MR JUSTICE AIKENS :
- This is an application by the claimant ("Trident"), for summary judgment of its claim against the defendant ("FFCL") pursuant to CPR Part 24. Trident is a company which owns and leases commercial aircraft. FFCL is one of India's leading express courier companies with a very large annual turnover.
- On 5th September 2005, Trident entered into two Aircraft Operating Lease Agreements with FFCL ("the Lease Agreements"). Under each Lease Agreement, Trident, as the lessor, agreed to lease to FFCL, as lessee, an ATP type aircraft manufactured by BAE System Regional Aircraft Limited ("BAE"). The two aircraft had the serial numbers 2051 and 2054. I will refer to them respectively as "Aircraft 2051" and "Aircraft 2054".
- The two Lease Agreements are in identical terms. I will refer below to the relevant clauses of the contracts.
- Trident's claims arise under both Lease Agreements. In short, Trident alleges that it is entitled to summary judgment because FFCL was in breach of its obligation to pay rent under each of the two contracts. Trident claims that the continuing failure of FFCL to pay rent entitled it to terminate both Lease Agreements and to recover possession of the two aircraft.
- Trident claims three principal types of loss. First, it claims unpaid rent of US$405,333.30. Secondly, it claims the costs of putting the two aircraft into a proper "Re-delivery Condition". This claim is for US$2,053,926. Thirdly, Trident claims damages equal to the estimated further loss of rent until the aircraft were re-leased. This claim is for US$576,000. In addition, Trident claims interest on late payment of rent (US$7,591.02) and estimated legal costs of US$39,868.90. Trident alleges that it is entitled to these last two sums pursuant to various clauses in the Lease Agreements.
- Trident has a further claim. This is for damages for conversion, which are said to arise out of FFCL's failure promptly to return the aircraft to Trident after it had terminated the Lease Agreements.
A. The Outline Facts
- In 2004 FFCL wished to buy or lease cargo aircraft to carry express cargo across India to different destinations. FFCL appointed Taneja Aerospace and Aviation Limited ("TAAL") as a consultant, so it could recommend to FFCL a suitable aircraft for this project. In September 2004, Mr Raj Singh, the Director of Sales for BAE, approached Mr Santosh Deshpande of TAAL. Mr Singh offered ATP type aircraft for use by FFCL on its proposed cargo routes.
- FFCL then conducted negotiations with BAE which led to the execution of the two aircraft leases. FFCL alleges that all the negotiations as to the terms of the aircraft leases were conducted between FFCL and BAE; the delivery of the aircraft was organised between FFCL and BAE and the two leases were signed by Antoine Chateauvieux of BAE on behalf of Trident.
- During the negotiations between FFCL and BAE there were discussions about two particular matters. First, the payload that the aircraft would be able to carry on the various proposed routes; secondly, flight times for those routes. In July 2005 BAE provided FFCL with a Route Analysis and Performance Study, giving payload projections and flight times if an aircraft was carrying the maximum payload. It is FFCL's case that many of the representations about the payload and flight times in the July 2005 study were materially inaccurate. FFCL alleges that BAE acted as Trident's agent in making these representations. FFCL also alleges that it would not have taken the two aircraft (plus a third, "Aircraft 2039") under the Lease Agreements, but for the representations that were made in this study.
- On 24 May 2006, Aircraft 2054 was delivered to and accepted by FFCL at Lidköping airport in Sweden, having been inspected by Mr Gopalakrishna, FFCL's Chief of Operations, and other technical experts of FFCL. The Acceptance Certificate confirmed that "Delivery" under the terms of the Lease Agreement was effected on 24 May 2006 and that the aircraft was inspected by the technical experts of FFCL from 17 May 2006. The certificate also stated that the aircraft complied fully with the condition required on delivery by the Lease Agreement, save to the extent set out in an Acceptance Reservations Agreement contained in Appendix 4 of the Acceptance Certificate. This aircraft began to operate for FFCL in August 2006.
- Aircraft 2039 was delivered in July 2006 and began to operate in October 2006.
- Aircraft 2051 was delivered on 16 October 2006 at Southend airport. There was the same inspection procedure as for Aircraft 2054. This aircraft began to operate in November 2006.
- FFCL alleges that all three aircraft were unreliable and prone to defects, with the result that FFCL was unable to achieve its operational objectives. There is no need to set out details of these alleged defects. However, one particular issue concerning Aircraft 2054 must be mentioned. When it was accepted in August 2006, it was established that the life remaining on the port main landing gear of the aircraft was only 2,725 cycles. This was less than the agreed life. FFCL alleges that it accepted this deficiency after assurances from BAE that it would loan a serviceable landing gear when needed by FFCL. It is said that BAE subsequently denied having made such a commitment and did not fulfil it.
- FFCL's continuing concerns about alleged payload shortfall problems and flight times led to BAE producing a further Route analysis study in August 2007. This study gave longer flight times and lower payloads than the July 2005 study. However, FCCL alleges that it was unable to achieve even the lower August 2007 payload figures.
- On 30th August 2007, FFCL decided to stop operations with all three ATP aircraft because of alleged payload shortfall, defects in the aircraft, longer flight times and poor spares support. On the same day FFCL sent an email to BAE, informing BAE of its decision to discontinue all ATP operations with immediate effect. The email requested BAE to consider the position of FFCL "and advise us on the way forward from our position".
