Wet leasing (ACMI) First supreme court ruling on a consequential damages waiver Ángel Carrasco Perera Professor of Civil Law, Universidad de Castilla-La Mancha Academic counsel, Gómez-Acebo & Pombo This judgment is interesting because it resolves at least one doubt: the validity of the consequential damages waiver clause in commercial contracts. 1. The wet lease agreement and the Barajas accident Iberworld Airlines filed a claim against Mapfre, seeking a determination of liability of Aena and Air Comet and, consequently, of Mapfre, as insurer of both, for the purposes of receiving compensation for damage sustained by the Airbus A330 MSN 0670 aircraft on 28 May 2008 at Barajas airport. The aforementioned airlines had entered into a wet lease agreement under which Iberworld Airlines would provide a duly equipped aircraft to carry out the commercial passenger flights agreed thereunder. "Neither party shall be liable for loss of use or consequential damage arising out of the aforementioned or other services under this Agreement". Disclaimer: This paper is provided for general information purposes only and nothing expressed herein should be construed as legal advice or recommendation. Analysis | March 2021 1 A collision occurred at Barajas airport in which the Airbus was damaged during a taxiing ma- noeuvre of the aforementioned aircraft from its parking space in the satellite building of Terminal 4 to Terminal 1 for a flight operated by Air Comet. According to the claim filed by Iberworld, an Aena Follow Me, which was guiding the convoy, did not respect a waiting point (stop) on the A-11 section of the road parallel to runway 33 and the airport's Surface Movement Control did not manage the movement correctly either; this caused the aircraft to brake abruptly to make way for a Vueling aircraft, which was travelling on the preferential runway. For its part, the Air Comet trailer was also forced to brake, leading to the collision that caused the damage. The Madrid Provincial Court upheld the statute of limitations with respect to AENA, and considered, contrary to the court of first instance's opinion, that the Air Comet tractor driver's reckless con- duct was involved in the accident. According to the Provincial Court, the driver of the Air Comet tractor, who was carrying out the taxiing operation, was not unconnected to the situation of risk that arose. On the other hand, it was considered that the movement of the aircraft along the airport runways, specifically between Terminal 4 and Terminal 1, was not one of Air Comet's obligations under the wet lease agreement and, therefore, the damage causally derived from the incident would have occurred outside the scope of what was strictly agreed between the parties. Air Comet's liability would be of a non-contractual nature under Art. 1902 of the Civil Code and, consequently, "the consequential damages waiver event agreed between the parties in the aforementioned agreement was not applicable". Mapfre lodged a ‘cassation’ appeal. 2. ‘Cassation’ The first of the grounds is based on an infringement of Art. 1258 of the Civil Code (“CC”) (by non-application) and Art. 1902 CC (by misapplication), since the court a quo held that the tax- iing function (movement of the aircraft on the airport runways) was not an integral part of the subject matter of the lease agreement concluded between the two companies, consequently concluding that Air Comet's liability was non-contractual in nature and, therefore, the clauses of the agreement relating to the insurance obligation were not applicable. The cassation judgment is no. 646/2020 of 30 November (RJ 2020\4794). According to the Supreme Court, "any contractual relationship that grants a specific means of redress will be of preferential application with respect to tort liability". It seems clear that, within the scope of the negotiation of this wet lease agreement, the aircraft's taxiing is included, as an essential element to be able to fulfil the intended contractual purpose of using the aircraft as agreed. The claimant complied with its obligations by making the aircraft available to the lessee, maintaining it in an airworthy condition and ensuring the peaceful enjoyment of the aircraft, without disturbance or attacks on the possession conferred, providing the necessary cabin and cockpit crew, as well as having the corresponding insurance contracts in force. Such consideration corresponds to the type of agreement entered into by the parties, in its wet lease mode, which allows the use of an aircraft to be granted for a short period of time, as in the case in question, and in this way satisfies the legitimate interests of the parties, insofar as it allows the lessees to complete their fleet capacity in the event of various contingencies (breakdown, lack of crew, operating needs, Analysis | March 2021 2 etc.) and the owners of the aircraft to obtain a profit by leasing their