High Court finds alleged frustration of contract due to COVID-19 pandemic is not sufficiently arguable to grant injunction restraining demand under letter of credit

The High Court has dismissed an application for an injunction to prevent an airline group from making demands under bank-confirmed standby letters of credit (SBLCs), securing aircraft leases granted to the claimant (a budget passenger airline), on the basis that it was not sufficiently arguable that the leases were frustrated due to the effects of the COVID-19 pandemic: Salam Air SAOC v Latam Airlines Group SA [2020] EWHC 2414 (Comm).

The court’s decision confirms the established position on the law of frustration, which requires a multi-factorial approach as per Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The Sea Angel) [2007] 1 CLC 876. The decision highlights the importance that the nature of the contract and its terms may play when applying the multi-factorial approach. Here, the claimant had agreed to provide the SBLCs as an alternative to paying a cash deposit for the aircraft, and the SBLCs were commercially and legally intended to be equivalent to cash. The terms of the leases also expressly placed on the claimant the full risk of any disruption whatsoever to their airline business; they had been drafted to make it clear that the claimant’s obligation to pay continued in almost any conceivable circumstances. Taking these factors into account, the court found that the claimant’s frustration case was “far too weak” to justify the step of interfering with the operation of the SBLCs.

For more information see this post on our Banking Litigation Notes blog.