The Hon. Mr Justice Cooke :
Introduction
- In this action the claimant, a Gibraltar registered company, seeks a declaration that it has validly rejected a Challenger 605 private jet aircraft, purchased new from the defendant, a Canadian manufacturer, based at Dorval near Montreal, Canada. The claimant submits that the contract of sale has been rescinded by rejection of the aircraft and claims a refund of the purchase price following that rejection, or alternatively damages if it was not entitled to reject.
- The claimant is a company controlled by Mr Antonio Mosquito, a resident of Angola. He also controlled another Angolan company, Angoil SA which entered into an Aircraft Purchase Agreement (the APA) with the defendant to buy a new Challenger 605 aircraft, built according to a limited edition specification. On the 26th April 2007, the APA was assigned to the claimant by way of an Assignment Agreement, to which the defendant was also party. It is the claimant's case that the jet was to be Mr Mosquito's personal private jet and that the companies were merely vehicles through which, as their alter ego, he acted.
- Whilst there are a range of issues relating to the condition of the aircraft on delivery, which cannot be determined at this trial because of late development in the parties' respective cases, it is common ground that the jet was formally delivered to the claimant on the 27th March 2009 and that the claimant wrote a letter of rejection of the aircraft on the 5th July 2010, whilst the jet was at the defendant's premises in Hartford, Connecticut, for investigation following an incident on 19th/20th May 2010 when the aircraft had to make an unscheduled landing at a military airfield in Algeria on only one of the twin engines, because of a problem with the main engine driven pump in the No.1 left hand hydraulic system which had been powering the aircraft's flight controls. (Either of the left or right hand systems can be used for this purpose).
- At the risk of oversimplifying the issues, I can summarise the essential dispute between the parties on the pleadings as being a battle in which the claimant alleged that the aircraft did not correspond with description, was not of satisfactory quality and was unfit for purpose within the meaning of Sections 13 and 14 of the Sale of Goods Act 1979 (as amended). The defendant relied upon the terms of the APA as excluding such liability under statute and replacing it with the warranties set out in the APA, of which, it says, it is not in breach. Moreover, the defendant contended that, in any event, the problems which were encountered by the aircraft during service did not represent a breach of any of the terms implied by statute as to the condition of the jet on delivery and merely represented the sort of issues which can arise with a highly complex piece of machinery during service, even if, on two particular occasions (the first and last flight) they gave rise to particularly unfortunate and distressing consequences.
- In consequence of disclosure given by the defendant of incidents involving engine driven pumps in the hydraulic systems of other aircraft which are part of the Challenger 604/605 fleet, the claimant's expert put forward, in his report, served on 25th November 2011, an unpleaded case of a general design defect in the hydraulic systems of the fleet, which the defendant then sought to refute by evidence from one of its own senior employees responsible for the design. He is expert in hydraulic systems. That evidence took the form of a statement served shortly before trial with appendices and references to documents previously unseen by the claimants. In order to do justice between the parties an adjournment was required so that they could be in a position properly to prepare for trial on the complex issues which had arisen at this late stage.
- The contractual issues and questions of law which arise in relation to the terms of the APA, the Assignment Agreement, the Sale of Goods Act 1979 (as amended) and the Unfair Contract Terms Act 1977 were all, it was agreed, susceptible of determination on the assumption that the claimant's case on the technical aspects was good, though of course, those issues remain to be resolved, if required.
- The Unfair Contracts Terms Act does not apply to an "International Supply Contract" but if it is of application, its effect is different where the purchaser is a "Consumer" within the meaning of the Act, from the situation where it is not. In short, liability for breach of the conditions set out in Sections 13 and 14 of the Sale of Goods Act cannot be excluded in a consumer contract but can be excluded to the extent that the term is reasonable in other contracts. I turn to these issues.
The Contract Terms
- Insofar as relevant, the contract provided as follows:-
"This Aircraft Purchase Agreement (the "Agreement") is made by and between BOMBARDIER INC. ("Seller") and ANGOIL SA ("Buyer") and shall be effective as of the date of its acceptance and execution by Seller.
ARTICLE I. AIRCRAFT DESCRIPTION
Subject to the provisions of this Agreement, Seller agrees to manufacture, sell and deliver, and Buyer agrees to take delivery of, and pay for, one Bombardier Challenger CL-600-2B16 variant 605 (the "Aircraft") as described in the Description and Customer Support Services Manual dated January 30, 2007 Rev.5 attached hereto as Schedule "A", and Completion Description dated February 1st 2007 Rev.4 and Buyer selected options ("Options") attached hereto as Schedule "A-1" and Schedule "A-2" respectively (Schedules "A-1" and "A-2" together the "Completion Work") which are made part of this Agreement by reference (collectively, the "Specification").
ARTICLE 2. PRICE, PAYMENT SCHEDULE AND DELIVERY
2.1 In consideration of Seller's obligations to manufacture, sell and deliver the Aircraft to Buyer, Buyer shall pay to Seller the amount of $ 27,650,000 USD (the "Purchase Price") as follows;
(i) 1st payment due upon Buyer's execution of this Agreement
(which includes USD 250,000 already received by Seller): $3,250,000 USD
(ii) 2nd payment due on or before 10 November 2007: $3,000,000 USD
(iii) 3rd payment due on or before 20 April 2008: $2,000,000 USD
(iv) 4th payment due upon issuance of the Certificate of
Airworthiness $15,500,000 USD
(v) balance of Purchase Price due at the Delivery Time:
(as hereinafter defined): $3,900,000 USD
2.2 The Aircraft shall be ready for Buyer's inspection and acceptance at Seller's facility in the city of Dorval, Quebec within 45 days of 15 March 2009.
ARTICLE 4. GENERAL PROVISIONS
4.1 THE WARRANTY, OBLIGATIONS AND LIABILITIES OF SELLER AND THE RIGHTS AND REMEDIES OF BUYER SET FORTH IN THE AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF AND BUYER HEREBY WAIVES AND RELEASES ALL OTHER WARRANTIES, OBLIGATIONS, REPRESENTATIONS OR LIABILITIES, EXPRESS OR IMPLIED, ARISING BY LAW, IN CONTRACT, CIVIL LIABILITY OR IN TORT, OR OTHERWISE, INCLUDING BUT NOT LIMITED TO A) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE, AND B) ANY OTHER OBLIGATION OR LIABILITY ON THE PART OF SELLER TO ANYONE OF ANY NATURE WHATSOEVER BY REASON OF THE DESIGN, MANUFACTURE, SALE, REPAIR, LEASE OR USE OF THE AIRCRAFT OR RELATED PRODUCTS AND SERVICES DELIVERED OR RENDERED HEREUNDER OR OTHERWISE.
4.2 SELLER SHALL NOT BE LIABLE FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL AND/OR PUNITIVE DAMAGES OF ANY KIND OR NATURE UNDER ANY CIRCUMSTANCES OR, WITHOUT LIMITING THE FOREGOING, FOR ANY LOST PROFITS OR ANY OTHER LOSSES OR DAMAGES FOR OR ARISING OUT OF ANY LACK OR LOSS OF USE OF ANYAIRCRAFT, ANY EQUIPMENT, ANY ACCESSORY OF ANY SPARE PART FOR ANY REASON.
4.3 THE PARTIES HERETO HEREBY ACKNOWLEDGE AND AGREE THAT THE LIMITED WARRANTIES AND THE LIMITATION OF LIABILITY PROVISIONS CONTAINED HEREIN AND IN THE SPECIFICATION HAVE BEEN EXPRESSLY AGREED TO IN CONSIDERATION OF THE PURCHASE PRICE AND OTHER PROVISIONS OF THIS AGREEMENT. TO THE EXTENT APPLICABLE LAWS DO NOT ALLOW THE LIMITATIONS SET OUT IN THIS ARTICLE 4, SUCH LIMITATIONS SHALL NOT BE APPLIED OR INVOKED.
4.4 This Agreement shall be governed by and interpreted in accordance with the internal laws of England and Wales, excluding any conflicts of law provisions thereof.
ARTICLE 5. DELIVERY AND INSPECTION
5.1 Seller shall give Buyer reasonable notice of the date on which the Aircraft will be ready for Buyer's inspection and acceptance flight test of not more than 10 hours duration. Within 10 days of such date. Buyer agrees to perform such inspection and, if no defect or discrepancy is revealed, Buyer shall accept delivery of the aircraft before the end of such 10 day period (the time of the acceptance of delivery of the Aircraft being the "Delivery Time").
5.2 Any defect or discrepancy revealed by Buyer's inspection and/or acceptance flight test shall be corrected at no cost to Buyer before or after Delivery Time depending on the nature of the defect or discrepancy and time required for correction. If such correction requires an additional flight test, it shall be conducted in accordance with Article 5.1. Buyer shall accept delivery of the Aircraft within 3 days after any defect or discrepancy has been corrected.
5.3 Buyer shall accept delivery of the Aircraft by signing a receipt for delivery in the form of Schedule "B", attached hereto. Upon receipt of all payments due at Delivery Time, Seller shall deliver to Buyer a bill of sale and title to the Aircraft shall pass to Buyer free and clear of all rights, prior claims, interests, liens; charges, registrations and encumbrances (hereinafter "Liens") other than those created by or through Buyer or by persons claiming by or through Buyer, and risk of damage to or loss of the Aircraft shall pass to Buyer.
Article 6.3
6.3 Buyer shall be responsible for the payment of any sales, use, personal property, excise, goods and services, value added, consumption, luxury, withholding or other similar taxes, duties or assessments and any related penalties and interest which may be levied, assessed, or imposed on Buyer or Seller or otherwise by any governmental authority or agency as a result of or in connection with this Agreement. For the avoidance of doubt, Seller shall be responsible for any taxes imposed on or measured by its net income resulting from the sale of the Aircraft. Provided that (i) Buyer is a non-resident of Canada, (ii) Buyer is not registered to do business in Canada, (iii) the Aircraft is not acquired for consumption, use or supply in Canada before the exportation and (iv) the Aircraft is immediately exported from Canada following Delivery Time, Seller represents that according to current Canadian Law, there are no Canadian taxes, duties and fees, which Buyer would become obligated to pay pursuant to this Article 6.3.
ARTICLE 14. DESCRIPTION & CUSTOMER SUPPORT AND SERVICES MANUAL
Schedule "A" is amended as follows:
SECTION 4.0 CERTIFICATION
Delete the last paragraph in its entirety and replace with the following:
"The Aircraft shall be delivered with a Transport Canada Export Certificate of Airworthiness for export to which will permit the Aircraft to qualify for a Standard Airworthiness Certificate issued by a member state of the European Union ("Member State") but this only provided that Seller has already certified a Challenger 605 aircraft in such Member State as of the date of this Agreement. Buyer shall select such Member State and inform Seller in writing of its selection no later than 19 November 2007. If Buyer does not inform Seller in writing of its selection by such deadline, Buyer shall be deemed having selected to register the Aircraft in Angola."
Schedule A to the APA included the specification and included the following:-
- "14.0 CUSTOMER SUPPORT SERVICES
Inspection and Acceptance Procedures
Seller will advise Buyer when the Aircraft will be available for Buyer's inspection and acceptance in accordance with the Agreement. Buyer will be entitled to have as many representatives as it deems required to participate in the inspection and acceptance of the Aircraft; however, only 2 representatives of Buyer may participate in flight tests due to safety, insurance and regulatory requirements".
15.0 WARRANTY
15.1.
Subject to the terms set forth in this Article 15, Seller warrants to Buyer that at Delivery Time and for the Warranty periods set forth below, the Aircraft shall be free from: i) defects in material, ii) defects in manufacture and iii) defects in design, having regard to the state-of-the-art as of the time of design of the Aircraft ("Warranty"). In case of any such defect during the Warranty periods set forth below, Seller's sole obligation and liability under this Warranty shall be a) expressly limited to correction by repair, replacement or rework of such defect by Seller at Seller's facilities, or at such other facility as may be designated by Seller, it being understood that Seller shall be responsible for the costs of the parts, material and labor related to such repair, replacement or rework and b) subject to Buyer giving written notice to Seller's warranty department of a claim under this Warranty (the "Claim") as soon as practicable but in no event later than expiration of the Warranty periods set forth below.
