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Cite as: [2009] 1 Lloyd's Rep 702, [2009] EWCA Civ 290, [2009] 1 CLC 490, [2010] QB 86, [2009] Bus LR 1189, [2010] 1 QB 86, [2009] 2 All ER (Comm) 1050, [2009] 3 WLR 861

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		Neutral Citation Number: [2009] EWCA Civ 290
		Case No: A3/2008/2156

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
Mr Justice Aikens
[2008] EWHC 1686 (Comm)

Royal Courts of Justice
Strand, London, WC2A 2LL

2 April 2009

B e f o r e :

LORD JUSTICE WALLER
(Vice-President of the Court of Appeal, Civil Division)
LADY JUSTICE ARDEN
and
LORD JUSTICE MOORE-BICK
____________________

Between:

	TRIDENT TURBOPROP (DUBLIN) LIMITED	Claimant/ Respondent
	- and -
	FIRST FLIGHT COURIERS LIMITED	Defendant/Appellant

____________________

(Transcript of the Handed Down Judgment of
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____________________

Mr. Neil Vickery (instructed by TWM Solicitors LLP) for the appellant
Mr. George McPherson (instructed by Allen & Overy LLP) for the respondent
Hearing date : 2nd February 2009
____________________

HTML VERSION OF JUDGMENT
____________________

Lord Justice Moore-Bick :

This is an appeal against an order of Aikens J. giving summary judgment for the respondent, Trident Turboprop Dublin Ltd ("Trident") against the appellant, First Flight Couriers Ltd ("First Flight"), under CPR Part 24. It raises some novel and interesting questions relating to the interpretation of section 26 of the Unfair Contract Terms Act 1977 and section 3 of the Misrepresentation Act 1967.

The background to the dispute is described in some detail in the judgment below, now reported at [2009] 1 All ER (Comm) 16, [2008] EWHC 1686 (Comm) and can be summarised quite shortly. On 5^th September 2005 Trident entered into Aircraft Operating Lease Agreements in identical terms with First Flight in respect of two ATP model aircraft. The leases represented the culmination of negotiations between a representative of the manufacturer, BAE Systems Regional Aircraft Limited ("BAE"), and representatives of First Flight and were signed by a representative of BAE on behalf of Trident. Each provided for delivery to take place at Southend airport.

In the event one of the two aircraft was delivered to First Flight on 24 May 2006 at Lidköping airport in Sweden; the other was delivered on 16 October 2006 at Southend. A third aircraft was also leased by First Flight from Trident and was delivered in July 2006, but no claim is made in respect of it and it is unnecessary to say anything further about it.

Trident alleges that First Flight failed to pay rent under each of the two leases and that as a result it became entitled to terminate both contracts and recover possession of the aircraft. By two notices each dated 30^th January 2008 Trident purported to terminate the leases and on 6^th February 2008 it issued proceedings against First Flight seeking to recover possession of the aircraft, damages for wrongful interference with them and damages for breach of the leases. First Flight subsequently redelivered the aircraft to Trident pursuant to an order of the court made on 13^th March 2008. On 4^th April 2008 Trident issued an application for summary judgment.

First Flight says that the aircraft were unreliable and suffered from various defects, thereby preventing it from achieving its operational objectives. It stopped paying rent under the two leases in September 2007 and in response Trident served notices of default on 18^th October 2007. First Flight originally accepted that Trident was entitled to take that step, but in the present proceedings it asserts that on 30^th August 2007 it had already exercised a right to rescind the leases for misrepresentation by informing Trident that it had decided to stop using the aircraft. Alternatively, it says that if it did not effectively rescind the leases on that date it retained the right to do so and that consequently Trident has no right to recover arrears of rent or damages for breach of contract.

First Flight's defence to the claim therefore depends on establishing misrepresentations of a kind that would entitle it to rescind the leases. The allegations of fact on which that defence is based are in issue, but Trident accepts that for the purposes of an application for summary judgment the court must assume that they are well-founded, or at any rate that they cannot be determined without a trial. Its answer, however, is that the leases contain terms which prevent First Flight from relying on matters of that kind. Moreover, Trident contends that the provisions of the Unfair Contract Terms Act 1977, which would otherwise prevent it from relying on those terms unless it could show that they satisfied the requirement of reasonableness, do not apply in this case because the leases fall outside the scope of the Act by virtue of section 26.