- FFCL stopped paying rent under the two Lease Agreements with which I am concerned as from September 2007. Trident alleges that this put FFCL in breach of its obligation under the Lease Agreements to pay rent promptly on a monthly basis in the amount set out in schedule 8 of the Lease Agreements: clause 5.2. Trident alleges that the failure by FFCL to make any payments after September 2007, or FFCL's late payments constituted an "Event of Default" within clause 17(a) of the Lease Agreements. Trident says that it was therefore entitled to serve a Notice of Default under clause 18 of the Lease Agreements, which it did on 18th October 2007. FFCL initially accepted that its decision to cease making payments under the Lease Agreements put it in breach of the Lease Agreements and entitled Trident to serve notices of termination on 30 January 2008.[1] However, FFCL now alleges that it rescinded the two Lease Agreements on 30th August 2007, because of defects in the aircraft or misrepresentations, by deciding to stop using the aircraft on that date. FFCL says that the rescission was effective before Trident's purported termination. FFCL alleges in the alternative that if it did not rescind the Lease Agreements by the email of 30th August 2007, then it retains the right to rescind them, such that no rent would be payable to Trident and there would be no claim by Trident for breach of contract.
B. The terms of the Lease Agreements
- The terms of the two Lease Agreements are comprehensive and long. I will not set them out in the body of this judgment. Instead I have set out the relevant clauses in the Appendix. These are: 4, 5.2, 5.3, 7, 17(a), 18(1), 18.2, 19.1., 19.2, 21.10, Schedule 4 and Schedule 8. (I have not reproduced Schedule 8).
- In summary the effect of the relevant provisions were these: from the moment of the "Delivery Date" of each aircraft, FFCL was under an obligation to pay rent on a monthly basis: clauses 5.2 and Schedule 8.[2] Therefore FFCL became liable to make monthly payments of rent to Trident in respect of each relevant aircraft from those dates. Clause 7 of the Lease Agreements states that FFCL's obligation to make rent payments is "absolute and unconditional". Clause 5.3 provides that payment is to be made "on or before the due date in immediately available funds". Clause 21.9 provides that prompt payment is "of the essence" in the Lease Agreements. Under clause 5.4, in the event of a late payment, FFCL is bound to pay default interest on the overdue amount.
- Clause 17(a) of the Lease Agreements provides that a failure by FFCL to make any payment on time constitutes "an Event of Default". Under clauses 18.1 and 18.2, if a failure to make payments on time is "continuing", Trident becomes entitled to various remedies including the right to terminate the Lease Agreements: clause 18.1(a).
C. Trident's claims and FFCL's defences
- In the Notice of Default dated 18th October 2007 sent by Trident to FFCL, Trident identified two Events of Default. The first was a failure to pay aircraft rentals for September and October 2007. The second was an alleged disclosure of the terms of the Lease Agreements and an attempt to agree to transfer the Aircrafts 2051 and 2054 to third parties without the lessor's consent. Trident said these were Events of Default under clauseS 17(a) and clauses 17(o) and clauses 17(k) and 17(r) respectively. Trident submits that FFCL failed to remedy these breaches and this entitled Trident to exercise its right to terminate the Lease Agreements. Trident's served a Notice of Termination on 30th January 2008.
- Trident submits that thereafter it is entitled, under clause 18 of the Lease Agreements, to the claims that I have already identified. As for the conversion claim, the draft order accompanying the application under CPR Part 24 indicates that Trident seeks damages for wrongful interference with goods in an amount to be assessed. Trident says that FFCL failed to return the aircraft to Trident after the two Lease Agreements were terminated. The two aircraft and the relevant aircraft documents were actually delivered up to Trident pursuant to a Consent Order made by Flaux J on 13th March 2008.
- FFCL accepts that it has not paid rent since September 2007 and that, in the absence of good cause, this failure would entitle Trident to give a Notice of Default and to serve a Termination Notice, bringing the two leases to an end. FFCL's defence and counterclaim is based on allegations of pre – contractual misrepresentations and the aircrafts' defects that I have already identified.
- Trident disputes the factual allegations which form the basis of FFCL's defences. However, for the purposes of the CPR Part 24 application, Trident accepts that the court must assume that the allegations concerning misrepresentation and defects are arguable. It should be noted nevertheless that FFCL does not allege that the misrepresentations were made fraudulently by Trident or fraudulently by BAE as agent for Trident.
- Trident's answer is that the provisions of the Lease Agreements preclude FFCL advancing either of the defences or counterclaims on which it relies. Trident argues that clauses 19.1 and 19.2 contractually prevent FFCL from asserting that it was induced to enter into the Lease Agreements by a non-fraudulent misrepresentation. Trident also says that the Unfair Contract Terms Act 1977 does not apply to the Lease Agreements, because they are "international supply contracts" within the terms of section 26(4) (a) of that Act ("UCTA 1977"), so that these contracts fall outside the scope of the Act.
- With regard to the defence of defective quality, Trident contends that the terms of the Lease Agreements, in particular, clause 19.2 apply to prevent FFCL raising any issue in relation to alleged defects which the aircraft had, whether these were present at delivery or were developed after delivery.
- FFCL alleges that there was one specific defect with regard to the port main landing gear of Aircraft 2054, which was apparent before delivery. Trident submits however, that this discrepancy between the contractual and actual specification of the gear was agreed between the parties, as was provided for under Schedule 4 of the Lease Agreement. Therefore, Trident submits, FFCL cannot file a claim for breach of contract in respect of the port main landing gear of Aircraft 2054.
D. The court's approach to the CPR Part 24 application
- The court has to be satisfied that FFCL has "no real prospect" of successfully defending Trident's claim: CPR Part 24.2(a) (ii). Mr Vickery for FFCL does not argue that there is some other "compelling" reason why the case should be disposed of at a trial.
