Contract

Unfair terms - Exclusion of liability for negligence

Air Transworld Ltd v Bombardier Inc: Queen's Bench Division, Commercial Court (Mr Justice Cooke): 20 February 2012

The claimant was a Gibraltarian company, controlled by M, a resident of Angola. M also controlled another company, Angoil SA, which entered into an aircraft purchase agreement (the APA) with the defendant company to buy a new Challenger 605 aircraft, built to a limited edition specification. The APA had an express choice of law clause choosing English law. In April 2007, the APA was assigned to the claimant by an agreement to which the defendant was also party. It was the claimant's contention that the jet was to be M's personal private jet and that the companies were merely vehicles through which, as their alter ego, he acted.

It was agreed that the jet was formally delivered to the claimant in March 2009 and that he wrote a letter of rejection in July 2010, whilst the jet was at the defendant's premises in Hartford, Connecticut, for investigation following an incident with one of the twin engines, which had led to an unscheduled landing. The claimant later brought proceedings seeking a declaration that it had validly rejected the aircraft and was entitled to a refund or damages. 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 (the 1979 act) as amended.

The defendant relied on the terms of the APA as excluding such liability under statute and replacing it with warranties set out in the APA (the relevant terms of the APA are set out in [8] of the judgment), and denied it had breached any of the latter. Moreover, the defendant contended that the problems of the aircraft did not breach any term implied by statute, but rather represented the sort of issues which could arise with a highly complex piece of machinery. The claimant contended that the relevant parts of the APA were in breach of the Unfair Contract Terms Act 1977 (the 1977 act).

It was agreed that the issues under the APA, the assignment agreement, the 1979 act and the 1977 act could be determined on the assumption that the claimant's case on the technical aspect was sound, though that case remained disputed at all material times. When considering the 1977 act, regard was had to its antecedents, including the Uniform Law on International Sale of Goods (ULIS) scheduled to the Uniform Laws on International Sales Acts 1967.

It was common ground that the APA and the assignment agreement fell within section 26(3)(a) and (b) of the 1977 act, 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) of the 1977 act were satisfied because, if they were, by 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. 

The court ruled: (1) Early authorities established that liability could not be excluded for a breach of a condition implied by the 1979 act by exclusions which referred merely to ‘warranty’ or ‘guarantee’, even if those words were cross-referenced to statutes or rules of law, which would otherwise give rise to an implication of such terms. Those authorities required any term excluding a condition implied by the 1979 act to be in ‘apt and precise words’, if it was 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 that result. 

Recent authority held that there was no difference between lines of authority on approaches to construction, one of which required clear express words whilst the other favoured the natural meaning of the words used. Any clause in a contract had to be construed in the context in which it had been 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 that had been 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 had intended that result (see [16], [26] of the contract).

In the instant case, the clause at issue could only be read as saying that the defendant's obligations were to be found exclusively in the APA and its appendix. It made clear that resort was not to be had to any other obligation or liability of any kind which arose in law. Unlike the preceding authorities to which the court had been referred, the instant case was one in which the words used did encompass contractual conditions implied by law. There was no ambiguity (see [27] - [31] of the judgment). Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 1 All ER 474 considered; Kendall (Henry) & Sons (a firm) v William Lillico & Sons Ltd [1968] 2 All ER 444 considered; Newton v Cammell Laird & Co (Shipbuilders and Engineers) Ltd [1969] 1 All ER 708 considered; Baldry v Marshall [1924] All ER Rep 155 considered; Wallis, Son and Wells v Pratt and Haynes [1911-13] All ER Rep 989 considered; Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] 2 All ER (Comm) 1129 considered; KG Bominflot Bunkergesellschaft fur Mineraloele mbH & Co v Petroplus Marketing AG, The Mercini Lady [2011] 2 All ER (Comm) 522 considered.

(2) Section 26(4)(b) of the 1977 act provided that a contract would only fall within section 26(4)(3) if the acts constituting the offer and acceptance had been done in the territories of different states. It referred to the totality of the acts which constituted the offer and acceptance, including both the making and receiving of each. Whilst there was no provision such as article 1(4) of ULIS, explaining how the section was to be interpreted in the case of offer and acceptance by correspondence, the effect was the same. It was hard to imagine a relevant distinction which had depended on the form of communication adopted (letter, email or fax) when what was at issue was the ‘international’ nature of the contract. Section 26(4)(b) was intended to exclude cases where there was an international element in the formation of the contract, so that all elements of the offer and acceptance had to occur in the same state if the provision of the act were to apply (see [66], [82] of the judgment).

In the instant case, both the APA and the assignment agreement had been formed in England and Canada. If both were considered together then if any act was performed in different territories for either contract, the rights and obligations of both would fall outside the 1977 act (see [83]-[87] of the judgment). Amiri Flight Authority v BAE Systems plc [2004] 1 All ER (Comm) 385 applied.

(3) English law was the law of the contract because of the express choice of law clause. Otherwise it would have been governed by the law of Canada, or more particularly Quebec, the place of performance. For all those reasons the APA and the assignment agreement had to be seen as international supply contracts. It therefore mattered not whether the claimant had been a consumer for the purposes of the 1977 act and the reasonableness test in section 11 of that act had no application (see [108] of the contract). 

(4) Had it been necessary to decide, the claimant would have been held not to have dealt as a consumer in entering into the assignment agreement. As to reasonableness, the issue depended upon a comparison of the obligations under sections 13 and 14 of the 1979 act, as compared with article 4 and the warranty in appendix A to the APA. Having reached the conclusion that, as a matter of construction, the provisions of the APA were sufficiently clear to exclude the implied conditions in the 1979 act 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 were set out in capitals and where the terms of the warranty were specifically drawn to the purchaser’s lawyer’s attention, it was hard to see why the court should conclude that the terms were unreasonable in the context of a bargain made by parties to a commercial purchase agreement (see [121], [133] of the judgment). 

The defendant had therefore established that the relevant terms of the APA did comply with the statutory test of reasonableness, even if the APA and assignment agreement were not international supply contracts (see [135] of the judgment).

Stephen Kenny QC and George Woods (instructed by Stocker Brunton) for the claimant; Michael Crane QC and Tom Weisselberg (instructed by Jones Day) for the defendant.