Cost of transportation or shipping of the Aircraft or any item(s) covered under the Warranty for the purpose of a repair, replacement or rework pursuant to the Warranty shall be at Buyer's expense. For the full Warranty to apply, Seller must receive defective components within the period specified in the Parts Logistic Price Catalog.
15.2
The Warranty for the Aircraft shall be for 3,000 flight hours or 36 months from Delivery Time, whichever first occurs.
15.3
Notwithstanding Article 15.2, the Warranty for the Completion Work shall be for 1,200 flight hours or 24 months from Delivery Time, whichever first occurs. For metallic exterior paint, the Warranty shall be limited to 90 days from Delivery Time.
15.4
Notwithstanding Articles 15.2 and 15.3, the Warranty for the Avionics, as described in Article 13, shall be for 60 months from Delivery Time.
15.5
Notwithstanding Articles 15.2, 15.3 and 15.4, the Warranty for airframe primary metal structures defined in Sections 53 (Fuselage), 55 (Stabilizers) and 57 (Wings) of the Aircraft Structural Repair Manual in effect as of the date of this Agreement shall be for 10,000 flight hours or for 120 months from Delivery Time, whichever first occurs; provided, however, that such extended Warranty period does not apply to doors, fairings, covers, non metallic structures and systems/equipment support structure, for which specific items the Warranty period shall be as stated in Article 15.2.
15.6
Any Seller issued Service Bulletin incorporated by Seller prior to Delivery Time shall be covered by the applicable Warranty set forth in Articles 15.2, 15.3, 15.4 and/or 15.5 except for any material furnished by Buyer.
15.7
Buyer shall be entitled to Warranty coverage provided the Claim is not the result of one of the
followings:
i. the Aircraft has been operated or maintained in material violation of the provisions of Seller's "Approved Flight Manual Maintenance Manual" or Service Bulletins, as each may be amended from time to time by Seller;
ii. an installation, repair, alteration or modification to or of the Aircraft made by Buyer or a third party is the cause or a contributing cause of the defect;
iii. the Aircraft has been subjected to misuse, abuse or accident or has been improperly stored or protected against the elements when not in use.
15.8
Notwithstanding any other provisions herein, the warranty shall not apply to the engines installed on the Aircraft. The warranty for the engines shall be provided directly by the engine manufacturer to Buyer, shall be the sole responsibility of the engine manufacturer, and the rights of Buyer with respect to the engines shall be a matter as between the engine manufacturer and Buyer. Buyer agrees that Seller shall have no obligation or liability for any Warranty on the engines including, without limitation, any lack of performance, reliability or maintainability of the Aircraft as a result of the engines.
15.9
The Warranty shall not apply to any accessory, equipment or part incorporated in the Aircraft, which is not furnished pursuant to this Agreement. In addition, the Warranty excludes scheduled maintenance inspections and overtime. The Warranty shall not apply to normal wear such as brake wear and tire wear, accrued life usage, consumables such as fuel, oil, liquid deicing systems and filters, or any servicing or replenishment of such consumables.
15.10
Any repair, replacement or rework under the Warranty shall be covered to the extent of the unexpired portion of the Warranty periods set forth in this Article 15 remaining at the time of such repair, replacement or rework.
15.11
All costs resulting from the removal of non-defective items, other than by Seller or Seller's representatives, shall be paid by Buyer.
15.12
Buyer shall maintain reasonably complete records of operations and maintenance of the Aircraft and shall make such records available to Seller as Seller may reasonably require. If Buyer fails to maintain those records Seller shall be relieved of its Warranty obligations.
15.13
The Warranty is for the benefit of Buyer, its successors and all persons to whom title to the
Aircraft may be transferred during the Warranty periods set forth herein, provided that any successor or owner shall remain subject to the applicable provisions of this Agreement to the same extent as Buyer
- The Assignment Agreement provided, so far as relevant, as follows:-
"This Assignment (collectively hereinafter referred to as the "Assignment") to the
Bombardier 605 Aircraft Purchase Agreement between Bombardier Inc. and Angoil S.A.
dated 19th April 2007 (together with all schedules, completion and other specifications
hereinafter collectively referred to as the "Agreement") is made and entered into as of this
26 day of April 2007 by and among Angoil S.A. ("Assignor") and Air Transworld Limited ("Assignee") with offices located at P.O. BOX 625, 24 Main Street — Gibraltar.
WHEREAS Assignor desires to transfer and assign- to Assignee, all of Assignor's rights,
interests, liabilities and obligations in connection with and arising out of the Agreement.
WHEREAS Bombardier Inc. ("Bombardier") and Assignor are parties to a Purchase Agreement dated 19 April 2007.
Now therefore, the parties hereto agree to assign the Purchase Agreement under the following terms and conditions:
- Assignor hereby assigns to Assignee all of its rights and obligations under the Purchase Agreement.
- Assignor agrees to remain jointly and severally liable for the performance of all of Assignee's obligations under the Agreement.
- Assignee agrees to perform all of Assignor's obligations under the Purchase Agreement to the extent not already performed by Assignor as if it were the original purchaser under the Agreement.
- Bombardier shall in no way assume any greater obligations under the Purchase Agreement (including, without limitation, those relating to warranty) than it would have had without the assignment of the Purchase Agreement by Assignor to Assignee.
Except as expressly amended by this Assignment, the Agreement remains in full force and effect, and this Assignment shall not be construed to alter or amend any of the other terms or conditions set forth in the Agreement."
The Construction of the APA
- The claimant submits, through Mr Stephen Kenny QC, that the terms of Article 4 do not have the effect of negating the conditions implied by Sections 13 and 14 of the Sale of Goods Act 1979 (as amended). Because Article 4 is, in essence, an exclusion clause, it has to be construed strictly contra proferentem with the result that any ambiguity will be determined in favour of the claimant. The claimant relies upon a run of authorities, culminating in the Mercini Lady [2011] 1 Lloyd's Rep 442 where Rix LJ gave a judgment with which the other two members of the Court of Appeal agreed. It was submitted that, for Article 4.1 of the agreement to be effective in excluding the conditions implied by the Sale of Goods Act, it would have to refer to the word "condition" which it does not. This was, it was said, the principal rule established by the authorities and if there was any extension to it, that extension was tentatively put forward by Rix LJ to encompass only language which must necessarily refer to the conditions of the Sale of Goods Act.
- I was taken through the line of authorities, commencing with Wallis v Pratt [1911] AC 394. In that case, on a sale of Sainfoin, the clause in question provided that "sellers give no warranty express or implied as to growth, description or any other matters, and they shall not be held to guarantee or warrant the fitness for any particular purpose of any grain … or any other article sold by them, or its freedom from injurious quality or from latent defect". The House of Lords, overruling the Court of Appeal, and approving the dissenting judgment of Fletcher Moulton LJ in that court, held that the words were insufficient to exclude any implied condition, because the distinction between warranties and conditions in the Sale of Goods Act was so well known that exclusion of a warranty could not be taken as excluding a condition. The point is expressed clearly by Lord Alverstone CJ at pages 396-398 and Lord Shaw at pages 399-400.
- In Baldry v Marshall [1925] 1 KB 260, where there was a sale of a Bugatti car, a guarantee was given "against any breakage of parts due to faulty material" with an excluding clause that provided that "cars Are sold on condition that the foregoing guarantee is accepted instead of and expressly excludes any other guarantee or warranty, statutory or otherwise". The Court of Appeal again referred to the well-known distinction between conditions and warranties in the Sale of Goods Act, by reference to the decision of the House of Lords in Wallis (see Bankes LJ at pages 265-266 and Atkin LJ at page 269). Additionally, when referring to "any other guarantee… statutory or otherwise" nothing was being said about "conditions" and the words "any other guarantee" could not be read as meaning "any other condition" merely because they were used in addition to the word "warranty". The decision in Wallis was held to be directly applicable.
- In Cammell Laird and Company Ltd v The Manganese Bronze & Brass Company Ltd [1934] AC 402, there was a guarantee given "against defective material and workmanship for a period of six calendar months after handing over of vessel to owners". The submission made was that this was sufficient to negative, by its express terms any implied conditions of the Sale of Goods Act. The House of Lords considered the matter concluded by the earlier decision in Wallis. Lord Wright at pages 431-432 said this:-
"Such a clause as this, in which the word condition is not used, is ineffective to exclude the conditions implied under the Act. The same principle was applied in Baldry v Marshall. The principles of these authorities is that though a condition is deemed to be and can be treated as a warranty, if it is not availed of to reject the goods, still it remains a condition; once a condition always a condition; hence apt and precise words must be used to exclude it; the words guarantee or warranty are not sufficiently clear. "
- In Henry Kendall and Sons v William Lillico & Sons Ltd [1969] 2 AC 31, two different exclusion clauses in different contracts were the subject of dispute. One such clause purported to impose upon the buyer "the responsibility of any latent defects" whilst the other clause stated that "the goods are not warranted free from defect, rendering same unmerchantable, which would not be apparent on reasonable examination, any statute or rule of law to the contrary notwithstanding." Lord Morris at page 90F-91A stated that it was well settled law that exclusion clauses had to be clear before they could be held to exclude a condition of the contract and that the former clause to which I have referred, did not "either expressly or by necessary inference" negative or cancel any of the conditions of the Sale of Goods Act. Later, at page 95H-96B, he held that the second clause to which I have referred, could not be construed as negativing the implication of a condition under Section 14(1) of the Sale of Goods Act, nor as defeating a claim for damages where there was an election to treat the breach of condition as a breach of warranty. The words used were wholly inapt to exclude a condition because they did not refer to a condition. Lord Guest, at page 105B, said that exemption clauses had to be construed strictly and the exception had to be expressed in sufficiently clear words and at page 107D, referred to the long line of authority which decided that an exemption from breach of warranty would not exempt for breach of conditions. Lord Pearce's judgment at page 144A-E was to the same effect.
- The effect of these decisions is that liability cannot be excluded for a breach of a condition implied by the Sale of Goods Act by exclusions which refer merely to "warranty" or "guarantee", even if those words are cross-referenced to statutes or rules of law, which would otherwise give rise to an implication of such terms. These authorities require any term excluding a condition implied by the Sale of Goods Act to be in "apt and precise words", if it is to be effective, for the clause "expressly or by necessary inference" to negative such a condition and for sufficiently clear words to be used to achieve this result.
- In the Mercini Lady, the relevant clause read as follows:-
"There are no guarantees, warranties or representations, express or implied, [of] merchantability, fitness or suitability of the oil for any particular purpose or otherwise which extend beyond the description of the oil set forth in this agreement"
- At paragraphs 46-62, Rix LJ considered the effect of this in the light of the authorities to which I have already referred. He stated at paragraph 53 that, by the time of Cammell Laird, the question of construction had become a "principle". At paragraph 59 he once again referred to the principle which had been established, on the highest authority, that Sale of Goods Act implied conditions cannot be excluded by reference to guarantees or warranties and require clearer language extending to "conditions" themselves.
- At paragraph 60, he recognised that it was extremely difficult to read the exclusion clause in the Mercini Lady as not being intended to cover the exclusion of the statutory implications of the Sale of Goods Act. He went on to say that, if he was construing the clause untrammelled by past authority, or if such authority was plainly limited in the way that so many decisions on the construction of individual clauses were, by consideration of the precise language and content thereof, he would feel it open, in the modern world, to give the excluding clause with which he was concerned, the construction which he believed it realistically bore, namely that it did exclude liability for breach of conditions of quality (merchantability) and fitness for purpose. He referred to Section 11(3) of the Sale of Goods Act which states that "a stipulation may be a condition, though called a warranty in the contract". He considered however that he was not free to depart from what he regarded as a principle established by the jurisprudence, which encompassed clauses similar to that which he had to consider. The parties had to be taken, by their choice of language, to have contracted by reference to what English law had to say about the language which they had adopted.