- It is apparent from the way that I have described Trident's case and FFCL's defences that Trident can only succeed on its summary judgment application if it can demonstrate that FFCL has no real prospect of defeating Trident's argument that FFCL's two lines of defence are precluded by the terms of the Lease Agreements. On an application under CPR Part 24, a court should decide issues of construction of contracts, provided it is satisfied that it has before it all the evidence necessary for the proper determination of that question and the parties have had an adequate opportunity to address it in argument: ICI Chemicals & Polymers Ltd v TTE Training Ltd,[3] see paragraphs 12, per Moore – Bick LJ. Mr McPherson for Trident submits that I should determine the meaning of the Lease Agreements and if I accept his arguments as to their effect and I accept his argument on the inapplicability of the UCTA 1977, then summary judgment should be granted. Summary judgment should only be refused if I reject his arguments on the meaning of the Lease Agreements, or if I conclude that the Lease Agreements are subject to UCTA 1977. As I understand it, Mr Vickery accepted this analysis.
- If Mr Vickery succeeds in showing that there is a real prospect of success on either of the two defences he has outlined, this summary judgment application must fail. I must therefore deal with both defences put forward by FFCL.
E. The defence of Pre – contractual misrepresentation
- Three issues arise in relation to the arguments on clauses 19.1 and 19.2 of the Lease Agreements. First, can parties to a contract agree, by contract, to abandon any rights to assert that they were induced to enter into that contract by misrepresentation? Mr Vickery accepts that parties can agree to do so, at least in relation to claims based upon non – fraudulent misrepresentations: see Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd,[4] in particular at paragraph 57, per Moore – Bick LJ. But Mr Vickery submits that clause 19 in the Lease Agreements does not assist Trident at the summary judgment stage.
- The second issue is whether, properly construed, clauses 19.1 and 19.2 do, on their correct construction, preclude FFCL from asserting the right to claim rescission of the Lease Agreements, or damages, for non – fraudulent misrepresentation. The third issue is whether, assuming that they do so, FFCL can rely on UCTA 1977 to defeat clauses 19.1 and 19.2. This turns on whether Mr McPherson is right in his submission that UCTA 1977 is inapplicable because the Lease Agreements are "international supply contracts" within section 26 of UCTA 1977.
- Clause 19.1 is headed "Exclusion". In the first paragraph of it, FFCL, as "Lessee" "agrees and acknowledges" that, save as expressly stated in the Lease Agreement, Trident (as "Lessor") shall not have any liability in relation to "the description…satisfactory quality, fitness for any use or purpose… condition or design of the Aircraft". The key part of clause 19.1 of the Lease Agreements for present purposes is in the last paragraph, which states:
"The Lessee [ie FFCL] also agrees and acknowledges that save as expressly stated in this Agreement and the other Transaction Documents to which the Lessor is a party, the Lessor has not and shall not be deemed to have made any warranties or representations, express or implied, about the Aircraft, including but not limited to the matters referred to above".
- The parties who agree such a clause are thus agreeing that no representations were made by Trident (as Lessor), or, if any representations were made, then it is "deemed" that they were not. The legal effect of provisions such as this has been analysed by the courts in terms of an estoppel created by contract: see Colchester Borough Council v Smith,[5] at 496 per Ferris J; and the Peekay case, at paragraph 56 per Moore – Bick LJ[6] and at paragraph 70 per Chadwick LJ. As Moore – Bick LJ points out at paragraph 56 in the Peekay case, it is commercially convenient and desirable for parties to a contract to agree that a certain state of affairs (ie. that no pre – contractual representations were made) is the case, so as to provide a clear basis for the contract itself. If the parties do agree a certain factual basis on which the contract is made, the contractual agreement is that neither party can subsequently deny that basis. Hence the phrase "estoppel by contract".
- In EA Grimstead & Sons Ltd v McGarrigan[7] , Chadwick LJ stated, at page 31 of the judgment, that if a clause contains an agreement that parties will not rely on pre – contract representations, then this can also operate as an "evidential estoppel" against a party that subsequently wished to rely on a pre – contractual representation to found a claim. Mr Vickery submits that this is the proper analysis of clause 19.1 and that this means it is impossible for Trident to succeed on its summary judgment application, relying on clause 19.1. He submits that a party can only rely on an evidential estoppel if it can demonstrate that it relied on a representation and was induced to alter its position as a result of the representation. Mr Vickery submits that if, as FFCL contends, Trident knew that FFCL were in fact relying on the misrepresentations it is said that BAE made on Trident's behalf and if, in fact, Trident knew that the acknowledgement of non – reliance by FFCL did not reflect FFCL's true position, then Trident could not rely on any "evidential estoppel" that might otherwise be created by the wording of clause 19.1. That is because Trident could not demonstrate either (a) that it believed as true any representations of FFCL that it was not relying on any pre – contractual representations by Trident; or (b) that it was induced to enter the contracts by virtue of such representations by FFCL. In this respect, Mr Vickery relied upon statements of Chadwick LJ in Watford Electronics Ltd v Sanderson CFL Ltd,[8] at paragraph 40.
- Mr McPherson's response was to abjure any reliance on an "evidential estoppel". I am quite satisfied, having looked at the cases, that the two forms of "estoppel" are different. I am also satisfied that Mr McPherson is correct in submitting that if he can rely on "contractual estoppel" as analysed in the Peekay case, he does not need to rely on an "evidential estoppel". Therefore I will concentrate on the issue of "contractual estoppel".
- The relevant clause in the Peekay case was a form of acknowledgement that the bank customer knew the true nature of the contract he was entering. The relevant clause in the Grimstead case was to the effect that the purchaser confirmed that it had not relied on any representation by the vendors. In my view clause 19.1 in the Lease Agreements is of a different nature to those provisions. Here the parties agree that no representation was made at all. FFCL has agreed with Trident that a state of affairs is the case, ie. that there were no pre – contract (non – fraudulent) representations by Trident. More importantly, the parties agree that this state of affairs is to form the basis of the transaction. Even if it was not in fact the case that there had been no representations, the parties are free to agree that it was so and base their contractual relations on that state of affairs, for the reasons that Moore – Bick LJ sets out in the Peekay case at paragraph 56. Therefore, subject to the UCTA 1977 point, I conclude that Trident can rely on that clause to defeat the misrepresentation defence.[9]
- But in case that is wrong, I consider next Trident's argument based on clause 19.2. That provides:
"The Lessee [FFCL] gives up any rights against the Lessor [Trident] regarding any warranty or representation, except in respect of any warranty or representation expressly made in this Agreement or the other Transaction Documents to which Lessor is a party. The Lessee cannot make any claim against the Lessor at any time after Delivery relation to the condition of the aircraft."
