The Commercial Court (England and Wales) has dismissed an application by budget airline Salam Air for an injunction to restrain Latam Airlines from making demands pursuant to several letters of credit (L/Cs).

The court found that the difficulties the airline was facing due to the impacts of the coronavirus pandemic did not provide sufficient argument for preventing Latam from making demands on the L/Cs.

Aircraft security

The L/Cs were securing aircraft leases that Latam had granted to Salam Air. The budget airline applied for an injunction that would have restrained Latam from calling on four standby L/Cs.

The court rejected the application, holding that the Oman-based airline's claim that the leases had been frustrated by the effects of the coronavirus pandemic was "far too weak" to support the grant of an injunction.

The court emphasised the difficulties airline operators and aviation lessees could face in seeking to rely on the common law doctrine of "frustration" in order to avoid their payment obligations under leases.

Hell or high water

The court said this applies especially where such leases contain "hell or high water" provisions that make clear that the obligation to pay rent continues in almost any conceivable circumstance.

The leases in this case expressly provided for the budget airline to bear the full risk of any disruptive event to its business and that Salam Air's rental payment obligations were near-absolute and would persist "in almost any conceivable circumstances".

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.