- He went on to refer to Lord Diplock's speech in Photo Production Ltd v Securicor [1980] AC 827[HL] at pages 850-851 and to the approach of the court to any departure from the obligations implied by law and to attempts to exclude them. In deciding what meaning the words of any clause were intended by the parties to bear, the court would take account of the reasonableness of any departure from the implied obligations, but that would not entitle the court to reject the exclusion clause, however unreasonable the court might think it to be, "if the words are clear and fairly susceptible of one meaning only".
- Rix LJ, at paragraph 62, said that no question of unreasonableness arose in relation to the contract in question but it was a case where the implied obligations, which were said to be excluded, were not only fundamental obligations of English law but obligations about which there had been a judicial consensus. The consensus was that "such obligations can only be excluded by language which expressly (or perhaps one may add which must necessarily be taken to) refer to conditions". He did not consider that the language used in the clause in question fell within that category and could not say, against the background of the jurisprudence to which he had referred, that the parties language was "fairly susceptible of only one meaning".
- Mr Stephen Kenny QC submitted that Article 4 failed to achieve the result of excluding the Sale of Goods Act conditions, in the same way as all the clauses to which these various authorities referred. It did not use the word "condition" nor, using the phraseology of the parenthesis in Rix LJ's judgment at paragraph 62, was the language of Article 4 such that it "must necessarily be taken to refer to such conditions". When pressed as to what language might have that effect, if not expressly using the word "condition", he said that a specific reference to the right of rejection and its loss might be sufficient, since it would identify the character of the excluded right as a condition. He also conceded that it might be enough to refer to the relevant Sections of the Sale of Goods Act. General language of exclusion, however, widely expressed, would not do.
- Moreover he relied upon the origin of the words "warranty" and "condition", submitting that the fundamental distinction was between dependent and independent covenants. I was referred to ancient cases which are reflected in the speeches of Upjohn LJ and Diplock LJ in Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at pages 63 and 65-69. I do not see how these matters assist in the argument, once it is recognised, as it must be in the light of the authorities, that there is a substantial difference between a "condition" and a "warranty" in the Sale of Goods Act. It was argued that the word "condition" had different implications and came from a different family from words such as "warranty", "guarantee" or "obligation" because conditionality was an essential part of the meaning of the former. Whilst, of course, that is undoubtedly the case for conditions precedent and conditions subsequent, the implied conditions in the Sale of Goods Act are promissory just as warranties are.
- Mr Michael Crane QC (as did losing counsel in the Mercini Lady) relied upon the decision of the House of Lords in the Photo Production case and on the effect of UCTA On the Court's approach to construction of commercial contracts, as set out by Lord Wilberforce at page 843 D-E:
"After this Act, in commercial matters generally, when the parties are not of unequal bargaining power, and when risks are normally borne by insurance, not only is the case for judicial intervention undemonstrated, but there is everything to be said, and this seems to have been Parliament's intention, for leaving the parties free to apportion the risks as they think fit and for respecting their decisions."
- Although this was said in the context of "fundamental breach", the point is of general application, although, as Rix LJ pointed out, when citing a later passage in Lord Diplock's speech at page 850F-851C, exclusion clauses are to be construed strictly and the degree of strictness appropriate to be applied to their construction may properly depend upon the extent to which they involve departure from the obligations implied in law. At page 851A-C, Lord Diplock expressed his agreement with Lord Wilberforce, that any need for judicial distortion of the English language had been banished by UCTA, and that it was wrong to place a strained construction upon words in an exclusion clause which were clear and fairly susceptible of one meaning only, even after due allowance had been made for the presumption in favour of the obligations implied by law.
- I was referred also to Lewison on The Interpretation of Contracts, 5th edition at paragraph 12.03 where the author cites a number of authorities which endorse the approach set out by Lords Wilberforce and Diplock in the Photo Production decision. There, reference is made to Moore-Bick LJ in Whitecap Leisure Ltd v John H Rundle Ltd [2008] 2 Lloyd's Rep 216 and in Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] 1 Lloyd's Rep 461. In these cases the Court refused to accept that there were two competing approaches to construction, struggling for supremacy, one of which required clear express words whilst the other favoured the natural meaning of the words used. He said that it was important to remember that any clause in a contract had to be construed in the context in which it was found, meaning both the immediate context of the other terms and the wider context of the transaction as a whole. The court was unlikely to be satisfied that a party to a contract had abandoned valuable rights arising by operation of law, unless the terms of the contract made it sufficiently clear that this was intended. The more valuable the right the clearer the language would need to be. Similarly, the more significant the departure from obligations implied by the law or ordinarily assumed under contracts of the kind in question, the more difficult it would be to persuade the court that the parties intended that result.
- With these considerations in mind, I turn to the terms of Article 4 of the APA and Article 15 of Appendix A. It is to my mind clear that the first two lines of Article 4.1 can only be read as saying that the defendant seller's obligations are to be found exclusively in the APA and its Appendix. The following lines make it clear that resort is not be had to any other obligation or liability of any kind which arises in law. No-one reading this provision could be in any doubt that it was intended that the obligations resting on the seller, and the rights available to the buyer, were only to be found in the APA and in the specification in Appendix A to which it refers. Those obligations and rights are specifically said to be "in lieu of" any other obligations or liabilities which could arise. "The warranty" … "set forth in the agreement" is again referred to in Article 4.3 by reference to the specification in Appendix A, namely Article 15 which is specifically headed "Warranty". The opening words refer to the obligations and liabilities of the seller and the rights and remedies of the buyer, thereby covering the whole range of contractual primary and secondary terms. They are said to be "exclusive", meaning that they are all that there is, and to be in lieu of all other warranties, obligations or liabilities, whether express or implied and whether arising in law, in contract, in civil liability or in tort, or otherwise. This is all embracing. There is plainly intended to be no room for the operation of any primary or secondary rights or obligations outside the terms of the contract itself.
- Article 4.1 goes on to give examples of what is included in this, without limiting the generality of the earlier provisions. It is this part of Article 4.1 which refers to any implied warranty of merchantability or fitness for purpose as well as to any other obligation or liability of the seller "of any nature whatsoever" by reason of the design, manufacture and sale of the aircraft. Whilst on the authorities, the use of the word "warranty" here would not be sufficient to give rise to any exclusion of liability for breach of the implied conditions of satisfactory quality, merchantability or fitness for purpose, this part of Article 4.1 is only illustrative of the all embracing provision found in the first part of that Article.
- No person reading this Article could be in any doubt that every promise implied by law is excluded, in favour of the contractual promises set out in the APA. It is right that there is no term which purports to exclude the buyer's right to reject the goods and recover the price, nor to the specific sections of the Sale of Goods Act, but the words "all other… obligations… or liabilities express or implied arising by law", which the purchaser expressly waives, necessarily include the conditions implied by the Sale of Goods Act. In my judgment these are apt and precise words which are sufficiently clear to exclude those implied conditions and the Article, by necessary inference does negative the application of those implied conditions. The parties' language is in my judgment fairly susceptible of only one meaning (to employ the expression used by Lord Diplock in Photo Production and Lord Justice Rix in the Mercini Lady.) There is no express reference to the word "condition" but the language must necessarily be taken to refer to the implied conditions of the Sale of Goods Act, because they are obligations and liabilities "implied, arising by law". Moreover, the illustration of the application of this general provision in Article 4.1(B) covers any other obligation or liability devolving on the seller, "of any nature whatsoever", resulting from the design, manufacture and sale of the aircraft. No buyer could be in any doubt as to the extent of the rights he was getting and the limitation on the seller's obligations. What the buyer was to get was the Warranty found in the APA and its Appendix in place of the terms implied by the Sale of Goods Act, whether conditions or warranties.
- Article 4.2 exempts the defendant seller from liability for consequential losses and Article 4.3 reinforces Article 4.1 by saying that the limited warranties and liabilities provided in the APA and Appendix A were expressly agreed in the light of the agreed purchase price and the other provisions of the APA, which must be intended primarily to refer to the Warranty in Article 15 of the Appendix. The point is thus reinforced that the Warranty is given in substitution for all other rights which might be implied by the Sale of Goods Act.
- In my judgment therefore, this is, unlike all the preceding authorities to which I was referred, a case where the words used do encompass contractual conditions implied by law and to adopt a different construction would amount to a distortion of the words used. There is no ambiguity in the clause. There is only one meaning which can fairly be given to it. It is what the parties agreed and the parties, subject to any application of UCTA, should be kept to their bargain.
Are the APA or the Assignment Agreement International Supply Contracts within the meaning of the Unfair Contract Terms Act?
- The relevant criteria by which this question fall to be decided are set out in Section 26 of the Unfair Contract Terms Act 1977 which provides:-
"26 International supply contracts
"(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.
"(2) The terms of such a contract are not subject to any requirement of reasonableness under Section 3 or 4: and nothing in Part II of this Act shall require the incorporation of the terms of such a contract to be fair and reasonable for them to have effect.
"(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 places 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 of 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 to the territory of a State other than that within whose territory those acts were done."
- In the light of these provisions it is necessary to investigate the history by which the APA and the Assignment Agreement came into existence.
- I heard evidence from some of those involved in the negotiation and conclusion of the APA, including Mr Meer, (the claimant's English solicitor) and Mr Habjanic and Mr Sériès (who were engaged by the defendant) who were concerned in the events surrounding execution, whilst a statement of Mr Hantzis, the manager of the defendant's Contract Management Department for the Challenger aircraft was admitted in evidence as he was not required for cross-examination. The documents, whilst not complete, however, provide essential guidance on the critical questions of fact which have to be decided for the purpose of answering the question set out, although there are issues of fact between the witnesses about the meeting on the 19th April 2007 which I have to determine.
- Following initial contact between Mr Habjanic and Mr Mosquito in February 2007 in Angola about the possible purchase of a Challenger 605, the signature of a letter of intent on the 22nd February 2007 by Mr Mosquito's son (which referred to a potential purchase within thirty calendar days), further exchanges took place between the parties, with a meeting in Lisbon in March and an extension of time under the letter of intent for a further fifteen days for Mr Mosquito to "finalise due diligence during this period for the execution of the transaction". On the evidence, Mr Meer was to negotiate the legal documentation whilst others, Mr Serrao and Ms Ribeiro were to negotiate the commercial terms on behalf of the purchaser. Mr Habjanic sent Mr Meer, on 28th March 2007, a copy of the defendant's standard purchase agreement for his review, comment and final preparation, although price and payment terms had yet to be negotiated. Mr Habjanic identified Mr Sériès as the point of contact for Mr Meer with regard to any questions of contractual language and Mr Sériès made contact with Mr Meer on 29th March with a view to discussing such matters.
- On the 13th April 2007, Mr Habjanic again e-mailed Mr Meer clarifying the position with regard to the aircraft performance guarantees, specification, systems and programmes, explaining that the warranty of the aircraft was set out in Section 15 of schedule A, which he described as "very comprehensive". Mr Meer recalled looking at this warranty and considering the terms of the agreement and the Appendix before his first meeting with Mr Sériès at his office on the 18th April, when they went through the draft contract. Mr Meer requested certain changes at that meeting which, on the evidence lasted two/three hours.
- The meeting was followed by an e-mail from Mr Sériès that day to which he attached "the final version" of the purchase agreement including the changes they had discussed, in "tracked" form, with an additional clean copy, stating that he and Mr Habjanic would attend Mr Meer's office the next day "to finalise everything".
- Amongst the changes were alterations to Article 2, the price and payment schedule, to correspond to the negotiated position between Mr Habjanic and Mr Serrao/Ms Ribeiro (a reduction in price of about $1.6m) and a change to the governing law, as requested by Mr Meer, from Quebec to England and Wales. In addition, the second sentence was added to Article 6.3 in a form of words commonly used by the defendant, it being recognised by Mr Meer that the plan was for the immediate export of the aircraft from Canada following delivery. There was provision for a credit memorandum in Article 13 and the insertion of Angola in Article 14 as the selected registry for the aircraft, in default of any other choice by 19th November 2007. The aircraft was to be delivered with a Transport Canada Export Certificate of Airworthiness for export.