- Mr McPherson submits that the first sentence of clause 19.2 is a covenant by FFCL not to sue Trident in respect of any warranty or representation outside the contract. He says that the intention of the parties to confine their rights to those contained in the contract is underlined by clause 21.10, the "whole agreement" clause.
- Mr Vickery raises two issues of construction. First, he submits that because the clause purports to deprive FFCL of legal rights, it must be construed strictly against Trident. Therefore, (by analysis with the well – known principles in Canada Steamship Lines Ltd v The King,[10] at 208 per Lord Morton of Henryton), the court should not infer that FFCL has given up legal rights which the law confers on it to any extent greater than the contract term states. Clause 19.2 does not refer to giving up rights in respect of negligent misrepresentations. Therefore it should not be construed so as to deny FFCL the right to make claims based on negligent misrepresentations.
- Mr Vickery's second argument is that the clause does not expressly state that FFCL (as Lessee) is giving up rights in respect of representations made by an agent on behalf of Trident, as Lessor. He says that the same principles apply. Therefore, he submits, the clause does not preclude FFCL suing Trident in respect of negligent misrepresentations made by its agent, BAE.
- I do not accept Mr Vickery's arguments on the first point. The principles set out by Lord Morton in the Canada Steamship case are a guide, not a code. As Lord Bingham of Cornhill has stated (albeit in the context of an insurance contract) "…The Court's task of ascertaining what the particular parties intended, in their particular commercial context, remains": HIH Casualty and General Insurance Ltd v Chase Manhattan Bank,[11] at paragraph 11. In this case the tenor of clause 19 as a whole is that Trident, as Lessor, is not to have liability except for matters expressly stated in the Lease Agreement. This is reflected by the language of clause 19.2, which is comprehensive. FFCL, as Lessee, gives up "any rights against the Lessor…regarding any warranty or representation…". In my view this language, particularly the use of the words "any rights against the Lessor", was deliberately chosen to give wide coverage to the types of right that FFCL was giving up. It agreed to give up all rights in respect of all types of representation, other than fraudulent ones.
- This conclusion is reinforced when the position in respect of fraudulent misrepresentations by either Trident or BAE acting as its agent are considered. They will not be excluded because of the law's attitude to fraud, particularly in a commercial context. Fraud is "a thing apart", proof of which unravels all. On public policy grounds the law does not permit a party to exclude liability for its own fraud. Liability for the fraudulent acts of a party's agents will only be excluded if the language of the contract is in clear and unmistakable terms: see the HIH case at paragraphs 15 – 16 per Lord Bingham of Cornhill. Rights in respect of fraudulent misrepresentations, whether by Trident or its agent, are therefore not waived by clause 19.2. However, given that rights in respect of all types of fraudulent misrepresentation claims are not given up, it is necessary to ask: what rights are covered by the clause? In my view, the comprehensive wording of the clause indicates clearly that it was the parties' intention and agreement that FFCL agreed to gave up all its rights based on all other types of misrepresentation by Trident.
- On the second point, I am also against Mr Vickery. If FFCL wishes to counterclaim against Trident, relying on negligent (or even innocent) misrepresentations made by BAE's personnel, it can only do so on the basis that Trident is legally responsible for BAE's misrepresentations. The phrase in the first sentence of clause 19.2 that "…the Lessee [FFCL] gives up any rights against the Lessor [Trident] regarding any warranty or representation…" must therefore refer to any (non –fraudulent) representation for which Trident, the Lessor, is legally responsible. It does not make sense for it to refer to "rights against Trident" in respect of a misrepresentation for which Trident is not legally responsible. As the clause refers to "any…representation" this must therefore cover not only Trident's own misrepresentations but also any made by its agent, such as BAE, for which Trident is legally responsible.
- Accordingly, I have concluded that Trident succeeds on both issues on the construction of clause 19. That means I must next go on to consider whether UCTA 1977 applies to it.
F. The Unfair Contract Terms Act 1977: does it apply to these contracts?
- Section 3 of the Misrepresentation Act 1967, as amended, provides that if a contract contains a term which would exclude or restrict "(a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract is made; or (b) any remedy available to another party to the contract by reason of any such misrepresentation", then the term is of no effect, except insofar as it satisfies the requirements of UCTA 1977. Mr McPherson argued that clauses 19.1 and 19.2 do not come within that definition because, by the last paragraph of clause 19.1, the parties have agreed that no representations were made. Therefore, there is no potential liability or remedy to exclude or restrict.
- Mr McPherson relied on remarks made by Chadwick LJ in Watford Electronics Ltd v Sanderson CFL Ltd,[12] particularly at paragraphs 36 and 41. In the latter paragraph, Chadwick LJ points out that if parties have, by their contract, acknowledged that they have not relied on any pre – contractual representations, then it would be "bizarre" to attribute to the parties an intention to exclude a liability which they thought would never arise, unless this conclusion is compelled by the words used in the contract.
- Mr Vickery argued to the contrary, relying on the decision of HHJ Raymond Jack QC (as he then was) in Government of Zanzibar v British Aerospace (Lancaster House) Ltd,[13] particularly at 2347 – 8.