The issues below

As the judge correctly recognised, Trident could only succeed on its application for summary judgment if it could satisfy the court that First Flight had no real prospect of resisting the claim because of the exclusion clauses in the lease agreements. He held that the clauses in question, to which it is unnecessary to refer in any detail, were effective to exclude First Flight's right to rely on the alleged misrepresentations, subject only to the operation of the Misrepresentation Act and any consequent requirement to satisfy the requirement of reasonableness in the Unfair Contract Terms Act. There is no appeal from that part of his decision.

The next question, therefore, was whether the clauses in question fell within the scope of section 3 of the Misrepresentation Act 1967 because they excluded or restricted a liability to which Trident would be subject by reason of any misrepresentation made before the contract was entered into or the remedy available to First Flight for any such misrepresentation. The judge held that they did and that therefore, unless the leases fell outside the scope of the Unfair Contract Terms Act, they would not be effective unless they satisfied the requirement of reasonableness in section 11. That was not something that could be decided on an application for summary judgment. There is no appeal from that part of his decision either.

The judge therefore turned finally to consider the primary question with which this appeal is concerned, namely, whether the leases in this case fall within section 26 of the Act. He held that they do and that the Act therefore does not apply to them. Accordingly, he gave judgment for Trident.

The statutory provisions

Section 26 of the Unfair Contract Terms Act 1977 provides as follows:

"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 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."

The judge gave First Flight permission to appeal only on the question whether the leases fell within the scope of section 26(4)(a), but at the hearing of the appeal Mr. Vickery sought to advance two additional points, neither of which had been argued below and neither of which had been raised in his notice of appeal. He needed the permission of the court to do so, but since both raise questions of statutory interpretation alone and since the respondent did not object to his doing so, we granted permission and heard argument on them. They are (i) whether the limits imposed on Trident's right to rely on a clause excluding any remedy for misrepresentation are imposed by "this Act", that is, the Unfair Contract Terms Act itself, or by the Misrepresentation Act 1967; and (ii) whether any liability for misrepresentation in this case is a liability arising "under a contract" within the meaning of section 26(1). Since these questions relate to the applicability of section 26 as a whole, it is convenient to consider them first.

Limits on the exclusion of liability for misrepresentation

Limits on a party's power to limit his liability for misrepresentation were first imposed by section 3 of the Misrepresentation Act 1967, which, as originally enacted, provided as follows:

"If any agreement (whether made before or after the commencement of this Act) contains a provision which would exclude or restrict—

(a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or

(b) any remedy available to another party to the contract by reason of such a misrepresentation

that provision shall be of no effect except to the extent (if any) that, in any proceedings arising out of the contract, the court or arbitrator may allow reliance on it as being fair and reasonable in the circumstances of the case."

No exception was made for international supply contracts or contracts of any other kind.

By section 8 of the Unfair Contract Terms Act the following was substituted for section 3:

"If a contract contains a term which would exclude or restrict—(a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or

(b) any remedy available to another party to the contract by reason of such misrepresentation

that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is for those claiming that the term satisfies that requirement to show that it does."

On the face of it the purpose of section 8 was to bring the law relating to the exclusion of liability for misrepresentation into line with the law relating to the exclusion of liability for breach of contract by subjecting both to the requirement of reasonableness introduced for the first time by the Unfair Contract Terms Act. Again, however, no special provision was made in the new section 3 of the Misrepresentation Act for international supply contracts.

Section 26(1) of the Unfair Contract Terms Act begins with the words "The limits imposed by this Act . . . ". Mr. Vickery submitted that the limits on a party's ability to restrict liability for misrepresentation are not imposed by the Unfair Contract Terms Act itself, but by section 3 of the Misrepresentation Act 1967, notwithstanding that that section owes its origin to section 8 of the former Act. Mr. McPherson submitted, on the other hand, that the source of the limit is section 8 itself.

