In the case of Trident Turboprop (Dublin) Limited v First Flight Couriers Limited, the Court of Appeal has interpreted aspects of section 26 of the Unfair Contract Terms Act 1977 (UCTA).
Section 26 states that exclusions and limitations of liability in an international supply contract are not subject to the requirement of reasonableness in UCTA:
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 do not apply to liability arising under such a contract as is described in subsection (3) below.
26(2) The terms of such a contract are not subject to any requirement of reasonableness …
An international supply contract is defined as one whose characteristics are the following:
26(3)(a) … a contract for the sale of goods or one under which possession or ownership of goods passes; and
26(3)(b) it is made by parties whose places of business are in the territories of different States.
26(4) A contract falls within subsection (3) above only if either:
(a) the goods are, at the time of 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 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.
Therefore, to be an international supply contract, a contract must satisfy both conditions in 26(3) and one condition in 26(4).
The restrictions on a contracting party’s ability to exclude or limit its liability for misrepresentation are set out in section 3 of the Misrepresentation Act 1967. Section 3 stipulates that any such exclusion or limitation will only be effective if it satisfies the reasonableness test in UCTA. Section 3 was inserted into the Misrepresentation Act 1967 by section 8 of UCTA.
Trident Turboprop (TT), based in Dublin, agreed to lease aircraft to First Flight (FF), based in the UK. The contract was negotiated and executed in the UK. The aircraft were to be built in the UK and the agreed place of delivery was Southend, UK. Both parties knew that FF intended to take the aircraft to India for use in its business there. A dispute arose between the parties. FF withheld rent and TT sought to terminate the agreement and sue for damages. It applied for summary judgment against FF. FF’s defence was that it had a claim against TT for misrepresentation as the aircraft were defective and unsuitable for use in its business (contrary to what TT had represented). TT’s response was that the contract contained an exclusion of TT’s liability for misrepresentation and that, given that the contract was an international supply contract, it could rely on the exclusion without needing to show that it was reasonable. The dispute moved from the High Court to the Court of Appeal. The Court of Appeal was asked to consider two questions:
- In principle, does section 26 apply to exclusions or limitations of liability for misrepresentation in an international supply contract or only to exclusions/limitations of liability for breach of contract?
- Was the contract between TT and FF an international supply contract?
In relation to the first question, FF relied on the wording of 26(1) as supporting its argument that s26 applied only to exclusions/limitations of liability for breach of contract. It argued that “The limits imposed by this Act”” referred to limits imposed by UCTA on the extent to which liability could be excluded or limited by a contract term. However, the extent to which liability for misrepresentation could be excluded/limited was imposed by the Misrepresentation Act and not by UCTA. It also argued that the wording in 26(1) “do not apply to liability arising under such a contract” excluded misrepresentation from the scope of s26 as misrepresentation was not a liability arising under a contract. It was a liability arising pre-contractually.
In relation to the first question, the Court of Appeal held that 26(1) and (2) read together were clearly intended to refer to contractual exclusions/limitations in general including those for both breach of contract and misrepresentation. This interpretation was supported by the policy behind section 26, which was to take all exclusions / limitations in international supply contracts outside the scope of UCTA.
In relation to the second question, the Court of Appeal held that the contract between TT and FF satisfied both conditions in 26(3). The contract was one under which possession of goods passed and was made between parties each of which was based in a different country. That left the question of whether one of the conditions in s26(4) was satisfied. The Court rejected conditions (b) and (c) and focused on (a). It held that this condition would be satisfied where, at the time when the contract was made, the goods were in the course of carriage between different countries or where, at the time the contract was made, the parties contemplated that the goods would be taken from one country to another. It was not necessary for there to be a contractual obligation for the goods to be taken to another country. It was enough that the parties merely contemplated that this would happen. Both TT and FF knew at the time when they entered into the contract that the aircraft were to be taken to India. This was enough to fulfil condition (a). The agreement was an international supply contract. FF’s argument failed and TT succeeded in obtaining summary judgment.
This decision is of interest because there are few judicial interpretations of s26 UCTA. In this case, the Court of Appeal chose to interpret 26(4)(a) widely, leaving scope for a greater number of contracts to benefit from s26. The case is also a useful reminder to consider whether an agreement is an international supply contract and whether you are able to incorporate wider exclusions or limitations or liability than would usually be enforceable under UCTA.