Key judgment on Unfair Contracts Terms Act
reached.

In a landmark judgment on the liability of
lessors for faulty equipment, the Court of Appeal has ruled that
contracts do not have to be fair and reasonable where the supplier
is in the UK but the leasing parties are based overseas.

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This represents an important step forward for
lessors which, until the ruling, were subject to the Unfair
Contract Terms Act 1977 (UCTA) which requires terms in contracts to
be subject to this reasonableness test, albeit subject to various
conditions.

The case will be applicable to all leases
where the supplier is based in the UK and the parties to leasing
contracts are domiciled overseas.

The ruling last month was made by a panel of
three judges who held that the lease – concerning an agreement
between Trident Turboprop (Dublin) Ltd for the lease of two BAE
Systems ATP aircraft to operator First Flight Courier – was an
international supply contract.

Therefore, they held, the
lessor’s key exclusion clause did not necessarily have to satisfy
the normal statutory test of
reasonableness.

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First Flight claimed that the aircraft were
defective and unsuitable for their own use, and that there had been
material misrepresentations of their technical performance by the
supplier, which had negotiated the leases on behalf of the
lessor.

As a result the lessee withheld rentals. The
lessor then obtained from the High Court both a repossession order
and a summary judgment for lease termination damages on default.
The damages ruling was contested on appeal.

In this case the supplier was UK-based, and
the contracts provided for the aircraft were to be delivered in the
UK, while the lessor and lessee were non-UK based.

This met one of the essential conditions for
the lease to count as international under UCTA. However, it was
also necessary for the lessor to show that the contract fell within
the terms of Section 26 (4) (a) of UCTA which applies where the
goods when sold or leased “will be carried” across international
borders.

Comment

Since the lessor won its case for
summary judgment on this territorial question, issues that might
have been argued in a comparable domestic UK lease were never aired
in this case. Exclusion clauses are of course designed to withstand
the test of reasonableness wherever it does apply.

The issues of fact in the alleged
misrepresentation, and the “legal agency” point – for example,
whether the lessor was contractually responsible for the supplier’s
representations – were likewise not in contest in the
circumstances.

The case seems to set an important
precedent for a wide variety of aircraft leases made subject to
English (or other UK) legal jurisdiction.

Andy Thompson