In my view the answer to this question is to be found not by concentrating simply on the words "under this Act" in section 26(1), but by looking at the wording of subsections (1) and (2) of section 26 as a whole. Subsection (1) is directed to excluding or restricting liability by reference to contract terms in general and is not limited to liability for breach of contract. As such it is capable of extending to liability for misrepresentation. Subsection (2) is also worded generally, being capable of extending to any contract which contains terms purporting to exclude liability and excluding from the requirement of reasonableness any contract falling within subsection (3). In my view, therefore, when subsection (1) speaks of "the limits imposed by this Act on the extent to which a person may exclude or restrict liability by reference to a contract term" it is referring to the requirement of reasonableness embodied in the Act and, by operation of section 8, to terms excluding liability for misrepresentation.

In my view this interpretation is also to be preferred as giving effect to the policy of excluding international supply contracts from this type of statutory control. Mr. Vickery pointed out that in its original form section 3 of the Misrepresentation Act did not exclude such contracts from its operation and submitted that there is nothing in the legislative background to the Unfair Contract Terms Act to suggest that Parliament intended a significant change in policy. That may be so, but the two reports of the Law Commission relating to exemption clauses in contracts published in July 1969 and August 1975 both explicitly recognise that there are sound policy reasons for excluding contracts for the international supply of goods from the scope of any statutory controls. As the Law Commission recognised in its first report, there is a close link between misrepresentation and many kinds of breach of contract, most clearly in the case of a contract for sale by description. Against that background to introduce by legislation a distinction in relation to such contracts between clauses excluding liability for breach of contract and clauses excluding liability for misrepresentation would create an anomaly which cannot be justified on any discernible grounds. I am satisfied that the purpose of section 26 was, as the language of subsection (2) indicates, to exclude such contracts altogether from the requirement of reasonableness and that insofar as that involved a liberalisation of the previous position in relation to clauses excluding liability for misrepresentation it reflects Parliament's intention to exclude international supply contracts from this kind of statutory control.

One can also examine this question from the perspective of the Misrepresentation Act. It might have been, but was not, argued in this case that section 3 of the Misrepresentation Act is independent of the Unfair Contract Terms Act, save for importing the requirement of reasonableness set out in section 11. That is, in effect, just another way of saying that the limit on a party's right to exclude or restrict liability for misrepresentation is imposed by the Misrepresentation Act rather than by the Unfair Contract Terms Act. If it were correct it would mean that all contracts, including those falling within section 26(3), are subject to the statutory controls imposed by the Misrepresentation Act.

The judge proceeded on the unspoken assumption that if the leases were excluded from the operation of the Unfair Contract Terms Act they necessarily satisfied the (non-existent) requirement of reasonableness and so were effective in accordance with their terms. In my view he was right to do so. At the heart of this problem lies the relationship between these two statutory provisions. To treat section 3 of the Misrepresentation Act as independent of the Unfair Contract Terms Act would in my view create the anomaly to which I referred earlier and would frustrate the intention of Parliament to exclude international supply contracts from the statutory controls. Since section 3 is worded in terms which render an exclusion clause ineffective unless it complies with the controls set out in the Unfair Contract Terms Act, it makes the latter the controlling instrument. In my view, therefore, it cannot be right to treat the Misrepresentation Act as imposing restrictions in a case in which the Unfair Contract Terms Act provides none.

For these reasons I am unable to accept this part of Mr. Vickery's argument.

Liability under or outside the contract?

Mr. Vickery submitted that liability for misrepresentation arises outside rather than under a contract and so does not fall within the words "liability arising under such a contract as is described in subsection (3) below" in section 26(1). Mr. McPherson, while acknowledging that in this context a misrepresentation must, if it is to give rise to a remedy, occur prior to the formation of a contract, submitted that the remedy, whether in the form of damages or rescission, is so closely linked to the contract that it can properly be described as a liability arising under it.