- I acknowledge the force of the logic in Chadwick LJ's statements in the Watford Electronics case. However, the effect of a clause must always depend on its exact wording. In this case the first half of clause 19.1 undoubtedly contemplates that FFCL might assert that Trident was liable in relation to the description, merchantability, satisfactory quality or fitness for any use or purpose of the aircraft. Clause 19.2 expressly contemplates that FFCL, as lessee, would, but for the clause, have rights in respect of representations. Therefore, I have concluded that both clauses 19.1 and 19.2 do fall within the scope of section 3 of the Misrepresentation Act 1967, because they both purport to exclude or restrict liability for misrepresentations.
- Accordingly, unless the Lease Agreements are outside the ambit of UCTA 1977 because they come within the class of "international supply contracts", those clauses would only be effective if they satisfy the "reasonableness" test set out in section 11 of that Act. That would involve issues of fact and so preclude summary judgment. So I must next consider section 26 of the 1977 Act.
- The relevant parts of section 26 of the UCTA 1977 provide as follows:
(1) The limits imposed by this Act on the extent to which a person may exclude or restrict liability by reference to a contract term do not apply to liability arising under such a contract as is described in subsection (3) below.
……………
(3) Subject to subsection (4), that description of contract is one whose characteristics are the following –
(a) either it is a contract of sale of goods or it is one under or in pursuance of which the possession or ownership of goods passes; and
(b) it is made by parties whose place of business (or, if they have none, habitual residences) are in the territories of different States (the Channel Islands and the Isle of Man being treated for this purpose as different States from the United Kingdom).
(4) A contract falls within subsection (3) above only if either –
(a) the goods in question are, at the time of the conclusion of the contract, in the course of carriage, or will be carried from the territory of one state to another; or
(b) the acts constituting the offer and acceptance have been done in the territories of different States; or
(c) the contract provides for the goods to be delivered in the territory of a Stated other than that within which whose territory those acts were done".
- It is agreed that the two Lease Agreements constitute contracts under which the possession of the aircraft will pass from one party (the lessor) to another (the lessee) and that each party has a place of business in the territories of different states. Therefore the question is whether the terms of section 26(4) are fulfilled in this case.
- Mr McPherson submits that this case falls within section 26(4)(a). The two aircraft were carried from the state where they were delivered, respectively Sweden and the UK, to India. Although that was not done at the time of the contracts, it was contemplated at that time that the aircraft would be carried from the state where they were delivered to another state, (ie. India) for the purposes of carrying out the hire contracts. Mr McPherson relied on remarks by Mance LJ (as he then was) in Amiri Flight Authority v BAE Systems Plc,[14] particularly at paragraph 32, where he analysed section 26 of UCTA 1977, and commented on the relationship between section 26(4)(a) and (c). On section 26(4)(a), Mance LJ said:
"The structure of section 26(4) is on any view questionable. Section 26(4)(a) can in reality only be significant in a case where the offer and acceptance were done in one and the same state. ….However, the draftsman must at least be taken to have had in mind that s.26(4)(a) is only concerned with goods which are being, or will be, carried between the territory of two different states. S.26(4)(a) does not therefore require the seller to have undertaken any obligation to deliver to any other state. Without going into its precise limits, once classical example within s.26(4)(a) would be the sale of goods on CIF or FOB terms…..When the draftsman came to consider the circumstances in which a contract made in one state should be treated as international, he may have thought that the trigger should also involve movement between different states…".
- Mr Vickery submitted that the correct construction of the phrase "will be carried…" in section 26(4)(a), is that it applies to where the goods are to be delivered under the terms of the contract of sale or hire. He submits that it is irrelevant that the aircraft in fact travelled from Sweden or the UK to India. Those flights were not undertaken as part of the contractual obligations of the lessor, Trident. It was no different from a person buying goods in country A, then deciding to take them for use in country B.
- Mr Vickery relies on remarks of Christopher Clarke J in Balmoral Group Ltd v Borealis (UK) Ltd and others,[15] at paragraphs 447 – 448. However, I do not read those remarks as indicating that there has to be a contractual undertaking by one party to the contract to deliver goods from the territory of one state to the territory of another state before the contract comes within section 26(4)(a). Indeed, he can hardly have intended to say that, because in my view it would have been inconsistent with the remarks of Mance LJ at paragraph 32 of the Amiri Flight case, to which the judge refers in paragraph 447.
- I have concluded, in line with the statement of Mance LJ in the Amiri Flight case at paragraph 32, that section 26(4)(a) does not require a seller, or hirer, to have undertaken an obligation to deliver the contractual goods to another state. Section 26(4)(a) is satisfied simply if, at the time of the conclusion of the contract, the goods in question will be carried from the territory of one state to the territory of another.[16] That was the case here.
- Therefore, UCTA 1977 does not apply to these two Lease Agreements.
- It must follow that FFCL cannot rely on the pre – contract misrepresentation defence.
G. The defective condition of the aircraft defence
- FFCL's case is that UCTA 1977 applies to the Lease Agreements, therefore there was an implied term in each that Trident, as Lessor, undertook that the aircraft would be of satisfactory quality and/or fit for the purpose for which it was specifically supplied on lease, pursuant to sections 9(2) and (5) of the Supply of Goods and Services Act 1982. Both Aircraft 2051 and 2054 suffered from defects at the time of delivery, but which became apparent only after delivery. FFCL submits that the effect of those defects was that neither aircraft was of satisfactory quality or fit for the purpose for which it was supplied. Therefore Trident was in breach of the implied terms of the Lease Agreements and the defects were so great that it gave FFCL the right to rescind them.
- Trident accepts, for the purposes of this application, that Aircraft 2054 suffered snags on its ferry flight from Sweden to India and that more snags were found on its arrival there. As a result, the Certificate of Airworthiness was not issued for six weeks until 2 August 2006. Trident further accepts, for the purposes of this application, that a further 29 snags appeared in the aircraft once it started operation and that Aircraft 2051 also suffered snags once it was in operation upon its arrival in India in October 2006. There was a further problem with its weather radar which grounded the aircraft from 16 April to 28 May 2007.
