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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000] EWHC 221 (Comm) (26 January 2000) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2000/221.html Cite as: [2000] 1 WLR 2333, [2000] CLC 735, [2000] EWHC 221 (Comm), [2000] WLR 2333

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		26 January 2000

There are before the court applications in four actions, each commenced by the Government of Zanzibar as claimant. The actions are all concerned with the acquisition in 1992 of an executive jet aircraft by the Government for the use of the President of Zanzibar. The supplier was a British Aerospace subsidiary, Corporate Jets Limited, which has since been re-named British Aerospace (Lancaster House) Limited. The Government asks that the actions be consolidated and that there be an extension of time in which to serve points of claim (or a statement of case) in the consolidated actions. BAeLH as I will call British Aerospace (Lancaster House) Limited asks for summary judgments under CPR 24 on the ground of no real chance of success, for dismissals on the ground of delay and breach of the rules. It is also complained that allegations made in the individual Points of Claim (which have eventually been served in the actions) exceed the indorsements on the relevant writs. I will return to the precise applications which are made by BAeLH in due course.

The contractual arrangements

On 2 June 1992 two contracts were made between the Government and BAeLH. One, the sale contract, provided for the sale by the Government to BAe for $2.5 million of the corporate jet then owned by the Government and used by the President. The price was to be treated as the down payment due from the Government under the second contract, the purchase contract. By the purchase contract the Government agreed to purchase from BAeLH a BAe 125 series 1000 aircraft for US$13.7 million. The balance of the price was due on acceptance of the aircraft, and was to be available by letter of credit.

It appears that it was always intended that a financing arrangement would be entered into prior to the delivery of the aircraft. That intention was given effect to on 30 November 1992 when four further agreements were made, as follows:

(1) a novation agreement between the Government, BAeLH, and CIBC Finance PLC, whereby CIBC was substituted for the Government as the purchaser of the aircraft;

(2) a leasing agreement between CIBC and the Government, whereby the Government leased the aircraft from CIBC for 10 years and was to pay semi-annual instalments of rent;

(3) an agency agreement between CIBC and the Government, whereby the Government was made the agent of CIBC for various purposes under the purchase agreement as novated;

(4) an agreement between CIBC and BAeLH, which is not in evidence but apparently contained provisions applicable if the Government defaulted on its payments to CIBC, namely that BAeLH might make payment to CIBC to prevent a termination of the lease and that in the event of termination BAeLH should pay out CIBC and sell the aircraft against its loss.

The writs in the four actions

(1) 1998 Folio 669

This writ was issued on 1 June 1998, one day short of the sixth anniversary of the sale and purchase agreements. The defendant is named as Corporate Jets Limited. In the circumstances that the writ was not validly served on Corporate Jets Limited - that is, BAeLH, within the period limited for service, or at all, and given the existence of the second action claiming the same relief, it was not resisted by Mr Simon Gault - who appeared for the Government, that this action should be dismissed.

(2) 1998 Folio 679

This writ was issued on 2 June 1998, the anniversary of the sale and purchase agreements. The defendant by an amendment which is no longer objected to, is 'British Aerospace (Lancaster House) Limited (formerly Corporate Jets Limited' - BAeLH. The relief claimed is rescission of the purchase contract, alternatively damages in lieu under section 2(2) of the Misrepresentation Act 1967, alternatively damages under section 2(1) of the Misrepresentation Act, alternatively damages for negligent misrepresentations. The misrepresentation or misrepresentations relied on in each case is:

'misrepresentation by the Defendant, its servants or agents during the course of negotiations leading to the aforesaid contract, to the effect that the design and/or method of construction of this type of aircraft was such that the BAe series 1000 type of aircraft was airworthy, reliable and without design or construction defects.'

So the representation is a representation as to aircraft type. The writ was served by letter dated 29 September 1998 - the last day for service was 1 October, and service was acknowledged on 5 October.

(3) 1998 Folio No 1676

This writ was issued on 30 November 1998, the sixth anniversary of the novation agreement, lease agreement and agency agreement. The defendants were named as:

Corporate Jets Limited

British Aerospace (Lancaster House) Limited

(Formerly Corporate Jets Limited)

CIBC Finance PLC

Raytheon Corporate Jets Inc.

