Contractual Estoppel May Apply in Business Leasing

The High Court has recently held that a party who made contractual representations as to the validity of an aircraft lease was contractually estopped from subsequently alleging that the agreement was invalid.

In Wallis Trading Inc v Air Tanzania Company Limited  [2020] EWHC 339 (Comm) the lessee (Air Tanzania) made certain representations including that the lease was legal and valid, and that it had obtained all required authorisations and consents to enable it to enter into and perform the lease. Air Tanzania later argued that the lease was invalid because (among other things) it had failed to comply with Tanzanian public procurement laws.

Mr Justice Butcher held that Air Tanzania’s representations in the lease had the effect of contractually estopping it from alleging that the lease was invalid. Applying the Court of Appeal decisions in Peekay Intermark v Australia and New Zealand Banking Group Limited [2006] EWCA Civ 386 and First Tower Trustees Ltd v CDS [2018] EWCA Civ 1396, the judge said that those representations had given rise to an estoppel which could not be resiled from after the event:

“… under clause 2.1 of the Lease ATCL represented and warranted that the Lease was a legal, valid and binding obligation on it, and that the entry into and performance of the Lease did not conflict with any laws binding on ATCL (such as the Defendants now contend the Procurement Legislation to have been). ATCL also represented and warranted that all required authorisations, consents, registrations and notifications in connexion with the entry into, validity and enforceability of the Lease had been or would by the Delivery Date have been obtained or effected, which would embrace any necessary consents or authorisations in relation to the Procurement Legislation. Those representations gave rise to an estoppel upon entry into of the Lease…”

The effect was that both parties had contractually accepted that a certain state of affairs was true, even if it was not or the parties had knowledge of the truth.

Comment

The concept of contractual estoppel is a fairly new one, thought to be established in the Peekay case. This judgment is therefore of interest in demonstrating the types of statements that could be found to have the effect of contractually estopping a party from asserting that the true facts were different.

However, in the First Tower Trustees case, Lewison LJ held that, while parties can bind themselves at common law to a fictional state of affairs in which no representations have been made or, though made, have not been relied on, the common law position is not the end of the matter. It is still necessary to consider whether there is any legal principle or statute restricting the parties’ freedom to operate on the basis of the contractual estoppel. The fact that a non-reliance statement creates a contractual estoppel does not prevent consideration of the question whether section 3 of the Misrepresentation Act applies. Section 3 must be interpreted so as to give effect to its policy. That policy is to prevent contracting parties from escaping from liability for misrepresentation unless it is reasonable for them to do so. How they seek to avoid that liability is subsidiary.

Asset financiers therefore need to understand that when dealing with either (i) businesses of significantly less bargaining power than themselves, or (ii) consumers, the argument that contractual representations made by a lessee give rise to a binding estoppel is unlikely to survive the impact of legislation controlling exclusion clauses such as the Misrepresentation Act 1967 and the Unfair Contract Terms Act 1977.