CL-2022-000507 - [2025] EWHC 2505 (Comm)

Fecha: 03-Oct-2025

Conclusions

Is compliance with the Exclusivity Obligation in the relevant financial year a condition precedent to Alaska’s obligation to pay the MR in respect of that financial year?

54.

It is accepted that this aspect of Alaska’s argument does raise a Pure No Debt argument – it is said that entire performance of the Exclusivity Obligation is a condition precedent to the obligation to make any payment under the TMLA, whether calculated under clause 8.1(a) to (c) or in the amount of the MR.

55.

It is worth briefly exploring the commercial consequences of this argument, before considering the issue of construction it raises. It would mean that any non-trivial breach of the Exclusivity Obligation – e.g. the use of the Virgin signature on the tail of a single aircraft operating in the North American market – would allow Alaska to use the Marks itself, include them in a sale to a third party of its business or as security for loan, and have the legal right to exclude (or require Virgin to exclude) other aircraft operations from using the Marks, yet be under no obligation to make any payment. That would be a commercially very surprising outcome to which rational business people would be unlikely to commit themselves, and it would require clear wording before a court would conclude that this was indeed what they had done.

56.

While I accept that it is not necessary for a contract to include the language of “condition precedent” before a contractual provision will be held to have had that effect, the absence of this or similar language in the TMLA is noteworthy. Alaska relied on the statement of Flaux J in AstraZeneca Ltd v Albermarle International Corporation [2011] EWHC 1574 (Comm), [249]-[250]:

“In the absence of an express term, performance of one obligation will only be a condition precedent to another obligation where either the first obligation must for practical reasons clearly be performed before the second obligation can arise or the second obligation is the direct quid pro quo of the first, in the sense that only performance of the first earns entitlement to the second.”

57.

The first of those conditions is clearly not engaged. As to the second, I have already found that the amounts payable under clause 8 are paid in respect of the bundle of Airline Rights, and are not “the direct quid pro quo” of the Exclusivity Obligation, save only in the general and wholly uninformative sense that one contracting party’s promises are in some sense the “quid pro quo” of the other’s. The fact that Virgin was obliged to and has provided other benefits to Alaska in addition to exclusivity, as well as the fact that the Exclusivity Obligation is a negative obligation capable of being breached in a wide variety of ways with a wide variety of consequences, with the breach capable of continuing for widely varying periods of time within the relevant financial year, all tell against compliance being a condition precedent.

58.

At [251] in AstraZeneca, Flaux J observed that:

“In the present case, there is absolutely nothing in clause H to suggest that performance of AZ's obligations under it was contingent on performance by Albemarle or to suggest that Albemarle would not be entitled to exercise the rights clause H gave it, unless it had complied fully with its delivery obligations in respect of DIP. It would have been very easy for AZ to insist upon some express provision to that effect, but in the absence of such a provision, in my judgment, there is nothing to link performance of the one obligation with performance of the other.”

Those observations are equally applicable in this case.

59.

Turning to the TMLA:

Alaska relied upon the statement in Chitty on Contracts (35t), [25-028] that “[i]n the reported cases the courts have tended to the view that in every lump-sum contract there is an implied term that no part of the price is to be recovered without complete performance.” However, the MR is not a “lump sum” in this sense, but a floor of a payment obligation which can vary in amount.

ii)

Alaska relied upon the fact that the MR was payable after the end of the financial year, and therefore after “the period in which Virgin’s obligation is to be performed”. However, the conferral of the right to use the Marks and the Exclusivity Obligations are continuing obligations which are not divided into separate time periods. The MR is invoiced after the end of a financial year because the floor it creates is a floor for a particular financial year. If no MR is ever payable as such (because the clause 8.1(a) to (c) payments exceed the floor), then the payments made by Virgin do not involve any link with a financial year.

iii)

The payment provisions are not consistent with Alaska’s construction. On Alaska’s case, where there had been quarterly payments under clauses 8.1(a) to (c) for the first three quarters of a financial year, they would be recoverable in the event that there had been breach of the exclusivity obligation in the fourth quarter. However, clause 8.6 does not provide for recovery of amounts paid on this basis, but only a right of set-off and then only where a Reconciliation Statement reveals an overpayment rather than for any other reason.

iv)

I accept Virgin’s submission that clause 8.9.1 also provides a measure of support for its construction. If Alaska’s “condition precedent” argument is correct, it is difficult to see how there could ever be an occasion on which a payment was due to Virgin but there was a counterclaim for breach of Virgin’s obligations.

Alaska (sensibly) does not suggest that the Exclusivity Obligation is a condition, but accepted that it is an innominate term. That also tells against the suggestion that, nonetheless, entire performance is a condition precedent to Virgin’s right to recover any payment under the TMLA. Alaska suggested that “the question of whether or not an obligation is entire turns substantially upon the same analysis as to whether the breach is repudiatory”, citing Muduroglu v Stephenson Harwood [2017] EWHC 29 (Ch), [43]-[53]. However that case is authority for the proposition that the issue of whether a term is a condition “turns upon much the same considerations” as whether one is concerned with a dependent obligation in an entire contract. Far from assisting Alaska, this decision is inconsistent with its case. The question of whether performance of an obligation is a condition precedent to the obligation of a counterparty to perform an obligation must be fixed when a contract is concluded. Where a term is innominate, the question of whether it is a dependent obligation cannot change depending on the consequences of a particular breach in a particular case and whether they are sufficient to amount to a repudiatory breach.

Is it an implied term of the TMLA that no MR is payable in respect of any financial year in which there is a breach of the Exclusivity Obligation?

60.

This contention was advanced in writing but not developed orally. The reasons I have given for rejecting Alaska’s condition precedent argument as a matter of construction are also fatal to the implied term argument, as is the highly lawyered nature of the TMLA (as Phillips LJ noted in the Court of Appeal at [27]) which is most unlikely to have allowed such a significant provision, if it did form part of the contract, to pass unexpressed.

The case management arguments

61.

The effect of my conclusions is that Virgin is entitled to a monetary judgment in the amount of the MR in the period to 23 September 2022. It was accepted (and follows inexorably) that if I am so satisfied, the fact there will be further proceedings in which the TMLA, the Exclusivity Obligation and the underlying facts and context will receive extended consideration does not provide a sufficient basis to deprive Virgin of the monetary judgment to which it has established a legal entitlement.

62.

It follows that Virgin is entitled to judgment with interest, and that Alaska is refused permission to effect the disputed amendments. I will ask the parties to draw up an order giving effect to this ruling.