Raytheon Company

The reason for joining the last two is that on 1 June 1993 the business of BAeLH was sold to Raytheon Corporate Jets Inc., a subsidiary of Raytheon Corporation. There is nothing, however, to suggest that the Government entered contractual relations with either Raytheon company. The action was discontinued against the Raytheon defendants on 6 August 1999. The effective defendants are therefore BAeLH and CIBC. The relief claimed is rescission of the novation, leasing and agency agreements, alternatively damages under section 2(2) of the Misrepresentation Act, alternatively damages under section 2(1), alternatively damages for negligent misrepresentation. The 'misrepresentations by the Defendants' which are relied on are in the like terms as in action 679. Although the writ's wording is consistent with such representations being relied upon as having been made by or on behalf of CIBC as well as BAeLH, it is clear that it is not in fact alleged that CIBC made or has become liable in respect of any representations. The writ was served on 26 March 1999 - the fourth last day for service, and service was acknowledged by BAeLH on 31 March.

(4) 1998 Folio 1819

This writ was issued on 21 December 1998, which is three days before the sixth anniversary of the acceptance of the aircraft under the purchase and leasing agreements. The defendants were the same as in action 1676, and are now BAeLH and CIBC, the action having been discontinued as against the Raytheon defendants. The relief claimed is:

'Damages caused by negligent misrepresentation made by the Defendants, their servants or agents on or about 24 December 1994 to the effect that a BAe 125 1000 Executive Jet Serial No.259027 complied with the terms of [the purchase contract] which induced the Plaintiffs to accept delivery of the said aircraft on or about 24 December 1992 [for CIBC under the purchase agreement, and under the leasing agreement].'

It is not in fact alleged that CIBC made, or has become liable for, any misrepresentations. This writ was served with that in action 1676 on 26 March 1998, and service was acknowledged on behalf of BAeLH on 31 March.

There was also fifth action, 1998 Folio 1818, in which the defendants were the Raytheon companies. This has been discontinued.

The further history

As has already emerged the aircraft was accepted on behalf of the Government on 24 December 1992. As the writ in action 1819 shows, it is alleged that the acceptance was caused by a misrepresentation by BAeLH that the aircraft complied with the contracts. The aircraft was flown to Zanzibar. Faults appeared. Between 4 and 25 February 1993 it was back in England under repair. Faults continued. It was apparently agreed that they should be dealt with under warranty on the aircraft's return to England for its 300 hour check on 31 May. Raytheon was about to take over the business of BAeLH. There were delays. It is BAeLH's case that the aircraft was ready to be returned to Zanzibar by the end of July. But this did not occur because the Government had not paid the instalment of rent due on 24 June 1993 - as the Government asserts, because of the defects - and CIBC asserted a lien over the aircraft. The instalment was paid in three tranches on 16 July, 16 August and 9 September 1993. It is unclear why the aircraft was not then released, but it was not. It may be because CIBC had operated the default provisions under the leasing agreement. A memo from the Principal Secretary, Ministry of Finance, to CIBC dated 21 October suggests that CIBC were then seeking revised terms. The further instalment of rent due on 24 December 1993 was not paid. There were discussions between representatives of the Government and CIBC in London in January 1994. On 4 February CIBC terminated the lease, and on 24 February repossessed the aircraft. The aircraft was eventually sold by Raytheon in July 1995 for a price a little under US$10 million. It appears from my reading of the material before the court that a major issue between the parties if this litigation proceeds will be whether the real problem was as to the aircraft or as to the Government's ability or willingness to pay the instalments of rental, or both. It is relevant that it is accepted by BAeLH that a number of purchasers of aircraft of the type in question did opt to have them 'bought back' by BAeLH (or Raytheon) under buy-back provisions in their purchase contracts. This is a point which the Government has emphasised in correspondence as supporting its complaints as to BA 125 1000 aircraft. There was, however, no such provision in the purchase agreement entered by the Government.

It appears that in March 1994 the Government suggested that it had claims under the warranty provisions of the purchase agreement. The Government's right to claim for breach of warranty had been preserved by clause 4 of the agency agreement, but only so long as notice had not been served by CIBC that the lease had expired, or that there was an event of default under the leasing agreement, which was continuing. So in fact the right had been lost.

In March 1996 the Government took legal advice as to a claim under the purchase contract, but was told that it had lost this right. This is stated in paragraph 31 of the witness statement made by Mr Michael Lloyd of Lloyd & Co on behalf of the Government. It seems likely that the advice was in fact given by Lloyd & Co. For the firm was copied by the Government with the Government's letter to the British High Commission dated 15 April 1997, to which I will come.

