Zanzibar v British Aerospace (Lancaster House) Ltd
Citations:  1 WLR 2333;  CLC 735;  CLY 890.
In June 1992, the claimant bought an executive jet aircraft from the first defendant. In November 1992, the parties entered into a novation agreement with the second defendant, a finance company. This agreement substituted the second defendant for the claimant in the purchase contract.
The claimant then entered into a 10-year lease agreement with the second defendant. When the aircraft was delivered to the claimant, the claimant discovered that it was faulty. The claimant eventually refused to make payments under the lease as a result. The second defendant terminated the lease in February 1994.
In June 1998, the claimant sued the defendants to rescind the purchase, lease and novation agreements. Alternatively, they claimed damages under s.2(2) of the Misrepresentation Act 1967. They claimed that the first defendant had wrongly represented that the aircraft was airworthy, reliable and did not have any design or construction defects.
The first defendant sought summary judgment of the claim in its favour. They argued that the claimant had no reasonable prospects of success. This was because the claimant had lost the right to rescind the purchase contract, which also barred them from obtaining damages under s.2(2) of the Misrepresentation Act 1967. Additionally, the first defendant also relied on an clause in the purchase agreement excluding liability for misrepresentations. This clause stated that:
‘The parties have negotiated this contract on the basis that the terms and conditions set out herein represent the entire agreement between them…all liabilities for and remedies in respect of any representations made are excluded save in so far as provided in this contract. The parties further agree that neither party has placed any reliance whatsoever on any representations agreements statements or understandings whether oral or in writing made prior to the date of this contract other than those expressly incorporated or recited in this contract.’
The second defendant resisted the claim for damages on the grounds that they never made any misrepresentations to the claimant themselves.
- Had the claimant lost the right to rescind the contracts?
- Can damages be claimed under s.2(2) of the Misrepresentation Act 1967 if the right to rescind has been lost?
- Could the first defendant rely on the exclusion clause in the purchase agreement?
- Could the claimant rely on the first defendant’s misrepresentations to obtain damages against the second defendant?
The High Court held in respect of the purchase contract:
- The defendants had failed to show that the claimant had no reasonable prospect of showing that exclusion clause in the purchase agreement was unreasonable under s.3 of the Misrepresentation Act 1967.
- However, even if the claimant were able to establish misrepresentation, they had lost the right to rescind the purchase contract. This was due to the intercession of third-party rights (namely, the novation by the second defendant).
- The court has no power to award damages in lieu of rescission where the right to rescind the contract is lost. Since the damages awarded under s.2(2) are damages in lieu of rescission, the court had no power to award such damages in this case.
- The claim had become time-barred under the Limitation Act 1980.
Accordingly, the court granted dismissed the claims for rescission of the purchase agreement or damages in lieu.
The High Court held in respect of the novation and lease contracts:
- The defendants could not rely on the exclusion clause in the purchase agreement to bar the claimant’s claim to rescind the novation and lease contracts.
- The claimant could not sue the second defendant for damages based on misrepresentations made by the first defendant. They could sue them for rescission, by contrast.
The claimant was given an extension of time to amend their writs in relation to the novation and lease claims.
This Case is Authority For…
Damages under s.2(2) of the Misrepresentation Act 1967:
- Cannot be awarded if the right to rescind the contract has been lost. The court’s ruling on this point conflicts with the High Court decision in Thomas Witter Ltd v TBP Industries Ltd  2 All ER 573.
- Are only available against the party which made the misrepresentation. The claimant cannot sue other parties to the contract for damages.
A clause which specifies that the parties have not relied on any extra-contractual statements (sometimes called a ‘no-reliance’ clause) is an exclusion clause for the purposes of s.3 of the Misrepresentation Act 1967.
The fact that the representor had reasonable ground to believe that the representation is true is not a defence to a claim for damages under s.2(2) of the Misrepresentation Act 1967.
An exclusion clause is not to be construed as excluding liability for fraud. It is not possible to explicitly exclude liability for fraud either.