- However, Trident relies on clauses 4.2, 19.1 and 19.2 and Schedule 4 of the Lease Agreements to exclude the implied conditions alleged or liability for their breach if they are part of the contract terms. Mr McPherson submits that the effect of clause 4.2(b) is that FFCL is obliged to accept the aircraft when tendered for "Delivery" in accordance with the Lease Agreement, provided that the Aircraft is in the "Delivery Condition"[17] in accordance with Schedule 4. Schedule 4.2 sets out the specific conditions that must be fulfilled when the aircraft is delivered. Schedule 4.3 permits the lessee to inspect the aircraft during the "Delivery Procedure" to ensure that the aircraft is in the "Delivery Condition". If there are departures from the "Delivery Condition" that prejudice the airworthiness or safety of the aircraft or which materially affect the performance, economic operation or maintenance of the aircraft, then the Lessor has to correct them before delivery. Otherwise reservations are to be made on a "Delivery Reservations Agreement" and, if necessary, they will be dealt with by the Lessor after delivery.
- Paragraph 3(c)(iv) of Schedule 4 to the Lease Agreement provides that any obligations assumed by Trident under the Delivery Reservations Agreement "shall be in full and final settlement of all claims or actions which the Lessee may have against the Lessor of any nature in respect o the condition of the Aircraft at Delivery…". It is therefore Trident's case that once the aircraft is delivered, then its obligations as to quality and fitness for purpose cease, subject to the points expressly reserved in the Delivery Reservations Agreement. Trident points to clauses 11, 12, 14 and 16 as supporting this construction. However, Trident accepts that the corollary to this is that it is, in principle, liable for any defects in the aircraft that are present before delivery and has to deal with them in accordance with the contract terms.
- For the purposes of this application, Mr Vickery accepts that if UCTA 1977 does not apply to the Lease Agreements, (because they are international supply contracts), then clause 19.1(a) of the terms will exclude liability for breach of the implied terms set out in section 9 of the 1982 Act. He accepts that this is possible because of the terms of section 11 of the 1982 Act.[18] Given my conclusion on the effect of section 26(4)(a) of UCTA 1977, it follows that Trident can exclude liability for breach of any implied term as to quality or fitness for purpose of the aircraft.
- However, Mr Vickery has two further arguments. The first concentrates on the condition of the port main landing gear of Aircraft 2054, which Trident accepts was not in accordance with the requirement set out at paragraph 2.6 of the Delivery Conditions in Part 2 of Schedule 4 of the Lease Agreement. The port landing gear had only 2,725 cycles left and less than 6 years remaining until overhaul. Therefore, Aircraft 2054 did not comply with an express term (of description or quality) in the contract.
- In answer to that, Mr McPherson points out that this defect was specifically noted on the Acceptance Reservations Agreement for Aircraft 2054, (which was signed by both parties on 26 May 2006), under the heading "Reservations Not Requiring Action" paragraph (f).[19] Therefore if there was any defect, the parties agreed that Trident would not be liable in respect of it, because the Acceptance Reservations Agreement stated expressly that this matter did not require action.
- I accept this argument. Even if there was a defect, the parties have compromised their differences on it and there cannot be a further liability in respect of it.
- Mr Vickery's second argument, as I understand it, is that although all the other defects did not manifest themselves until after delivery of the two aircraft, at least some of them must have been present before delivery. It is a question of fact as to which defects did exist before delivery, which has to be investigated. If they did exist before delivery, Trident would be in breach of the implied term. Therefore, Trident must remain liable in respect of such defects.
- Mr Vickery's difficulty is that, as he concedes, on a fair reading of clause 19, it excludes all implied conditions as to the quality or fitness for purpose of the aircraft, other than as provided for in clause 19, Schedule 4 and the Acceptance Certificate. It is, in my view, clear that the parties intended to exclude any implied terms that were inconsistent with that express contractual regime. Therefore the test set out in section 11(2) of the 1982 Act is satisfied.[20]
- Accordingly, I have concluded that FFCL has no real prospect of success on this defence.
H. Conclusions
- For the reasons I have set out above, I have concluded that FFCL has no real prospect of success on the two defences/counterclaims based on misrepresentation and defects in the aircraft. Therefore, FFCL was not entitled to rescind the two Lease Agreements on 30 August 2007, nor would it be entitled to do so now. It must follow that Trident was entitled to serve the Notice of Default on 18th October 2007 and the Notice of Termination on 30 January 2008.
- In principle, therefore, Trident is entitled to judgment under CPR Part 24 on the items set out in the Particulars of Claim and paragraph 9 of Miss Baird's first witness statement. However, I will leave it to counsel to agree the form of order, if at all possible.
- I am very grateful to counsel for their interesting and attractive arguments.
A P P E N D I X
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4. DELIVERING AND ACCEPTING THE AIRCRAFT
4.1 Delivery Procedure
The Lessor and the Lessee shall follow the Delivery Procedure. Delivery will take place at Southend airport, England.
4.2 Delivery and acceptance
(a) After satisfactory completion of the Delivery Procedure, the Lessor shall tender the Aircraft for delivery to the Lessee.
(b) The Lessee shall accept the Aircraft when tendered for Delivery in accordance with this Agreement, provided that the Aircraft is in the Delivery Condition. The Lessee shall provide evidence of its acceptance by immediately signing the Acceptance Certificate and delivering it to the Lessor.
