture.

The Court of Appeal said it had no jurisdiction to hear an appeal aimed only at reasons where the appellant was not seeking to change the order or result itself. In simple terms, appeals are generally about the decision the court made, not isolated comments or findings in the reasoning if the outcome is left untouched.

For businesses in disputes, that is a useful reminder to separate two questions. First, are you challenging the order the court made? Second, are you only unhappy with something the judge said on the way to that result? Those are not the same thing, and the second may not support an appeal on its own.

That can affect litigation strategy, especially where parties worry about comments in a judgment being used elsewhere. The right response may not always be an appeal.