- On the 19th April, Mr Meer met with Mr Habjanic and Mr Sériès at his office. Mr Meer's evidence was that he initialled each page and signed the document on behalf of Angoil in the presence of the two representatives of the defendant. He said that Mr Sériès initialled each page but did not sign the execution page. Mr Meer's evidence was that the defendant's representatives asked him to fax a copy of the agreement in that form to Canada but did not explain why. He had no recall of either of them saying that the document had to be signed by the defendant in Canada. He said he had no idea why they did not sign the document there and then, and they did not tell him that they had no authority to sign. When asked why he did not ask them to sign the document, he said he just did not do so. His evidence was that he regarded the APA as executed.
- The evidence was that the meeting took place at about 10am in the morning. As no further changes to the APA were sought, it must have been a short meeting although Mr Sériès would presumably have introduced Mr Habjanic to Mr Meer, because they had not met before, and undoubtedly some courtesies would have been exchanged. Mr Sériès said the meeting lasted about 15 minutes. No-one thought the meeting went on for very long. Although there is no evidence of the accuracy of the time and date stamp on Mr Meer's fax machine, there is a stamp showing the time of 10.51am as the starting point of transmission of the contract document with the initials of Mr Sériès and Mr Meer on it and Mr Meer's signature "as Attorney" for Angoil.
- Mr Sériès evidence was that, as contracts manager, his usual task was to negotiate the wording of any APA and submit the documents to Montreal with his recommendation that it be approved and signed, in accordance with a set procedure which varied according to the particular terms of the agreement and its effect. Whilst he would tell Montreal that, in his view, the wording was acceptable, the decision whether or not to execute the document did not lie with him. His evidence was, that when he went to the meeting on 19th April, he expected confirmation from Mr Meer that they had reached agreement on the wording but not that Mr Meer would sign the document on behalf of the purchaser. It was his evidence that the identity of the purchaser was still in doubt at that point and that Mr Meer was not in a position to sign on behalf of any such purchaser until he had a Power of Attorney for the entity concerned. At that meeting, he (Mr Sériès) initialled every page of the agreement to show that the wording was agreed. He also put a manuscript note on the foot of the document, on the execution page, about the address to which communications should be sent to the claimant (Ms Ribeiro's business address in Portugal). Mr Meer did not initial any of the pages, nor did he sign the signature page in their presence. Nor, as is common ground, did Mr Sériès or Mr Habjanic sign that page and it was Mr Sériès' evidence that he told Mr Meer in clear terms that neither he nor Mr Habjanic had any authority to sign the agreement. His evidence was that he always made that clear in any negotiation of the wording with any purchaser. When the meeting finished, he left the copy of the APA, the pages of which he had initialled, with Mr Meer for him to execute as and when he had a Power of Attorney and felt he could do so. He was then to fax that document to Canada for execution there. He did not know when Mr Meer would be in a position to sign but his evidence was that Mr Meer was saying he was not in a position to do so at the meeting.
- In the documents there is a faxed Power of Attorney which was sent to Mr Meer that day, with a date stamp showing the time of 11:38 although Ms Ribeiro had sent an e-mail to Mr Habjanic on the 18th April stating that she had sent a faxed Power of Attorney to Mr Meer that was acceptable to the defendant's lawyer. Mr Sériès told the court that he did not take away a copy of the APA, initialled by him, when he left the meeting. He was cross-examined on the basis that he must have initialled two copies of the APA at the meeting because of the different form of the execution page in copies produced by the parties from their files, but he had no recollection of that. He said he would not have taken a copy away with him because there would be no point, since it had not been initialled or signed by Mr Meer at that stage. He insisted, in his evidence that he had a positive recollection of telling Mr Meer that neither he or Mr Habjanic had any authority to sign the APA and it had to go through the company's process of approval and signature because all he could do was express his contentment with the wording and submit it to Montreal for review, approval and execution.
- Mr Habjanic's first statement placed the meeting at which he was present with Mr Sériès and Mr Meer as taking place on April 18th rather than April 19th. He corrected that in a second statement but some of the other evidence in his first statement did not sit happily with that date. In oral evidence he was clear that he flew into London from Dubai on the morning of 19th April and he said that he might have spoken to Mr Sériès the previous night, to ascertain whether or not there was likely to be agreement on the final form of wording. His evidence was that Mr Meer did not sign the contract in his presence but that Mr Meer assured them that he would sign and send the APA to Montreal when he had. Mr Habjanic did not leave the meeting with a contract which had been signed by Mr Meer. He had no recollection as to why Mr Meer would not sign there and then, but Mr Meer was saying that he would sign when he was ready to do so. He agreed that initialling the pages was not uncommon to ensure that the document which was finally executed contained the agreed wording, but said that neither he nor Mr Sériès took any copy away with them when they left. There were many occasions when he had left only one copy in the possession of another party for signature. He also said in evidence that they made it clear to Mr Meer that the document had to be approved and executed in Canada before it could bind the defendant. This was standard practice which he adopted year after year wherever he was in the world. The procedures were set and he knew what could or could not be done in the field, having been involved in the sale of around 100 planes. The explanation was an integral part of discussion with the purchasers.
- He did not recall whether there had been two copies of the APA initialled but it would not be untypical for that to happen so that each party could retain a copy.
- Counsel for the claimant pointed to e-mails emanating from the defendant which sought to put pressure on the claimant to secure a signed contract during the week ending Friday 20th April, in order that the purchaser could retain its position in the queue for an aircraft to be delivered, since, in the course of negotiation, the purchaser had requested delivery six months earlier than the defendant's original offer. There were e-mails which talked of meetings "in order to conclude review, preparation and signature of the "purchase Agreement", of an objective "of coming to London to assist Mr Meer in finalisation and signing of a formal contract" (where the words "and signing" appeared in capitals), and a message from Mr Sériès following the meeting on the 18th April, saying "Robert and I will be at your office tomorrow to finalise everything".
- The defendant's counsel pointed to the documents which showed the process required for approval and execution (as set out in the statement of Mr Hantzis) and the need for a standard Transaction Summary to be sent to Montreal for the process to begin. There was a need for the signature of various departmental heads and vice-presidents on the Standard Commercial Conditions form before execution could take place, after consideration of the net yield, set out on a further document, and the APA terms. Mr Sériès' evidence was that, following the meeting on the 19th April, he sent the standard Transaction Summary. The documents disclosed showed the necessary approval signatures dated the 19th April. The Net Yield Analysis was signed by the Directors of Finance, Contracts and Sales as well as the Vice-President of Finance. The Standard Commercial Conditions form was approved by the Director of Sales, but because the APA was not in "standard form", it also had to be and, was, approved and signed by the Director of Contracts, the Director of Finance, the Vice-President of Legal and the Vice-President of Contracts.
- The defendant in Montreal must have received the faxed copy of the APA from Mr Meer, initialled by both Mr Sériès and Mr Meer, and signed by Mr Meer for Angoil on 19th April, probably early in the morning, if the 10:51 London date/time stamp on the fax is correct. There was a five hour time difference at that time of the year. Mr Ercolanese's signature for the Defendant is dated 19th April also. A copy of the APA, as executed by both parties, was e-mailed by Mr Sériès, who was still in England, to Ms Ribeiro and Mr Meer. Mr Ercolanese's title appeared on the document as "Vice-President of Contracts". The e-mail said:
"Please find attached herewith the executed purchase agreement…. Please excuse us for the inconvenience in sending the executed contract so late".
The time on this e-mail from Mr Sériès was 2:25 on the 20th April 2007. Mr Sériès' evidence was that he would have kept his computer on Canadian time, so that this would have been about 7.25am in England. He inferred that he must have received an e-mail from Montreal with a copy of the executed APA overnight so that he could transmit it the next day to the purchaser, as he duly did.
- The documents also show that on the 1st May, the defendant sent the claimant a copy of an original APA executed by the defendant where Mr Ercolanese's title appears as "VP Contracts", where the signature of Mr Meer, the signature of Mr Ercolanese, and Mr Sériès' note at the end about the address for communication to the purchaser are all in slightly different formats. This document has Mr Sériès' initials in ink on it, but is not the original of the document faxed by Mr Meer and returned on 20th April, executed by the defendant. This document was disclosed by the claimant as being in its possession.
- A further original document with Mr Sériès' and Mr Meer's ink initials on it, was executed by the defendant and disclosed by it, as being in its possession. This had Mr Meer's original signature on it and Mr Sériès' note about communications, in the same format as that which was faxed by him on 19th April. The claimant disclosed a photocopy that Mr Meer had retained of what he had signed and faxed to the defendant on 19th April. It is the original of this document which the defendant subsequently executed and to which this paragraph of the judgment refers. Mr Ercolanese's signature appears on the document without any title ascribed to him below his name.
- What inference can be drawn from the fact that Mr Ercolanese signed two originals in slightly different ways, each with Mr Sériès' and Mr Meer's original initials on them and with Mr Sériès' notation in a slightly different format? The claimant submitted that it showed that Mr Ercolanese must have signed the two originals at different times and that this must have happened because:-
i) Mr Meer sent the defendant in Montreal one original APA signed by him and initialled by both him and Mr Sériès, after faxing the copy APA executed by him on the 19th April. Mr Ercolanese executed it and the defendant retained it.
ii) Mr Sériès on leaving the meeting of 19th April, retained another original of the APA initialled by both him and Mr Meer at that meeting and, following a trip to France on 20th-21st April, returned with it to Montreal on Sunday evening, 22nd April, so that it was then executed by Mr Ercolanese thereafter and sent to Mr Meer on 1st May.
- The claimant submits that the existence of two different signatures by Mr Ercolanese, with different ascriptions of title, both different from his signature on the copy APA sent by Mr Sériès e-mail on 20th April to Ms Ribeiro and Mr Meer, means that the defendant's witnesses are wrong to say they did not leave the meeting on the 19th April with an APA which had been initialled both by Mr Sériès and Mr Meer and signed by Mr Meer for the purchaser. It is said therefore that Mr Meer's evidence in cross-examination (but not in his statement) that he was asked by Mr Sériès to send the APA, which he had executed, by fax, to Montreal, is to be accepted. It is submitted that he faxed it on behalf of Mr Sériès, so that matters could progress whilst Mr Sériès was away from Canada in the south of France seeing his parents.
- This is not the only possible explanation for the fact that there are two originals, initialled by Mr Sériès and Mr Meer, with different signatures by Mr Ercolanese, different ascriptions of title and different formats for the notations about communications to the purchaser. There is an absence of documentation showing the message accompanying Mr Meer's fax at 10:51 on the 19th April, if indeed there was any such message (page 1 of the fax is missing). There is no record of the e-mail from Montreal to Mr Sériès preceding his transmission, by e-mail, to Mr Meer of the copy of the APA executed by Mr Ercolanese on 19th April. There is no documentation showing the sending of any original by Mr Meer to the defendant in Montreal and Mr Meer gave no evidence of having done so. There is no evidence of Mr Sériès or Mr Habjanic taking an original APA, executed by Mr Meer, away from the meeting of 19th April, or Mr Sériès taking it to Canada. Both Mr Sériès and Mr Habjanic denied that either had taken place. Mr Meer did not give evidence that they did.
- It is possible that Mr Meer was left, after the meeting on 19th April, with two original APA's initialled by Mr Sériès and that he initialled and sent both to Montreal for execution, after he had sent his fax at 10:51 on the 19th April. The different formats of the signature by Mr Ercolanese of two original APA's does not establish that he did so at different times, although that is a possible inference to be drawn. Mr Sériès returned to Canada on Sunday 22nd April. His return could not have been much later than the arrival of any original sent by Mr Meer by courier, or express post on Thursday 19th April, for the practical purpose of formal execution by Mr Ercolanese. In any event there is plenty of time between 20th April and 1st May for another original to have been initialled by both Mr Sériès and Mr Meer separately and executed by both parties, although there is likewise no evidence of this. The reality is that the evidence will not bear the weight of the inference that the claimant seeks to draw, despite the evidence that the defendant was looking to get a contract signed by the end of the week ending the 20th April, as a result of the meeting on the 19th April.