On 15 April 1996 the Government wrote to British Aerospace expressing profound dissatisfaction with the transaction. The letter asserted that the aircraft had serious defects in design and performance, and that the Government had been persuaded to buy it in preference to a Canadair Challenge 601 by British Aerospace with the assistance of the British High Commission in Tanzania. The letter referred to the representations made prior to the acceptance of the aircraft on 24 December 1992. It estimated the Government's loss at at least US$3.4 million. The letter would seem to be a consequence of the legal advice which I have mentioned. It was acknowledged on 7 May, and on 22 May British Aerospace replied that the letter had been passed to Raytheon who would respond. Raytheon's reply is dated 24 June 1996. The Government says, however, that the letter did not arrive. A copy was not obtained until a year later. The letter refers to compensation given in respect of the initial defects; it asserts that the aircraft could have been returned in perfect working condition in August 1993 had it not been for the rental problem; it asserts that it was agreed between the Government and CIBC in early 1994 to terminate the lease and sell the aircraft.

On 15 April 1997 the Government wrote to the British High Commission asserting that it had been duped into buying the aircraft. The letter complained that there had been no response to its letter to British Aerospace. It asked that the High Commission intercede to help the Government have its money returned. The letter was acknowledged by the High Commission on 24 April and a substantive response was promised. Although it appears that there were discussions between the High Commission and British Aerospace, no substantive response was forthcoming.

Following the obtaining in about June 1997 of a copy of Raytheon's letter of 24 June 1996, the Government instructed United States counsel. But 'it was not until some time in April 1998 that a possible course of action was determined' - paragraph 34 of Mr Lloyd's witness statement. Some time was spent seeking advice as to the possibility of suing Raytheon. The advice was that this would not be possible. So it was decided to bring proceedings in England. Marlon Aviation Inc of the United States and a London company Piper & Marbury Marine Legal Services Limited were instructed to assist with preparation. This was not Marlon Aviation's first involvement. For at the Parish Air Show in June 1997 a representative of Marlon had been in a position to ask a representative of Raytheon why there had been no answer to the Government's letter to British Aerospace of 15 April 1996. So Marlon must have been giving advice prior to that.

Mr Lloyd states that in March 1998 the Government caused their pilot to review the aircraft's condition on delivery with Marlon Aviation. As a result of the enquiries made commencing in March 1998, 'it gradually emerged that the aircraft... may have been unairworthy at the time of delivery and that [the] Government of Zanzibar may have been misled by Mr Cope...' – Mr Lloyd's witness statement, paragraph 33. Mr Cope was the BAeLH salesman who handled the original contract negotiations and also the acceptance of the aircraft by the Government in December 1992.

Then on 1 and 2 June 1998 the writs in actions 669 and 679 were issued. This was done to protect the limitation position and at the last possible moment. 'Thereafter, it took several months to retrieve the relevant files from the archives in Zanzibar and to gather together the relevant personnel involved in the original transaction...' - Mr Lloyd's witness statement, paragraph 36. The letter dated 25 September 1998 covering service of the writ in 679 stated:

'We are currently in the process of obtaining our clients' instructions on how they wish to proceed with this matter and we should be obliged for your written consent to a general extension of time for service of a statement of claim terminable upon 21 days notice by either party.'

There was, no doubt, a similar letter in 669, but I am no longer concerned with that action. By letter of 13 October 1998 Eversheds agreed on behalf of BAeLH to give such an extension

'on the express understanding that our clients in no way waive either any rights they may have to seek to strike out these proceedings on the grounds of delay or, any rights to take any other step in relation to the action. For these purposes our clients will be entitled to rely on any period of delay which elapses as a result of the extension for the purposes of such an application.'

This was agreed to by Lloyd & Co by letter of 21 October. So the extension was obtained but on terms which rendered it useless in the event of a striking-out application. Why then did not Lloyd & Co apply to the court for an extension or stay by court order? It must be because they were in no position to make a successful application.

Counsel gave advice on evidence in November 1998. As a result further investigations were made through Marlon Aviation as to the technical condition of the aircraft and the experience of other buyers. Meanwhile on 30 November the writ in action 1676 had been issued, and on 21 December that in action 1819. Both writs were served on 26 March 1999, and service was acknowledged on 31 March. By letter also of 26 March Lloyd & Co informed Eversheds that they would shortly serve a summons in all the actions providing for the service of a consolidated statement of claim.

On 27 May 1999 Lloyd & Co wrote asking Eversheds to agree that the actions be consolidated. Draft notices of application were enclosed together with draft points of claim to be served in the consolidated actions. The draft points of claim had had to be approved by the Government and also by Marlon Aviation. Lloyd & Co wrote a chasing letter on 8 June. On 15 June they issued applications to consolidate and for consolidated points of claim to be served. On the same day, 15 June, Eversheds stated that applications were to be made to strike out the actions. As a result of this and further correspondence, on 6 August 1999 points of claim were served by Lloyd & Co in the individual actions. Meanwhile BAeLH's applications had been issued on 26 July.