In support of his submissions Mr. McPherson drew our attention to a number of decisions relating to the construction of jurisdiction and arbitration clauses in which the courts have been willing to give a generous interpretation to words of a similar kind. In cases where parties have agreed to refer disputes to arbitration or to the decision of the courts of a specific country there are strong reasons for thinking that they are unlikely to have intended that disputes that differ only in their jurisprudential nature should be determined by different tribunals. Thus in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40, [2007] 4 All ER 951 the House of Lords held that a claim to rescind a contract by reason of bribery fell within the scope of an arbitration clause under which the parties had agreed to refer to arbitration "any dispute arising under this charter". It may be said that the decision, turning as it does on the construction of a commercial agreement, is an uncertain guide to the interpretation of a statute, since Parliament, which can be presumed to have chosen its words carefully, could easily have used language that would encompass claims based on causes of action that are related to, but do not arise under, a contract. The expression "under or in connection with" immediately comes to mind. However, as in the case of a commercial contract, some assistance is to be gained from identifying the purpose of the provision in question. For the reasons I have already given, I think that the purpose of section 26 as a whole is to exclude international supply contracts from the statutory regime governing exclusion clauses. If that is right, there is every reason to interpret the expression "liability arising under such a contract" as extending both to liability for damages for misrepresentation and to the right of the injured party to rescind the contract where that remains possible.

Since preparing this judgment I have had the benefit of reading in draft the judgment of Arden L.J. I am grateful to her for drawing attention to the language of section 13(1)(b) of the Act which provides further support for that conclusion.

Accordingly, I am unable to accept this part of Mr. Vickery's argument.

Are the leases international supply contracts?

Having dealt with Mr. Vickery's two new points, I can now turn to the remainder of section 26. The leases provided for possession of the aircraft to pass under them and were made by parties whose places of business were in the territories of different states. They therefore satisfy the requirements of subsection (3). However, all the negotiations appear to have been carried on in this country and the leases were executed here. They provided for delivery in this country. They do not, therefore, satisfy the requirements of subsections (4)(b) or (c). That leaves only subsection 4(a).

The judge held that subsection (4)(a) is satisfied if, at the time of the conclusion of the contract, the goods in question will be carried from the territory of one state to the territory of another. He did not discuss the rationale behind the subsection, but, as far as one can tell, he appears to have accepted that it would be satisfied in any case in which the parties contemplated that the goods would be transported across national boundaries. In support of his conclusion he relied on the decision of Mance L.J. in Amiri Flight Authority v BAE Systems Plc [2003] EWCA Civ 1447, [2004] 1 All ER (Comm) 385.

Mr. Vickery submitted that the leases in the present case do not fall outside the scope of the Act because they provide for delivery to take place in the United Kingdom and make no provision for the aircraft to be transported to another country. The position is therefore essentially the same as it would be if the lessees had carried on business in this country and neither party had contemplated that the aircraft would be operated from abroad. In support of his argument he drew our attention to the legislative history of the statutory control of exclusion clauses from the Uniform Laws on International Sales Act 1967 to the Unfair Contract Terms Act itself. He also drew our attention to various Reports published by the Law Commission on this subject, culminating in the Law Commission Report on Unfair Terms in Contracts published in February 2005.

Interesting though this material is, it does not shed a great deal of light on Parliament's intention in enacting subsection (4)(a) and I do not think I am alone in finding it difficult to construe. At first sight the phrase "at the time of the conclusion of the contract" appears to govern both "in the course of carriage" and "will be carried", but I doubt whether that is what the draftsman intended. There is an obvious grammatical awkwardness about the expression "the goods in question . . . at the time of the conclusion of the contract . . . will be carried" which leads me to think that he probably intended to refer separately to goods in the course of carriage at the time the contract is made and goods that will be carried at a later date. Nonetheless, the expression "will be carried" looks forward and can only do so from the point of time at which the contract is made. On the face of it, therefore, subsection 4(a) appears to be directed to any case in which the parties contemplate at the time of entering into the contract that the goods in question will be transported across national boundaries, not necessarily in order to fulfil the terms of the contract, but in order to achieve its commercial object. In my view 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 can sensibly be described as an international supply contract.