- I consider that none of the witnesses who attend the meeting on April 19th, five years after the event, had a very clear recollection of what occurred. This is plain from the paucity of detail in Mr Meer's statement and the error in Mr Habjanic's statement. Mr Sériès, as the person most knowledgeable and most concerned in the negotiation of the wording and the processes to be followed, in my judgment, had the best recollection of the meeting and, as someone who is no longer employed by the defendant, had no reason for his recollection to be coloured by any personal interest. Apart from one area of his evidence, in relation to the initialling of the APA at the meeting, where there is some doubt, I am able to accept what he said about the events of that day and the next.
- It was common ground between the parties that the defendant did not execute the agreement on April 19th at the meeting in London. It was common ground that Mr Sériès initialled the pages of one copy of the APA, though the claimant's case was that he initialled a second copy also. Given the standard procedure adopted by the defendant, I have no hesitation in finding that, although he now had no recollection of it, five years later, Mr Meer was told that there was an approval process to be gone through in Canada and that execution of the document by the defendant had to take place there. That was the reason for transmission of the document to Canada by fax, so that execution could take place that week to secure the purchaser's place in the queue for delivery of an aircraft. Mr Meer said in evidence that he knew that the APA would only be effective when accepted and executed by the seller, because the opening lines of the document which was under discussion, or being initialled, expressly said so. He therefore knew that no contract was concluded at the meeting on April 19th.
- If he had executed the document on behalf of the purchaser in the presence of the two representatives of the defendant, he would undoubtedly have asked them to sign on behalf of the defendant there and then, unless he had been told of a want of authority on their part and the need for approval and execution in Canada.
- It is clear to me that Mr Sériès and Mr Habjanic must have made it plain that all that was going on at the meeting in London was finalisation of the wording, but that they were pressing for a contract to be signed, saying that this would confirm the purchaser's position in the queue for delivery. If they could, they would have wanted to have left with a signed contract. If, however they had left with a signed contract, Mr Habjanic or Mr Sériès would surely have sent that document, signed by Mr Meer, to Montreal themselves by fax, scanned e-mail or by courier in order to obtain early approval and execution. Instead, it was Mr Meer who sent the faxed document. There can only be one reason for this and that is that he did not sign the document in their presence, nor give them a copy. For whatever reason, he did not succumb to any pressure to sign the document, perhaps because there was still some problem over the identity of the purchaser and the absence of the Power of Attorney as Mr Sériès said. He then, following the meeting did sign it and sent it to Montreal by fax.
- For the reasons set out above in relation to the different versions of the two executed original initialled APAs, I have more difficulty in accepting Mr Sériès' evidence that Mr Meer did not initial the pages at the meeting either. Inability to execute the APA at the meeting would not prevent either party from initialling the pages as an agreed form of wording and there would be logic in both doing so and each retaining a copy. Mr Sériès initialled them on at least one copy so that, when Mr Meer came to sign the document and transmit it to Montreal for execution there, the defendant's personnel in Montreal would know that this was the approved wording. If Mr Meer had initialled the wording at that stage, it is highly likely that Mr Sériès or Mr Habjanic would have taken a copy of the wording, initialled by him, away with them and transmitted it to Montreal themselves to show that the purchaser had at least got that far. There was no evidence from Mr Meer that this happened and both of the defendant's witnesses said that it did not. I need reach no conclusion on this point. I find however, regardless of this, that Mr Meer held back from signing the document in the presence of the defendant's representatives, executed it subsequently and transmitted the document to Canada when he had done so, presumably with confirmation that he had the necessary authority to do so, whether by virtue of the faxed Power of Attorney (whatever the time stamp on that might suggest) or on the basis of an oral confirmation from Ms Ribeiro that such a Power of Attorney was being faxed to him. Whether Mr Sériès initialled one or two copies is unclear but if he initialled more than one, and Mr Meer did not initial any pages in his presence, he probably left both copies with Mr Meer for initialling, signature and transmission to Montreal.
- The meeting of 19th April took place in London. Mr Meer transmitted a copy of the APA executed by him on behalf of the purchaser from London to Canada by fax on the 19th April. Mr Sériès, in England, e-mailed Ms Ribeiro in Portugal and Mr Meer in England a copy of the APA executed by the defendant on the 20th April, although Mr Ercolanese had signed that document on the 19th April in Montreal.
- On the 20th April, Ms Ribeiro following a conversation with him that morning on the subject, e-mailed Mr Habjanic requesting the assignment of the contract to the claimant, explaining that it was a company incorporated in Gibraltar which was wholly owned by Mr Mosquito. Mr Habjanic, who was also still in London at the time, responded, copying in Mr Sériès who, he said, was en route to the south of France for two days to see his parents but due to return to Montreal on Sunday which was the 22nd. The e-mail said that Mr Sériès would take care of the matter on his return to the office on Monday 23rd.
- On Monday 23rd April, Mr Sériès, now back in Canada, sent the Assignment Agreement by e-mail to Mr Mosquito, Mr Meer, Mr Serrao and Ms Ribeiro, telling them that they needed to fill in the blanks with regard to the address of the assignor and send back an executed copy which he would "get countersigned" on receipt. The draft assignment mistakenly referred to Angoil as the assignee and Air Transworld Ltd as the assignor, and the e-mail requested completion of the address of the assignee.
- On the 25th April, Mr Meer in London e-mailed Mr Sériès in Canada asking for the physical address to which the Assignment Agreement should be sent, stating that it had now been executed by Angoil and Air Transworld. It was on the 26th April, presumably following some contact between them, that Mr Meer in London e-mailed Mr Sériès in Canada, copying in Ms Ribeiro in Portugal and attaching a copy of the assignment, signed by Angoil and Air Transworld. He stated that the original was in the mail sent to the defendant in Canada. He asked for a copy of the document to be faxed to Ms Ribeiro in Lisbon when this had been executed by the defendant and for the original to be sent to her as well.
- On the same day Mr Sériès e-mailed in response saying that he would get the Assignment executed shortly and asking when the first payment might be forthcoming. That day Mr Meer sent a letter including the original Assignment Agreement, executed by him.
- It was later that day, 26th April, that Mr Sériès in Canada, e-mailed Mr Meer in London attaching a copy of the Assignment Agreement signed for the defendant by Mr Ercolanese, the Vice President of Contracts.
- Whilst there are some back dated invoices on the defendant's letter-heading to the claimant, it is clear to me, and I so find, that no invoice to the claimant was sent by the defendant prior to execution of the Assignment Agreement on the 26th April 2007. On 20th April, Mr Habjanic, sent an invoice to Angoil for the first instalment of the purchase price following execution of the APA by the defendant. An invoice in the claimant's disclosed documents dated 20th April which is addressed to the claimant, with no address and misspelling the word 'Gibralter', could not have emanated from the defendant that day, because no invoice would be sent without the recipient's address and no invoice would be sent to an Assignee until an Assignment Agreement had been executed by all parties, as Mr Sériès testified.
Section 26 of the Unfair Contract Terms Act 1977 (UCTA)
- On the facts here, there can be no doubt, and it was common ground between the parties, that the APA and the Assignment Agreement were contracts which fell within Section 26(3)(a) and (b) UCTA, being a contract of sale of goods made by parties whose places of business were in the territories of different states. Issues arose however as to whether or not the requirements of Section 26(4) were satisfied because, if they were, by the terms of Section 26(1) and (2), the limits imposed by the statute on the extent to which liability might be excluded or restricted by contract and the requirement of reasonableness under Sections 3 and 4 of that Act would not apply to the APA.
- Section 26(4) of UCTA provides:-
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 the territory of 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 to the territory of a State other than that within whose territory those acts were done.
- As indicated in the judgment of Mance LJ (as he then was), in Amiri v BAE [2003] 2 Lloyd's Rep 767 at 775, the natural starting point for any enquiry under Section 26(4) must be Section 26(4)(b), because the other two subsections can in reality only be significant in a case where the offer and acceptance were "done" in one and the same state. The Lord Justice, at paragraph 32, plainly considered that the drafting of the statute was not well thought through, but that the draftsman must have had in mind that Section 26(4)(a) was to be concerned with goods which were, at the time of the contract, or would be, carried between the territory of two different states, without any requirement in the contract for the seller to have undertaken any obligation in the contract to deliver to any other state. Sub-Section (a) would apply to the sale of goods on c.i.f. or f.o.b. terms where the seller undertook to ship the goods to, but not to deliver them at any overseas destination. By contrast, sub-Section (c) specifically provided for the situation where the contract required the goods to be delivered to a different state from that in which "those acts" (being "the acts constituting the offer and acceptance") were "done".
- It was accepted by the Court of Appeal that there would be some arbitrary distinctions drawn in the application of the criteria set out in the Act (see paragraphs 33 and 34 of the Judgment).
- In examining the terms of Section 26, caution must be exercised in looking at what has been described as "the antecedents" of the statute, whether Law Commission Reports, preceding statutes or even the Uniform Law on International Sale of Goods scheduled to the Uniform Laws on International Sales Acts 1967 (ULIS). It was pointed out by the defendant that paragraphs 121 and 214 of the Law Commission's first and second Reports on Exemption Clauses, respectively, referred to the difficulty of defining International Sales, but suggested that the problem was solved by the assistance of the definition in Article 1 of the Uniform Law on Sales "which with a small modification (relating to "different states" as opposed to "different Contracting States") seemed to us to be an appropriate model".
- For present purposes, it should be noted that the wording of Article 1 of ULIS is similar but not identical to Section 26 of the 1977 Act. Whilst Article 1(a) is not materially different from Section 26(4)(a), Article 1(b) and Article 1(c) do use different language and, in the case of Article 1(c), the Court of Appeal in Amiri has held that difference to be significant. Article 1 provides that the provisions of ULIS should apply to contracts of sale of goods between parties whose places of business are in territories of different states "where the acts constituting the offer and the acceptance have been effected in the territories of different States" whilst Article 1(c) provides that the law will apply to such contracts "where delivery of the goods is to be made in the territory of a state other than that within whose territory the acts constituting the offer and the acceptance have been effected" (emphasis added).
- In Amiri, the Court drew attention to the distinction between Article 1(c) of ULIS and Section 26(4)(c) of the 1977 Act and between the words "delivery of the goods is to be made in the territory" and the words "to be delivered to the territory of a State" and held that the ordinary and natural meaning had to be given to the provision in the Act, which meant that Section 26(4)(c) only applied where there was "international movement of the goods from one state to another", the latter being a state other than that where the acts constituting the offer and acceptance had been done.
Section 26(4)(b)
- In the case of Section 26(4)(b), the difference in wording between it and the similar provision in ULIS is constituted by the use of the word "done" in the 1977 Statute as opposed to the word "effected" in ULIS. In both cases however, the reference is to the place "where the acts constituting the offer and the acceptance" have been either effected or done, as the case may be. ULIS, by Article 1(4), provides an explanation as to the meaning of Article 1(b) by saying that "in the case of contracts by correspondence, offer and acceptance shall be considered to have been effected in the territory of the same state only if the letters, telegrams or other documentary communications which contain them have been sent and received in the territory of that state".
- The difference in wording between Section 26(4)(b) and Article 1 of ULIS could be material, since the statute envisages a consideration of the location of "the acts constituting the offer and acceptance". If this refers to the individual acts in themselves, it should not require a legal analysis of where the contract was concluded, which could bring in the particular rules of English law relating to letters or instantaneous communications and the point at which acceptance is treated as communicated. The well known distinction between posting a letter of acceptance on the one hand, where the acceptance is treated as being communicated and effective at the point of posting, and receipt of an instantaneous communication, where acceptance is treated as being communicated and effective at the point of receipt, is irrelevant when considering this subsection. There is no explanatory provision such as Article 1(4) of ULIS, but the word "done" cannot be taken to involve the concept of something taking effect in law, whereas the word "effected" in ULIS could perhaps be so taken, if Article 1 (b) had not existed to supply the explanation given.
