Exclusion of Liability Allowed in International Supply Contracts

In the recent case of Trident Turboprop (Dublin) Limited v First Flight Couriers Limited [2009] EWCA Civ 290 the Court of Appeal had to consider the effect of Section 26 of the Unfair Contract Terms Act 1977 (“UCTA”) in relation to an aircraft Lease.

Section 26 effectively disapplies UCTA in Lease and Hire Purchase Agreements made by parties whose places of business are in the territories of different states, provided that:-

(1) the goods 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

(2) the acts constituting the offer and acceptance of the contract have been done in the territories of different states; or

(3) 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.

Here the Lessor sought Summary Judgment for arrears and future rentals due under aircraft Leases with an Indian Lessee Company who used the aircraft in India. The Lessee alleged that it had been induced to enter into the Leases by pre-contractual misrepresentations, and the Lessor relied on a wide exclusion clause by which the Lessee acknowledged that no warranties or representations had been made, express or implied, about the aircraft.

All the negotiations between the parties were carried out in England, the Leases were executed there, and delivery was to be in England. Therefore requirements (2) and (3) above were not satisfied and the Lessor could only succeed on its Application for Summary Judgment without the need for a full trial if (1) above applied. The Court held that it was sufficient if the parties contemplated that the goods would be transported across national boundaries at the time the Lease was executed, and that it was not necessary for the carriage to be provided for in the Lease itself. Furthermore, it made no difference that the goods were to be transported under their own power, so there is no reason why aircraft, ships and other vehicles should not fall within Section 26.

Comment

Note that for the purposes of Section 26 the Channel Islands and the Isle of Man are treated as different states from the United Kingdom.

There are 2 other provisions in UCTA which may come into play in contracts with an international element. Firstly, Section 27(1) disapplies UCTA where the Lease or Hire Purchase Agreement is governed by English law solely as a result of a choice of that law by the parties, where apart from that choice of law the contract would be subject to the law of some country outside the United Kingdom. Thus a Lease or Hire Purchase Agreement between European or US subsidiaries of both a financier and a customer which is expressed to be subject to a Global Master Agreement governed by English law will not normally be subject to UCTA.

Secondly, Section 27(2) contains an anti-avoidance provision by which UCTA is stated to apply where the parties have chosen the law of some country outside the United Kingdom and:-

(1) this choice of law appears to the Court to have been imposed wholly or mainly for the purpose of enabling the party imposing it to evade the operation of UCTA; or

(2) one party is a consumer habitually resident in the UK and the essential steps necessary for the making of the contract were taken there.