surplus capacity. In the agreed ACMI (Aircraft, Crew, Maintenance, Insurance) mode, the lessor assumes the contractual obligations to lease the aircraft and its crew, as well as to bear the aircraft's maintenance and insurance costs. For its part, the lessee must use the aircraft diligently in accordance with its nature, putting it to the agreed use and satisfying the ordinary operating expenses according to the contracted mode and terms of the signed agreement. "Consequently, we cannot agree that Air Comet's liability was exclusively as a tractor operator and not as a lessee, since the possession of the aircraft and its taxiing, due to the needs of its use, in accordance with that agreed, derive directly from the agreement signed, without interference from any other subject of law outside the agreement". The material damage to the hull of the aircraft has already been compensated to the claimant and is not the subject of these proceedings. The compen- sation now claimed "arises from the loss suffered as a result of the need to bear the costs of replacing the damaged aircraft during the downtime of its repair". However, such was excluded from the financial redress obligations between the parties. What has been excluded from the agreement is damage from loss of use or consequential damage, which does not mean that it is exclusively unforeseeable damage, as claimed by the defendant, who, without justification, makes a specific interpretation of American law in this respect. Consistent with what has been agreed, the loss of use includes the damage that is the subject of these proceedings, relating to the additional operating costs due to the impossibility of using the aircraft and lost profits. In view of all the arguments set out above, the action brought against the defendant insurance company must be rejected. 3. Commentary The Supreme Court ruling is coherent and demonstrates how it is possible to apply contract law with an eye to the commercial needs and expectations of both present and future parties. a) Among the detailed jungle of undertakings and powers that the parties shared in the aircraft lease agreement, it was not clear which of them was responsible for the taxiing of the aircraft to the runway. Nevertheless, it did not require special insight to understand that the balance of interests and the systematic interpretation of the transaction required Air Comet to assume this responsibility. It should be noted that the lessee assumes in the lease agreement "usage powers" which are not always obligations in the strict sense of the term. Paying the rent is, taking care of the aircraft is, but taxiing to the take-off point is not an obligation that the lessee has towards the lessor, but rather its own power to oper- ate its business as an air carrier. But then how can this contingency be made an "implied obligation" of Art. 1258 CC, required by good faith and by the nature of the agreement? In reality, there are two possible explanations. Either Art. 1258 CC must be extended to cover damage caused in the exercise of the lessee's right of use, even if it is not characterised as an obligation. Or else it is constructed as if the lessee has the obligation to take care of the good in all the tasks within its powers, and the breach of a duty of care then becomes a breach of a contractual obligation. Analysis | March 2021 3 b) One should not lightly dismiss a liability as contractual, when the merely systematic alternative characterisation has the effect of deactivating contractual provisions that the parties have deemed essential. It is absurd that an insurer, who has excluded consequential damage from the cover, is obliged to compensate for such simply because a contingency, which is certainly at least in the horizon of the agreement, is taken out of it so that the insurer is liable due to something prior to the contractual expectations of the parties. In this case, it was the aggrieved party who wanted to escape from the agreement. In many other cases, however, it is the insurer who wants to escape from a liability cover that it claims is only contractual. One must avoid legitimate expectations from being evaded by spurious digressions as to whether a liability is contractual or non-contractual. c) According to the Supreme Court, the material damage caused by the accident during the taxiing would not be consequential damage, and this is how the parties understood it, because it was compensated without dispute. What was the disputed damage? According to what we are told, the cost of procuring (Iberworld) an aircraft to cover the stoppage of the contracted aircraft because of the accident. However, strictly speaking this damage is not consequential damage. The consequential damage is the loss of earnings and is the incidental damage suffered because of not being able to operate as a carrier for its cus- tomers or as a lessor in other wet lease operations.