Commenting on section 26(4) generally, Mance L.J. in Amiri Flight Authority v BAE Systems had this to say:

"The structure of s.26(4) is on any view questionable. S.26(4)(a) can in reality only be significant in a case where the offer and acceptance were done in one and the same state. In other words, it can like s.26(4)(c) only matter in such a case. Yet the draftsman does not appear to have appreciated that. The relationship between s.26(4)(a) and (c) may well not therefore have been worked out completely. However, the draftsman must at least be taken to have had in mind that s.26(4)(a) is only concerned with goods which are being, or will be, carried between the territory of two different states. S.26(4)(a) does not therefore require the seller to have undertaken any obligation to deliver to any other state. Without going into its precise limits, one classical example within s.26(4)(a) would be the sale of goods on CIF or FOB terms. The supplier thereby undertakes to ship goods, or to give the receiver the benefit of a shipping contract, without undertaking that the goods will actually be delivered by the carrier to their overseas destination. When the draftsman came to consider the circumstances in which a contract made in one state should be treated as international, he may have thought that the trigger should also involve movement between different states. So far as the relationship between s.26(4)(a) and (c) is concerned, the latter is, in contrast to the former, concerned on its face solely with circumstances in which the supplier does undertake a delivery obligation."

For the reasons I have given I respectfully agree with that analysis.

Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 (Comm), [2006] 2 Lloyd's Rep 629 concerned the supply of a commodity known as borocene by Borealis to Balmoral. The goods were produced in Norway and shipped to the United Kingdom for sale and delivery to the claimant, but in some cases the goods had already been shipped to this country from Norway when the contract was made and were already lying in a warehouse here. The question therefore arose whether in those cases the contract fell within subsection (4)(a). Christopher Clarke J. held that since the goods in question were produced to order and not supplied from existing stock, they should be regarded as being in the course of carriage from Norway to the United Kingdom, the course of carriage having been temporarily interrupted while they were in the warehouse.

In the present case it is clear that, although the aircraft were to be delivered to the lessee in this country, both parties were well aware that they were being leased by First Flight for use in their business and were to be taken to India for that purpose. If, therefore, as its language suggests, subsection (4)(a) is not limited to contracts under which goods must be carried across national boundaries in order to fulfil a contractual obligation, a contract of this kind must fall within it. Notwithstanding the doubts expressed by Tomlinson J. at first instance in Amiri Flight Authority v BAE Systems [2002] EWHC 2841 (Comm), [2003] 1 Lloyd's Rep 50 at page 61, col. 2, I am not persuaded that the subsection is incapable of applying to ships, aircraft and other vehicles capable of moving under their own power. Except for larger-sized vessels, vehicles of that kind can be, and often are, carried by sea and air, but I reject the argument primarily because I am unable to accept that Parliament intended to draw a distinction for this purpose between vehicles capable of moving under their own power and other goods. In my view the aircraft in this case were to be "carried" from the United Kingdom to India within the meaning of subsection 4(a), despite the fact that it was the intention of First Flight to fly them under their own power.

For these reasons I am satisfied that the leases in this case fall within section 26(4)(a) and are therefore excluded from the provisions of the Act altogether. It follows that in my view the judge's decision was correct and that the appeal should be dismissed.

Lady Justice Arden:

I agree with the judgment of my Lord, Lord Justice Moore-Bick. In particular I agree with him that the statutory purpose of section 26 of the Unfair Contract Terms Act 1977 ("the 1977 Act") is to exclude international supply contracts from the controls on exemption and other clauses provided for in Part 1 of that Act. This is emphasised by section 1(2) of the 1977 Act, which provides that Part 1 of the 1977 Act "is subject to Part III of the Act". (That Part contains section 26.) Those words in section 1(2) create a default rule that Part III should have primacy over Part I (unless the contrary appears), and give additional weight to the provisions of sections 26(1) and (2).

As to the question whether the words "liability arising under" an international supply contract include the right to rescind a contract for misrepresentation, s 13 in Part I of the 1977 Act supports Lord Justice Moore-Bick's conclusion. The opening words of section 26(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") must bear the meaning given to them by Part I of the 1977 Act where those limits appear, and section 13 gives those words an extended meaning as excluding any right or remedy in respect of a liability. The second reference in section 26(1) to "liability" ("liability arising under" an international supply contract) must be construed accordingly.

A conclusion contrary to that of Lord Justice Moore-Bick, namely a conclusion that liability for misrepresentation cannot be restricted or excluded by the parties to an international supply contract, would create a trap for the unwary. It would, as my Lord has said, also produce the unlikely result that parties to an international supply contract could exclude liability, for example, for the supply of goods that are not fit for the purpose under section 6(3), but not liability for misrepresentation.

For these reasons and those given by my Lord, I agree that the appeal should be dismissed.

Lord Justice Waller:

I agree with both judgments.