A dispute arising from the leasing of two aircraft for use in India by a UK-based company has provided the Court of Appeal with an opportunity to clarify that section 3 of the Misrepresentation Act 1967 does not apply to international supply contracts for the purposes of the Unfair Contract Terms Act 1977 ("UCTA"). As such, an exclusion or limitation of liability in an international supply contract relating to misrepresentation need not be reasonable to be enforceable.
Relevant legislative provisions:
UCTA restricts the extent to which a party can limit or exclude its liability for breach of contract, negligence or otherwise by virtue of contractual terms, while section 3 of the Misrepresentation Act 1967 (as substituted by section 8 of UCTA) states that a contractual term which purports to exclude or limit liability for misrepresentation is only effective to the extent it satisfies the reasonableness test set out in section 11 of UCTA
Section 26 of UCTA provides that the restrictions imposed by UCTA (including the reasonableness test) do not apply to "international supply contracts". In particular, section 26(1) states that: "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 an [international supply contract]".
Decision:
In Trident Turbopop (Dublin) Limited v First Flight Couriers Limited [2009] EWCA Civ 290, First Flight Couriers ("First Flight"), an Indian courier company, sought to defend proceedings brought by Trident Turbopop (Dublin) Limited ("Trident") (for breach of certain aircraft leases and wrongful interference with the leased aircraft), on the basis that First Flight had been induced to enter into the leases by pre-contractual misrepresentations made to it by Trident. Trident argued that First Flight was precluded from relying on any alleged misrepresentation as a result of the particular exclusion clauses in the leases.
Trident was successful at first instance, but on a different basis from that argued. Although the exclusion clauses in the leases came within the scope of section 3 of the Misrepresentation Act, the judge held that the leases were "international supply contracts" within the meaning of section 26 of UCTA and the exclusion clauses were not therefore subject to the reasonableness test.
First Flight appealed the decision, arguing that the limits on restricting liability for misrepresentation are not imposed by UCTA but rather by section 3 of the Misrepresentation Act, and as section 26(1) begins with "The limits imposed by this Act....", section 26(1) does not exclude international supply contracts from the operation of section 3 of the Misrepresentation Act, even though UCTA will not apply to such contracts.
Significantly, the Court of Appeal chose to look at section 26(1) as a whole, rather than simply the opening words, and noted that the section deals with excluding and restricting liability by reference to contract terms in general, and not just liability for breach of contract. The court held that when section 26(1) refers to "The limits imposed by this Act...", it is referring to the requirement of reasonableness embodied in UCTA, and by operation of section 8 of UCTA (which substituted the current section 3 into the Misrepresentation Act), to terms excluding liability for misrepresentation.
Comment:
The Court of Appeal's decision aligns with Parliament's intention (as noted in the judgment) that international supply contracts should be free from the statutory controls applicable to exclusion clauses. If section 3 of the Misrepresentation Act were to apply to international supply contracts but UCTA did not, this would mean clauses in international supply contracts that excluded liability for breach of contract would be treated differently from clauses in such contracts which excluded liability for misrepresentation – an approach which would be anomalous, and without sound justification.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 11/05/2009.