- An offer is an expression of willingness to contract, made with the intention that it shall become binding upon the person making it, as soon as it is accepted by the person to whom it is addressed. Although in English Law a person who accepts an offer has, it would appear, to be aware of the offer made (although there may be room for an exceptional case in an unilateral contract) the concept of "the offer" may be seen as distinct from the concept of communication of it, as the notion of the unilateral contract, where only one person makes a promise, shows. The "offer" in such a case is constituted by the newspaper notice or advertisement, as the case may be, whether or not it is read by anyone.
- I have found that Mr Meer was told of the lack of authority on the part of Mr Sériès and Mr Habjanic to enter into a contract. He knew they had no authority to make an offer nor to accept any offer or counter-offer he might make. No binding agreement was made with them on 19th April. This cannot be seen as a case of agreement subject to Board approval. Mr Sériès' evidence was that though he made recommendations on the wording to Montreal, his recommendations were often not accepted. The decision whether to accept an offer or make an offer lay with Montreal. Any offer, therefore, to be communicated with a view to acceptance, had to reach Montreal. That is what Mr Meer sought to do with his fax of 10:51 on April 19th. He was not acting ministerially for Mr Sériès and Mr Habjanic at their request when sending the APA executed by him, but making an offer.
- Here, so far as the offer is concerned, if "the act constituting the offer" does not involve communication of it, the act was done in London. Both the execution of the APA by Mr Meer on behalf of Angoil and the act of sending it took place in England, regardless of the fact that communication of the offer, by instantaneous fax, must have taken place in Canada where the fax was received.
- Mr Sériès and Mr Habjanic did not execute the APA in London, whether or not Mr Sériès initialled one or two copies of it. The APA was specifically sent to Canada by Mr Meer for the formal approval process and execution, because of the lack of authority of Mr Sériès and Mr Habjanic and the standard requirements of the defendant for such processes to be undertaken. Mr Sériès' initialling of each page was to show that the wording was acceptable to him but the contract required acceptance and execution by a person authorised to do so on behalf of the defendant and the first line of the APA itself made it clear that the APA was not effective until approval and execution by the defendants.
- An acceptance is an unqualified expression of assent to the terms of an offer. Although, in English Law, an acceptance has to be communicated to an offeror to be effective, the concepts of "acceptance" and "communication" can be seen as distinct, as the unilateral contract cases show, where the offeree may accept by carrying out the acts required by the unilateral offer, without communicating the fact that he is doing so to the offeror. The unqualified expression of assent to the terms of Mr Meer's offer, (constituted by his execution of the APA), was made when Mr Ercolanese executed the APA on behalf of the defendant. That was done in Canada, from whence the APA must have been sent to Mr Sériès for onward transmission to Mr Meer. The act of acceptance is theoretically capable of being distinguished from the communication of it. The communication took place at about 7.25 on the morning of April 20th, when Mr Sériès, still in England, before departing for France about lunchtime, sent it on to Mr Meer in London and to Ms Rebeiro in Portugal. This was done by e-mail, another form of instantaneous communication, so that for English law purposes, the communication of the acceptance took place at the location of the recipient. As there were two recipients, one in England and one in Portugal, there might be some doubt as to the place of communication of acceptance, although Mr Meer had asked for communication to be made to Portugal and Mr Sériès had noted that at the foot of the APA, before any execution by either Mr Meer or Mr Ercolanese.
- On this footing, if looking for the acts constituting the offer and acceptance, without reference to communication of them, the offer was made in London when Mr Meer executed the APA before faxing it to Montreal, whilst the acceptance took place in Canada when Mr Ercolanese signed for the defendant, before e-mailing it to Mr Sériès in London.
- There is a total air of unreality however in considering offer and acceptance in the abstract, as notional concepts divorced from communication, but if "the acts constituting the offer and acceptance" mean the act which constitutes the communication of the offer and the act which constitute communication of the acceptance, it is clear that once again the acts took place in different countries. Mr Meer's fax was a form of instantaneous communication received in Canada so that the communication of the offer was "done" there. Mr Sériès e-mail was again a form of instantaneous communication so that the communication of the acceptance took place at the point of receipt and was "done" in either Portugal or England, with primacy of place given to Portugal because of the requirement to communicate with Ms Rebeiro there.
- In my judgment however, Section 26 of UCTA, when referring to "the acts constituting the offer and acceptance", refers to the totality of the acts which constitute the offer and acceptance, including both the making and receiving of each. Whilst there is no provision such as Article 1(4) of ULIS, explaining how the section is to be interpreted in the case of offer and acceptance by correspondence, (by requiring the sending and receiving of documentary communications to take place in the same territory), the effect of Section 26 (4)(b), is, in my judgment, the same. Whilst the Court of Appeal has held that the section may give rise to arbitrary distinctions, it is hard to imagine that a relevant distinction could arise which depended upon the particular form of communication adopted (letter, e-mail or fax), when what is at issue is the "international" nature of the contract. What Section 26(4)(b) is intended to exclude, as an international supply contract, are cases where there is an international element in the formation of the contract, so that all elements of the offer and acceptance must occur in the same state if the provisions of UCTA are to apply and the contract is not to attract the soubriquet of an "international supply contract". If the subsection had intended to refer to the single individual act which constitutes the completed offer or completed acceptance or the communication of the offer or acceptance, the sub-Section would have referred to "the act constituting the offer" and the "act constituting the acceptance". Whilst I am cautious of reading into Section 26(4)(b) the ideas that lie behind Article 1(4) of ULIS, this construction, which tallies with the rationale of Article 1(4) of ULIS makes best sense of the language used and has a logic behind it, since it avoids the application of technical rules of English law about the location of communicated offers and communicated acceptances and the differences which arise in relation to different means of communication.
- On this basis, the acts constituting the offer were done in England and Canada whether regard is had to the faxing of the executed APA to Montreal from London alone or also to the execution of the APA in London by Mr Meer. The acts of sending and receipt of the offer took place in two different states. The acts constituting the acceptance were done in England and Portugal if regard is had only to the sending and receipt of Mr Sériès# e-mail (with the APA executed by Mr Ercolonese attached), but if regard is had to the execution, then Canada was also involved. The acts in question, constituting the offer and acceptance, were therefore not all done in the territory of one state.
- When regard is had to the Assignment Agreement, the same considerations arise. Here the position is that the Assignment Agreement was executed by Mr Meer in England and e-mailed to the defendant in Canada. It was then executed by Mr Ercolanese in Canada and e-mailed to Mr Meer in England and Ms Ribeiro in Portugal. By parity of reasoning, whichever view is taken of the construction of Section 26(4)(b), the acts constituting the offer and acceptance were "done in the territories of different states". If, as I have held, it is the sending and receipt of the offer and acceptance which fall for consideration, it is plain that the acts were done in England, Canada and Portugal.
- Since the Assignment Agreement is the tripartite contract upon which the claimant sues, it must be this agreement, rather than the APA which has to be analysed for the purpose of determining whether UCTA applies. Of course, the Assignment Agreement effectively incorporated the APA and provided that both Angoil and the claimant should be liable on its terms to the defendant, whilst the defendant undertook liability to the claimant only to the same extent that it had undertaken liability to Angoil. Although the claimant became party to the APA by this agreement, by what is termed an "assignment", and all the significant negotiation, whether with regard to price and payment or the more detailed legal wording, had already taken place between the representatives of the defendant and Angoil, and an agreement had been concluded, to the terms of which the claimant subsequently subscribed, the fact remains that it is the claimant which sues under the Assignment Agreement and without it, the claimant could not sue at all. The obligations of sale and supply to the claimant arise under it, and not under the APA.
- If the APA had not been an international supply contract by reason of Section 26(4)(b) of UCTA, but the Assignment Agreement fell within the terms of that subsection, there can be no doubt that the provisions of UCTA would then not apply to the rights and obligations arising under the two contracts, as between the claimant and the defendant. The fact that, in such circumstances, the rights of the claimant would differ from the rights of Angoil would be the consequence of a novation to a party where an international element had come into the equation.
- There is an alternative view, which is that the Assignment Agreement can only be seen in combination with the APA. In these circumstances, all "the acts constituting the offer and acceptance" for both the APA and the Assignment Agreement would have to be done in the same territory if the provisions of UCTA were to apply but if any act (on whichever construction of Section 26(4)(b) is adopted) constituting the offer and acceptance were done in different territories for either contract, the rights and obligations, constituted by the two contracts would fall outside the terms of the Act because, taken together, the APA and the Assignment Agreement constituted an international supply contract.
Section 26(4)(a)
- Section 26(4)(a) provides that " a contract falls within subsection (3) above… if … 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 the territory of another".
- I have already referred to the dictum of Mance LJ (as he then was) in Amiri in which he held that the requirements of this subsection were satisfied where, at the time of contract, goods were being, or were to be, carried between the territories of two different states, even though there was no express obligation to deliver the goods to another state. In Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2010] QB 86, the Court of Appeal agreed with this conclusion, a decision which is binding upon me. Moore-Bick LJ made the position plain at paragraphs 28-32, when quoting the dictum of Mance LJ. He stated that, on the face of it, although ineptly drafted, subsection 4(a) appeared to be directed to any case in which the parties contemplated, at the time of entering into the contract, that the goods in question would be transported across national boundaries, not necessarily in order to fulfil the terms of the contract, but in order to achieve its commercial object. He expressed the view that, if a person who carries on business abroad hires equipment from a supplier in this country in circumstances where both know that the intention is for it to be used abroad, the lease is one pursuant to which the goods will be carried from the territory of one state to the territory of another, within the meaning of Section 26(4)(a) and it can sensibly be described as an "international supply contract".
- Mr Stephen Kenny QC, on behalf of the claimant, submitted that a distinction had to be made between a hiring of goods and the purchase of goods when examining "the commercial object" of the contract in question. He submitted that there was a difference between the two types of contract because, in a contract for hire, there was a continuing relationship between the parties where the location of the goods assumed some importance. In the case of a contract of sale, once delivery had taken place, the primary obligations of the parties came to an end and the location of the goods was of little moment. Furthermore, although he did not dispute that export of the aircraft from Canada was in contemplation, he contended that such export was not inevitable because it was open to the claimant to sell the aircraft to a third party on the tarmac in Canada immediately following delivery. He pointed to the words in the statute which, however, ineptly drafted, used the words "will be carried", as opposed to "may be carried", from the territory of one state to the territory of another.
- In such circumstances it was submitted that the contemplation of the parties must be limited by the performance required by the contract. A Russian oligarch buying a suit in Savile Row in order to attend a gala in Moscow would not, he submitted, be entering into an international supply contract. If the supply gave rise to instantaneous delivery but nothing more, it could not fall within Section 26(4)(a).
- The distinction which the claimant sought to draw between a contract of sale and a contract of hire, is not, in my judgment sustainable in this context. Section 26(3)(a) expressly refers to "a contract of sale of goods" or "one under or in pursuance of which the possession or ownership of goods passes". A finance lease and a purchase may be very similar in their commercial effect and their commercial objects and the statute does not allow for any difference between a lease and a sale in relation to its application. Moreover, here, the APA imposed a continuing relationship, following delivery, by the Warranty provisions.
- As a result of the Court of Appeal decision in Trident, it cannot be argued that a necessary requirement of Section 26(4)(a) is a provision in the contract providing for transportation across national boundaries. Nor, by virtue of paragraph 32, can it be argued that the subsection is incapable of applying to ships, aircraft and other vehicles capable of moving under their own power.