(c) The Lessor shall not be responsible for any delay in Delivery if the Lessee fails to satisfy all of its obligations listed in Schedule 3 Part 1 (Conditions Precedent) and Schedule 4 Part 1 (Delivery Procedure) on the required date in which case the Lessor will be entitled to cancel any work programme or slots reserved to get the Aircraft ready for Delivery and Delivery will be postponed accordingly.
(d) The Lessee shall be not responsible for any delay in Delivery if the Lessor fails to satisfy all of its obligations listed in Schedule 3 Part 1A(ii) (Lessee's Conditions Precedent).
4.3 Delayed Delivery
If an Unforeseen Event occurs and, as a result, Delivery takes place after the Estimated Delivery Date or does not happen:
(a) the Lessor shall not be responsible for any Losses the Lessee suffers resulting from the delay or not delivering the Aircraft.
(b) the Lessee shall not, except in the circumstance described in paragraph (c) below, be entitled to end this Agreement or to reject the Aircraft when it is offered, for Delivery (provided the Aircraft is in the Delivery Condition) because of the delay; and
(c) if the Aircraft has not been offered for Delivery by Cut-Off Date, either party may end this Agreement by serving notice to that effect on the other party. All obligations of each party under the Transaction Documents shall end from the date of that notice and neither party shall be liable for any claim for Loss; provided however that the Lessor shall return to the Lessee, within 7 Business Days from the date of the said notice, any Deposit already received under Clause 5.1 (or the Letter of Credit in respect thereof).
4.4 Event of Loss before Delivery
In the event that the Aircraft suffers an Event of Loss prior to Delivery, this Agreement shall be frustrated and shall terminate immediately and neither party shall have any obligation to the other under this Agreement save for the obligation of the parties to return any documents that may have been delivered in relation to the Aircraft and the Lessor shall return to the Lessee, within 7 Business Days from the date of such Event of Loss, any deposit already received under Clause 5.1 (or the Letter of Credit in respect thereof).
- PAYMENTS
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- 2. Rent and Maintenance Reserves
The Lessee shall make all the payments specified in Schedule 8.
- 3. Manner of Payment
All the amounts the Lessee pays to the Lessor shall be paid in Dollars, on or before the due date, in immediately-available funds. The Lessee shall pay all these amounts into the Lessor's Account. The Lessee shall also send a copy of a payment advice slip addressed to the Lessor. The Lessee shall not make any deductions from any of its payments for any reason and shall not make any set-off or counterclaim.
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7. OBLIGATIONS UNCONDITIONAL
The Lessee's obligation to pay Rent and to perform all of its other obligations under this Agreement on time is absolute and unconditional no matter what happens and no matter how fundamental or unforeseen the event. The Lessee may not regard its obligations under this Agreement as ended, suspended or altered in any way because of any defence, set-off, counterclaim, recoupment or other right of any kind or of any other circumstance.
Nothing in this clause shall be construed as limiting the Lessee's right to institute proceedings against the Lessor or against any other person in the event of a breach by the Lessor of its obligations under this Agreement.
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17. EVENT OF DEFAULTS
The following events are Event of Defaults:
(a) The Lessee does not make a scheduled payment under any of the Transaction Documents on time or does not make any other payment within 7 Business Days after the Lessor's written demand for the payment.
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18. REMEDIES
18.1 Rights
If an Event of Default occurs and is continuing:
(a) The Lessor may, by giving written notice to the Lessee, terminate the leasing of the Aircraft under this Agreement.
(b) If the Lessor gives notice before the Delivery Date, the Lessor's obligation to lease the Aircraft to the Lessee under this Agreement shall end immediately on the date of the notice.
(c) If the Lessor gives notice after the Delivery Date, the leasing of the Aircraft under this Agreement shall end. This shall apply unless the Lessor chooses to continue leasing the Aircraft on a day-to-day basis, in which case it shall continue under this Agreement until the Lessor gives further notice. In any event the Lessee shall still have to carry out its obligations under the Transaction Documents including (without limitation) its obligations in relation to Insurance and maintenance.
(d) If the Lessor sends the Lessee a notice under paragraph (a) above, the Lessor May require the Lessee to return the Aircraft in accordance with Clause 15, as if it were being returned on the Contractual Expiry Date.
(e) If the Lessor terminates the leasing of the Aircraft, the Lessor may repossess the Aircraft. The Lessor is authorised to enter the Lessee's premises for this purpose and shall not be responsible for any damage to property caused during the re- possession.
(f) The Lessor may take appropriate court action.
18.2 Payments
If the obligation of the Lessor to lease the Aircraft ends, or the leasing of the Aircraft under this Agreement ends following an Event of Default, the Lessee shall, on demand, pay to the Lessor, as compensation, the amount the Lessor shows in a notice as:
(a) all the Rent the Lessee already owes (if any) and any other amounts the Lessee owes under the Transaction Documents;
(b) any costs the Lessor has paid or may have to pay in putting the Aircraft into the Re-delivery Condition; and
(c) Losses suffered by the Lessor as a result of the ending of its obligations to lease the Aircraft pursuant to this Agreement.
This shall not affect the Lessor's right to damages.
Nothing contained herein shall remove the Lessor's common law duty to mitigate its Losses in the event of termination prior to the Original Contract Expiry Date which may include Lessor taking steps to re-market the Aircraft for lease as soon as reasonably possible following such termination and re-possession of the Aircraft.
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19. DISCLAIMERS
19.1 Exclusion
The Aircraft is delivered to the Lessee "as is, where is" and the Lessee agrees and acknowledges that, save as expressly stated in this Agreement and the other Transaction Documents to which the Lessor is a party, the Lessor shall not have any liability in relation to:
(a) the description, airworthiness, merchantability, satisfactory quality, fitness for any use or purpose, value, condition, or design of the Aircraft; or
(b) any obligation, liability, right, claim or remedy in tort (to the extent permitted by applicable law); or
(c) any obligation, liability, right, claim or remedy for loss or damage to the Aircraft or for any liability of the Lessee to any third party.