- The APA and the Assignment Agreement contemplated delivery in Canada, even if the APA did not expressly so provide. Article 2.2 provided that the aircraft should be ready for the purchaser's inspection and acceptance in Canada within a specified timeframe and Article 5.1 provided for the defendant to give the purchaser notice, which would trigger the purchaser's obligation to inspect and to accept delivery of the aircraft before the end of a ten day period. That period would be extended should any defect or discrepancy be found. Following correction of any such defect or discrepancy the buyer was to accept delivery of the aircraft within a further three days. Mr Hantzis, in his statement, spoke of the possibility of delivery in Hartford, Connecticut, where that was the subject of agreement between the defendant and the purchaser. In such cases the inspection process would take place in Canada, following which the aircraft would be transferred to Hartford for delivery. There was no suggestion of that in the present case. In Article 6.3, the defendant represented that there were no Canadian taxes, duties or fees which the purchaser would become obligated to pay, provided that the buyer was a non-resident of Canada and was not registered to do business in Canada, provided that the aircraft was not acquired for consumption use or supply in Canada before exportation and provided that the aircraft was immediately exported from Canada following delivery. Furthermore, Article 14 amended Schedule A by providing that the aircraft was to be delivered with an Export Certificate of Airworthiness which would permit the aircraft to qualify for a standard airworthiness certificate issued by a member state of the European Union. Additionally, the aircraft was warranted to meet the equipment requirements of parts of JAR OPS-1 which would enable the aircraft to be used for commercial purposes in the European Union.
- The evidence of Mr Meer and Mr Mosquito was that their plan was for export from Canada immediately following delivery and that until December 2008, the plan was to register the aircraft in Angola. Whilst there were various suggestions for the place where the aircraft was to be based, all of them were in Africa. It was always contemplated that the plane would be used by the claimant, by Mr Mosquito, by employees of the Mosquito group of companies and others for transport to and from Angola, and that Mr Mosquito would use it for travelling to and from his residences in Angola and Portugal and also when travelling to business meetings.
- In my judgment there can be no doubt at all that, at the time of the conclusion of the APA and the Assignment Agreement, the aircraft was, in the contemplation of the parties, to be "carried" from the territory of one state to the territory of another, since delivery was to take place in Canada and the aircraft was to be exported straight away, with a view to it being based in Africa and registered abroad, with the ability to fly into Europe if desired.
Section 26(4)(c)
- This point only arises if "the acts constituting the offer and acceptance were done" in England, contrary to my earlier decision, whereupon the defendant would wish to argue that delivery was to take place in Canada, a different territory from that in which the acts of offer and acceptance were done. It was accepted by the defendant that it was not open to this court to conclude that the requirements of this subsection were satisfied as a result of the decision of the Court of Appeal in Amiri. This is because, according to the Court of Appeal in Amiri, this subsection only applies if there is delivery "to" the territory of another state, not delivery "in" another state. As the aircraft was manufactured in Canada and delivered there, the subsection cannot apply. The defendant reserved its position on this, should it be necessary to pursue the point in a higher court.
Section 27
- Section 27 of UCTA provides as follows:
"(1) Where the law applicable to a contract is the law of any part of the United Kingdom, only by choice of the parties (and apart from that choice would be the law of some country outside of the United Kingdom), Sections 2-7… of this Act do not operate as part of the law applicable to the contract."
- There was argument about the character of this provision, because of the terms of Article 4.4 of the APA, which provided that the agreement was to be governed by "the internal laws of England and Wales, excluding any conflicts of law provisions." I was referred to Dicey, Morris and Collins on the Conflict of Laws (14th Edition) and in particular to paragraphs 1-036, 1-050, 1-054, 1-058 and 1-062. Of the six classes of statutory provisions categorised by the authors of the work, Section 27(1) is said to be a self-denying statute. This is the only example of such a statute given in the book, which contrasts with Section 27(2), which is an overriding provision, since it provides that the Act has effect, in the circumstances there set out, notwithstanding any contract term purporting to apply the law of some country outside the UK. What Section 27 (1) does, however is to say that where the governing law of the contract is English law only by reason of the choice of the parties (and apart from that choice would be the law of some other country), some provisions of the Act are not to operate as part of the law applicable to the contract. This is not, as was suggested, a rule of conflicts of laws, since there is no question of reference to a foreign law at all. There is no renvoi involved here. Section 27 does not lay down a unilateral or multilateral conflict of law rule, but merely sets the limits of the application of particular sections of the Act in the circumstances referred to. To disregard Section 27 would result in a distorted application of substantive English law, since the statute provides that, in the given circumstances, instead of applying the full gamut of provisions in UCTA, the provisions of Sections 27, (including the provisions restricting the avoidance of liability arising in contract and in the sale of goods and hire purchase) are not to apply. As a matter of English substantive law, those sections are simply inapplicable.
- In my judgment therefore, the claimant cannot rely on the latter part of Article 4.4 to say that the parties have agreed that Section 27 of UCTA (in contradistinction to other terms of UCTA) has no application to the APA and the Assignment Agreement.
- In my judgment, there is also no doubt that English law is the governing law of the APA solely as a result of the express choice of law clause. If regard is to be had to English conflict of laws rules for the purpose of ascertaining the governing law of the contract, in the absence of the choice of law clause, the search would be for the law of the country with which the contract had its closest and most real connection. The only connection with England, apart from the choice of law clause, is the fact of negotiation in Mr Meer's office on the 19th April and the events which I have described which led to the conclusion of the contract including, in particular, the exchanges between Mr Meer, Mr Sériès and Mr Habjanic and the written exchanges between Montreal, London and Portugal.
- Under the Rome Convention, the general presumption is that the contract is most closely connected with the country where the party who is to effect the performance that is characteristic of the contract, has its central administration (Article 4.2). In a contract for the Sale of Goods, the characteristic performance is that of the seller. That presumption can be rebutted, but there is no reason to do so here. This was a contract for the manufacture and supply of an aircraft, where all that the seller had to do was essentially to be done in Montreal, in the state of Quebec in Canada.
- All that the claimant could say in this connection was that the place of completion and delivery were not certain under the contract and that the USA remained a potential possible place for each, relying upon paragraph 20 of Mr Hantzis statement. It was said that the buyer could, in the absence of a specific delivery location mentioned in the contract, have asked for delivery in England and that might have made some sense because of the need for a certificate of importation to allow the aircraft to travel in Europe.
- Even if the APA had been concluded in England, the lex loci contractus is a weak basis for determining the governing law. I was referred to the decision of the House of Lords in Amin Rasheed Shipping Corporation v Kuwait Insurance Co. [1984] 1 AC 50 and in particular to pages 60-62 in the speech of Lord Diplock. He mentioned, in passing, that, with modern methods of instantaneous communication, it was often a mere matter of chance whether what turned out to be a final offer was accepted on the machine of one party in one country or on the machine of another party in another.
- The relevant contract here is the Assignment Agreement, which was, in my view concluded in Portugal (because of the primacy of communication to Portugal by virtue of the note at the foot of the APA), when the emailed executed copy was received by Ms Ribeiro there. Once again the happenstance of conclusion there, as opposed to Canada or England, illustrates why the lex loci contractus is not a weighty factor in determining the proper law in such circumstances.
- There is nothing in all the circumstances which could militate against the law of Quebec or Canada being the proper law of the contract, had the parties not chosen English law in preference.
- In my judgment therefore, the APA, and in consequence, the Assignment Agreement, which must take its governing law from the APA, would both be governed by the law of Canada, or more specifically the law of Quebec, had the parties not specifically chosen English law as the governing law of the APA.
- For all these reasons, the APA and the Assignment Agreement must be seen as international supply contracts, whether by virtue of Section 26(4)(a), Section 26(4)(b) or Section 27 of UCTA. In the result therefore, it matters not whether the claimant was a consumer for the purposes of UCTA and the reasonableness test in Section 11 and the relevant guidelines in schedule 2 of UCTA equally have no application.
Dealing as a consumer
- Section 6 of UCTA provides as follows:-
"(2) As against a person dealing as consumer, liability for breach of the obligations arising from –
(a) Section 13, 14, or 15 of the 1979 Act (sellers implied undertakings as to conformity of goods with description or sample, or as to their quality or fitness for a particular purpose)…
cannot be excluded or restricted by reference to any contract term.
(3) As against a person dealing otherwise than as consumer, the liability specified in subsection (2) can be excluded or restricted by reference to a contract term, but only as so far as the term satisfies the requirement of reasonableness".
- Section 12 of UCTA provides that a party to a contract "deals as consumer" in relation to another party if:-
"(a) he neither makes the contract in the course of a business nor holds himself out as doing so; and
(b) the other party does make the contract in the course of a business;
(c) in the case of a contract governed by the law of sale of goods… the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption"
- It was common ground that the defendant did make the contract in the course of its business of manufacturing and supplying aircraft. I have however to decide whether or not the claimant made the Assignment Agreement in the course of a business, or held itself out as having done so, and whether the goods in question were of a type ordinarily supplied for private use or consumption.
- Both parties relied on R&B Customs Brokers Ltd v United Dominions Trust Ltd [1988] 1 WLR 321 where the Court of Appeal explored the question of what was meant by making the contract "in the course of a business". Dillon LJ at pages 329-331 pointed out that the very nature of a corporate entity meant that, where a company made a contract, it must necessarily do so in the course of its business, since otherwise the contract would be ultra vires and illegal. It was necessary, in his judgment (a judgment with which Neill LJ agreed), to distinguish between a purchase of goods which was "an integral part of the business" and a purchase which was "only incidental to the carrying on of the relevant business". Reference was made to decisions under the Trade Descriptions Act 1968 and to a decision of the House of Lords, where it was held that the expression "in the course of a trade or business", under that statute, conveyed the concept of some degree of regularity rather than sporadic transactions. However it was said that the need for some degree of regularity did not mean that a one-off adventure in the nature of trade, carried on with a view to profit, would not fall within that statute, because such a transaction would itself constitute a "trade". Dillon LJ approved of the expression "an integral part of the business carried on" and said that there were some transactions which clearly were integral parts of the business concerned and which should be held to be carried out in the course of the business, whilst other transactions, which were only incidental to the carrying on of the relevant business, would not qualify.
- The focus of Section 12 of UCTA is on the time of contracting, namely 19th April 2007 for the APA and 26th April 2007 for the Assignment Agreement. Stephen Kenny QC relied upon the evidence of Mr Mosquito that he was buying the jet for his private purposes as his first jet plane and the fact that he was not in the aviation business, although he had thought about future potential opportunities. He relied upon the statement of Mr Habjanic at paragraph 10 where he said this:-
"At the time the APA was executed, I understood that Mr Mosquito's long term plan was to go into the aviation business and operate an aircraft charter operation in Angola. In the shorter term, I understood that this aircraft would be used for personal transport as well as transport in the course of his group's business, the particular attraction apparently being that, as a business tool, the aircraft would enhance the group's status in Angolan political and social circles"
- Mr Michael Crane QC, for the defendant, however, pointed to the claimant's memorandum of association and the inclusion amongst its objects of the carrying on of business of an airline aviation company throughout the world, as well as the business of managing, operating and chartering all types of ships, aircraft and road transport. These objects were however merely a small sample of all the wide ranging objects that appeared in the objects clause. Nonetheless, the defendant submitted that the sole business of the claimant consisted of ownership and management of aircraft and this was its commercial activity.
- In his statement, Mr Meer said that the claimant had acquired four second-hand Boeing 727 cargo aircraft in 2001 with a view to resale. He said they were never operated and were sold by 2004. Mr Mosquito, in his statement said that he bought those aircraft with a view to distributing food supplied by the World Food Organisation to Angola. He established the claimant for the purpose of buying and operating the aircraft. Because the Angolan state airline had a monopoly on flying to and from and within Angola, he was however, unable to obtain licences for the aircraft and so they were sold. From that date onwards, he said, the claimant never conducted any business nor had any business intentions. It appeared that it did not have a bank account in its own name.
- There was however further evidence from Mr Meer and Mr Mosquito that in March 2007, negotiations were taking place for the purchase of a Dassault Falcon 7X, another private jet of a similar size to the Challenger 605, at the same time as negotiations with the defendant. A contract was concluded with Dassault for the purchase of this aircraft in November 2007 and delivery is now scheduled for 2014. Mr Mosquito's evidence was that the claimant is the purchaser of that aircraft but might not be the owner in due course because "everything depends".
- The defendant also relied upon the evidence of continuing discussions between Mr Mosquito and the defendant for the purchase of other aircraft in the period between March 2007 and 2009. Mr Mosquito's evidence was that, as the market had gone down, from March 2007 onwards, he was looking at the possibility of "taking a position" and purchasing one or two additional Challenger 605 jets and/or the rather larger Global XRS jet. He said he did not want or need more than one plane for his private use. There was a possibility of a chartering business in Angola, but this never got off the ground. The documents showed that he had meetings with banks and the Canadian Export Development Corporation with a view to seeing if finance could be organised for such purchases but, in the end, nothing came of it.
- The claimant submits that Angoil was never involved in aviation business of any kind and its purchase of the Challenger was therefore undoubtedly effected as a consumer, not in the course of its business at all. Angoil was a substantial company involved in the oil exploration business, in partnership with oil majors. It was also contended that the claimant was doing no business at all on the 26th April 2007, when the Assignment Agreement was concluded. It had done nothing for a long time. There was no repetitive business and no degree of regularity therefore in the purchase of aircraft. It did not buy the Challenger as part of its normal practice. It might, just as well, have been an off-the-shelf company purchased for utilisation in the way that it was. It was not in the business of buying or operating aircraft.
- Furthermore, it was merely a vehicle for use by Mr Mosquito who was, in reality, purchasing the private jet for himself, using his own funds to do so. The claimant was not therefore purchasing in the ordinary course of its business because the reality was that Mr Mosquito was making the purchase, merely utilising the claimant entity as a vehicle to own his private jet.
- The evidence was that Mr Mosquito moved money around his companies, for the purpose of purchasing assets in the name of different corporate entities, in accordance with his own decisions as to where money was needed and which company had cash available. The "niceties" of corporate governance do not appear to have been uppermost in his mind. Nonetheless, the fact remains that the purchase was originally made in the name of one company, Angoil and then a novation occurred on 26th April 2007 so that the claimant became the owner of the jet and thereafter entered into contracts with agents for its operation and maintenance. If the question is asked as to the nature of the business carried on by the claimant at the time of the contract, it can only be that of owning and operating an aircraft, because that was its sole function in the past and sole intended function in the future. The reason it was selected by Mr Mosquito was, doubtless, apart from any tax reasons, because of its name and because of its previous ownership of aircraft and the likelihood of it being used for that purpose in the future. The fact that it purchased another aircraft from Dassault in November 2007, following a course of negotiation from March onwards, illustrates the point. Despite the fact that Mr Mosquito is the claimant's alter ego, the claimant cannot be said to have no business at all and, as the defendant points out, the purchase, ownership and operation of the aircraft here was deliberately assigned to this company. The purchase was therefore "an integral part of the business carried on" by it, being the only business which it did carry on. It could certainly not be said that the purchase of the aircraft by way of the Assignment Agreement, was incidental to the carrying on of any other business by the company.
- I am satisfied that the defendant has discharged the burden of proof here of showing that the claimant did not deal as a consumer in entering into the Assignment Agreement and cannot therefore avail itself of the provisions of Section 3(2) and 6(2) of UCTA.
- The defendant also contended that the Challenger jet was not "of a type ordinarily supplied for private use or consumption". This point is however concluded against it by its own witness, Mr Habjanic, who in evidence said that, on many occasions, private individuals had bought planes of this kind from the defendant. They were assets which indicated status and prestige and individuals purchased them for their own private use.
Reasonableness
- Because I have found that the claimant did not "deal as a consumer" in relation to the Assignment Agreement, the reasonableness test would fall to be applied to the terms of the contract, if it was not an international supply contract and if s 27 of UCTA does not apply. By Section 6(3) of UCTA, liability for breach of the obligations arising under the relevant provisions of the Sale of Goods Act can only be excluded or restricted by reference to a contract term, insofar as the term satisfies the requirement of reasonableness. Schedule 2 then sets out the guidelines for the application of that test. The burden is upon the defendant to establish the reasonableness of the terms.
- The claimant submits that the aircraft cost $27.65m and was manufactured by the defendant to its own design. It is alleged that on delivery, it was seriously and dangerously defective and failed to comply with its description. It was incapable of consistently conducting safe flights; it was not of satisfactory quality; it was unfit for the purpose for which it was sold, namely to transport passengers and crew over the range claimed in safety and comfort. It is submitted that safety is self-evidently a vital matter for an aircraft and defects of design, not currently pleaded but likely to be pleaded in the future, which affect such safety, cannot be adequately catered for by the warranties given in Article 15 of Appendix A to the APA, if such defects in design are either incapable of correction or take an extended time to correct. Moreover, the warranty provisions for the items which are the subject of complaint, have a time limit of three years.
- I have held that, on a true construction of the contract, the Warranty set out in Article 15 of Appendix A is the sole remedy available to the claimant, by reason of Article 4 of the APA. Under Article 15.1, the defendant gives a warranty which applies both at delivery and for the period of time set out in the Article, which varies according to the particular items in questions. Under Article 15.2 the warranty for the aircraft is 3000 flight hours or 36 months from delivery but different periods apply for "Completion Work", for metallic exterior paint, for Avionics and for airframe primary metal structures. The Warranty does not extend to the engines which are the subject only of the engine manufacturer's warranty.
- The Warranty covers defects in material, defects in manufacture and defects in design and therefore covers all defects which could arise in relation to the specification and the allegations made in the amended particulars of claim, whether relating to description, quality or fitness for purpose. The sole liability of the defendant under the Warranty however, is expressly limited to correction by repair, replacement or rework of the defect by the defendant at the defendant's facilities, whilst the cost of transportation to that facility is for the account of the purchaser. The Warranty thus adds to the purchaser's rights in relation to the period following delivery, because the warranty of freedom of defects persists during the Warranty period, but the effect of the combination of it with Article 4 is that there is no liability in damages nor liability for consequential loss, quite apart from the loss of any potential right to reject that might arise following delivery.
- The reasonableness of this term has to be considered in the light of the APA as a whole, including its provision for pre-delivery inspection. As the evidence before me showed, purchasers of aircraft such as this almost invariably engage technical experts to examine the documentary records of the manufacturer and the aircraft itself, following the giving of notice of the date upon which the aircraft is to be ready for inspection. The purchaser therefore has, within the constraints set by the nature of the aircraft in question, the opportunity to examine for defects and discrepancies, including inspection of all the records of manufacture and testing carried out by the defendant upon the aircraft and its components. It is only following technical inspection and any correction of any defects or discrepancies found at that stage, that delivery and acceptance take place.
- Mr Stephen Kenny QC argued that, if the fuel tanks were smaller than specified or if there was some other failure to correspond to description, there would be no remedy provided by the warranty at all. If there was a breach or deficiency which was not picked up in the process of inspection and acceptance, with the result that the price was paid and delivery occurred, the warranty would be inadequate to provide for the purchaser's predicament. Equally if electrical installations could not cope with the extremes of temperature, and redesign was required, the purchaser would have to get the aircraft to the repair point and the remedy of repair might be inadequate to compensate the purchaser if a prolonged period of time was needed to carry out the modification. In the context of a proposed amendment to plead that the Engine Driven Pump problems alleged could only be remedied by putting in a heat exchanger (as had been the case in a previous design) it was said that a radical redesign might be required which could not be done in a period of weeks alone.
- When regard is had to the Schedule 2 guidelines set out in UCTA, the claimant's position is not improved, so that the essence of its case depends upon the point made as to the inadequacy of the Warranty in itself, as compared with potential defects.
- Schedule 2 refers to the strength of the bargaining positions of the parties relative to each other, taking into account alternative means by which the customer's requirements could be met. There is no inequality in the bargaining power of the parties to the APA or the Assignment Agreement and the purchaser/claimant had the option of going to other aircraft manufacturers and was in fact in contact with Dassault at the time. The purchase could have been made from other aircraft manufacturers, although there was no evidence of the terms upon which they would have been prepared to supply at the time. Whether there was any opportunity of entering into a similar contract with another manufacturer, without having to accept a similar basis of liability for the seller and a similar warranty from it, therefore remains unknown.
- Article 4.3 of the APA spelt out that the limited warranties and liability provided in the APA had been expressly agreed in consideration of the purchase price and other provisions of the agreement. It was also clear that, during the course of negotiation, Mr Meer's attention was specifically drawn to the warranty provision in Article 15 but this was not a case where the purchaser had an option whether to purchase on the basis of Article 4.1-4.3 and the warranty in Article 15 at one price, or to purchase on a different basis for a different price. Article 4.4, which originally provided for the law of Quebec to apply in the standard form document proffered by the defendant, was amended by the claimant to incorporate English law, but there is no evidence to show that this made any material overall difference to the effect of the provisions of the APA which are the subject of dispute. As I have already said, the purchaser certainly knew of the relevant provisions of the APA because they were drawn to Mr Meer's attention and he directed his mind to them.
- The last feature to which schedule 2 draws attention, is the question whether the goods were manufactured, processed or adapted to the special order of the customer. In this case, whilst elements of the aircraft were tailor-made to the purchaser's requirement, because this was a "limited edition", that element of bespoke manufacture essentially related to the interior of the plane and the de luxe items rather than to the basic mechanical and operational parts of the aircraft itself.
- In truth therefore, the real issue on reasonableness, given the respective positions of the claimant and the defendant, depends upon a comparison of the Sale of Goods Act obligations under Sections 13 and 14, as compared with Article 4 and the Warranty in Appendix A. Having reached the conclusion that, as a matter of construction, the provisions of the APA are sufficiently clear to exclude the Sale of Goods Act implied conditions and to substitute for them the provisions of the Warranty, in circumstances where the parties were of equal bargaining power, where the excluding terms of Article 4 are set out in capitals and where the terms of the warranty were specifically drawn to the purchaser's lawyer's attention, it is hard to see why the court should conclude that the terms are unreasonable in the context of a bargain made by parties to a commercial purchase agreement. The allocation of risk between the parties in such a contract was a matter which they must be taken to have considered and agreed upon in consideration of the purchase price and all the other provisions of the agreement.
- As to the supposed inadequacy of the obligation to repair, replace or rework defects, whether of material, manufacture or design, I remain unpersuaded. If there were to be such a defect, perhaps of design, which could not be put right at all or could only be put right in an extended unreasonable period of time, the defendant could be held to be in repudiatory breach of its obligations under the Warranty. In those circumstances, damages would flow from the breach and it is hard to see how, as a matter of construction of the contract, the exclusion of losses of one kind or another, could apply to such a fundamental breach of that specific obligation, which had replaced the implied terms of the Sale of Goods Act. A repudiatory breach of the Warranty provisions might well give rise to damages at large because there would be a breach which went to the root of the bargain, to which the limitation provisions in Article 4 were not intended to apply.
- In these circumstances, the defendant has satisfied me that the relevant terms of the APA do comply with the statutory test of reasonableness so that the defendant is entitled to rely on them, even if, contrary to what I have held, the APA and Assignment Agreement are not international supply contracts.
Conclusion
- As I have found in favour of the defendant on the construction of the APA and Assignment Agreement, on the question whether they are international supply contracts, on the application of section 27 of UCTA, on the issue whether the claimant was a consumer and on the reasonableness of the excluding or limiting terms in the APA, the claimant cannot succeed in its claim that it is entitled to reject the aircraft, nor to damages based upon that right of rejection, should it be held to have lost the right by its acceptance of the jet. Moreover, given the success of the defendant on these issues, absent any special factors of which I am unaware, but upon which the parties can address me, it appears to me that the claimant should pay the defendant's costs, to be the subject of assessment, if not agreed.