The Lessee also agrees and acknowledges that save as expressly stated in this Agreement and the other Transaction Documents to which the Lessor is a party, the Lessor has not and shall not be deemed to have made any warranties or representations, express or implied, about the Aircraft, including but not limited to the matters referred to above.
19.2 Waiver
The Lessee gives up any rights against the Lessor regarding any warranty or representation, except in respect of any warranty or representation expressly made in this Agreement or the other Transaction Documents to which Lessor is a party. The Lessee cannot make any claim against the Lessor at any time after Delivery relating to the condition of the Aircraft.
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21. MISCELLANEOUS
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21.10 The whole Agreement
This Agreement is the whole agreement between the Lessor and the Lessee for leasing the Aircraft and replaces all previous agreements or commitments in respect of the Aircraft.
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Schedule 4
Part 1 - Delivery Procedure
1. Key dates
(a) Subject to the terms of this Agreement, Delivery will take place during the Scheduled Delivery Month.
(b) At least fifteen (15) Business Days before the start of the Scheduled Delivery Month, the Lessor will notify the Lessee of the Estimated Delivery Date.
(c) The Lessor and the Lessee shall begin the Delivery Procedure at least ten (10) Business Days before the Estimated Delivery Date. At the start of the Delivery Procedure, the Lessor shall allow the Lessee to inspect the Aircraft. The Lessor and the Lessee shall co-operate with each other to complete the Delivery Procedure as quickly as possible before the Estimated Delivery Date.
2. Delivery Condition
At Delivery, the Lessor shall deliver the Aircraft to the Lessee in accordance with the following:
1. The Aircraft shall be offered with a UK Certificate of Airworthiness for Export to India (UK AFM BA23 Type Certificate)
2. The Aircraft shall be painted white
3. The all-up weight modification kit (SB ATP-57-17 and SB ATP-53-34) shall be fitted on the Aircraft
4. New TAWS (S/B ATP-34-36), Mode-S transponder, FDR Spec 10a, new Triple Frequency ELT, CVR, and HF will be fitted.
5. The Aircraft will be delivered clear from a scheduled ½ C-check (1,500 hours) and one C-Check for 3,000 hours in accordance with BAE maintenance MRB ATP-01 Iss 3 & MPD ATP Rev 15.
6. The landing gears will have on average no less than 6,000 cycles and 6 years remaining to overhaul.
7. The Engines will have no less than 2,000 hours to the next H S I.
8. Out of phase checks will be cleared for 12 months.
9. The Aircraft will be delivered free and clear of 2 and 4 year structures checks.
10. LLPs will be cleared for 12 months, 1,000 hours, 1,000 cycles
11. Standard type certification information in accordance with BAE SYSTEMS procedures
as further detailed in the Conversion Document.
At Delivery, the Lessor shall deliver the Aircraft to the Lessee so that in all material respects it meets the description of the Aircraft in Part 1 of Schedule 2 and this paragraph 2 modified in accordance with the conversion document prepared by BAE Systems (Operations) Limited ("the Conversion Document") and signed by the Lessee setting out the work to be done on the Aircraft prior to Delivery (the "Delivery Condition"), except as agreed under paragraph 4 below.
The Aircraft will be less than 15 years old when the Lessor tenders the Aircraft for delivery in the Delivery Condition to the Lessee.
The Aircraft will generally be in accordance with clause 3 and 4 of Schedule 9 part 2.
3. Inspection
(a) As part of the Delivery Procedure, the Lessee may inspect the Aircraft at Southend Airport, United Kingdom (including a test flight of up to two (2) hours when up to two representatives (one of which must be a fully approved pilot) of the Lessee may be on the Aircraft as observers) to ensure that the Aircraft is in Delivery Condition.
(b) The Lessee may also be allowed an inspection and audit of the Aircraft Documents and any Parts.
(c) Unless the Lessor terminates this Agreement under paragraph (c) below, if the Lessee's inspection of the Aircraft shows that:
(i) there are differences in the condition of the Aircraft from the Delivery Condition ("Reservations"):
(aa) which prejudice its airworthiness or safety; or
(bb) which shall materially affect the performance, economic operation or maintenance of the Aircraft,
the Lessor shall correct them before the Lessor offers to deliver the Aircraft. The Lessee may re-inspect the Aircraft but only to the extent of ensuring those Reservations have been remedied.
(ii) the Aircraft has other Reservations which are agreed as important, the Lessor and the Lessee shall note them as "Reservations Requiring Action" in the Delivery Reservations Agreement attached to the Acceptance Certificate and shall agree a programme for their correction as soon as reasonably possible after Delivery;
(iii) the Aircraft has other Reservations which are agreed as minor, the Lessor and the Lessee shall note them as "Reservations Not Requiring Action" in the Delivery Reservations Agreement attached to the Acceptance Certificate and the Lessee shall not have to correct them before Re-delivery.
(iv) any obligations assumed by the Lessor under the Delivery Reservations Agreement shall be in full and final settlement of all claims or actions which the Lessee may have against the Lessor of any nature in respect of the condition of the Aircraft at Delivery. The Lessor shall not be liable to the Lessee or any other party in respect of any loss arising out of or connected with any actual or purported difference between the condition of the Aircraft on Delivery and the Delivery Condition.
(d) If the Lessor tells the Lessee that it does not consider it reasonably possible or economic to correct any Reservation and the Lessee notifies the Lessor that it shall not accept the Aircraft with that Reservation, the Lessor may terminate this Agreement by serving notice on the Lessee. Each party's obligations under the Transaction Documents shall end on the date of that notice, unless this Agreement provides otherwise. In such event, Lessor will repay the Deposit to the Lessee within seven (7) Business Days.