It may be helpful to provide a brief summary of this history so the pattern can be seen:

1992	the contracts and delivery;
1993	complaints and repairs, from May the aircraft in England, discussions with CIBC;
1994	discussions with CIBC, termination; warranty claims suggested;
1995	aircraft sold;
1996	legal advice on the purchase contract, letter to British Aerospace;
1997	letter to High Commission, US advice;
1998	pilot's review of aircraft with Marlon, a 'course of action determined', writs issued, 1676 served;
1999	1676 and 1819 served, applications issued.

The applications made by BAeLH

The applications which are made by BAeLH in respect of each of the three actions remaining in dispute come under the following heads:

679	the claims have no real prospects of success because of legal difficulties which they face;
	the representations referred to in the writ are different to those proposed to be relied on in the points of claim;
	the action should be dismissed out for delay;
1676	as 679 - but some of the individual points differ;
1819	a new representation is proposed, not in the writ;
	the action should be dismissed for delay and breach of the rules.

I will consider the submissions made on behalf of BAeLH in the order in which they were made, although if I had only to consider action 679 I could take a shorter route.

CIBC is a defendant in actions 1676 and 1819. It has been served and has acknowledged service. It takes no part in these applications. It appears to have been joined because rescission is claimed of contracts to which it is a party. It does not appear that any monetary claims are made against it.

The actions were commenced under the former Rules of the Supreme Court, which were replaced on 26 April 1999 by the Civil Procedure Rules. BAeLH's applications to dismiss the actions or parts of them on the ground that they have no real prospect of success are made under CPR 24. CPR 24.2 provides:

24.2 The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if -

(a) it considers that -

(i) that claimant has no real prospect of succeeding on the claim or issue; or

(ii) that defendant has no real prospect of successfully defending the claim or issue; and

(b) there is no other reason why the case or issue should be disposed of at a trial.

It was accepted on both sides that, where a point was suitable for determination on the evidence before the court, I had jurisdiction to, and should, determine the point whether or not the point had any real prospect of success.

Action 679

Claims are made for rescission of the purchase contract, and for damages under either section 2(2) or section 2(1) of the Misrepresentation Act 1967. It was submitted by Mr Charles Hollander Q.C. on behalf of BAeLH that the claim for rescission of the purchase agreement had no real prospect of success by reason of delay and the intervention of third party rights. He submitted that in consequence no claim for damages under section 2(2) could be advanced. He submitted that in any event claims relying on misrepresentation were barred by section 23 of the purchase agreement.

I am satisfied that if the Government had a right by reason of misrepresentations to rescind the purchase contract after it was made, that right has now been lost. No claim for rescission was made prior to the issue of the writ. CIBC have become a party to the purchase agreement by novation. The leasing agreement was entered into. It is not alleged that CIBC were, have become, responsible for any misrepresentations. The aircraft has been sold.

Does that mean that any claim to damages under section 2(2) has also been lost? There has been some previous debate whether the right to damages under section 2(2) is dependent on a right to rescission still existing at the time the matter comes before the court. Section 2 of the Misrepresentation Act 1967 provides:

2(1) Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the representation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.

(2) Where a person entered a contract after a misrepresentation has been made to him other than fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party.

(3) Damages may be awarded against a person under subsection (2) of this section whether or not he is liable to damages under subsection (1) thereof, but where he is so liable any award under the said subsection (2) shall be taken into account in assessing his liability under the said subsection (1).

To my mind the wording of section 2(2) shows clearly enough that the effect of the subsection is to give the court an alternative to rescission where a right to rescission has been established but the court considers that damages would be a more equitable solution. I refer in particular to 'and he would be entitled', 'if it is claimed... that the contract ought to be or has been rescinded', 'the court... may declare the contract subsisting and award damages in lieu of rescission', and 'as well as to the loss that rescission would cause to the other party'. The last part of the section contemplates a balancing exercise between the situation if damages are awarded and that if rescission were granted: this supposes that rescission is an option open to the court. So I would disagree with the editors of Chitty on Contract, 28^th Edition, where it is stated at paragraph 6-097 that the words are far from clear.

The scheme of the section is thus in my view that section 2(1) gives a right to damages for non-fraudulent misrepresentation subject to the defence that the representor had reasonable grounds to believe his representation true, whereas section 2(2) gives the court power to award damages where this would be more equitable than making an order for rescission or upholding a previous rescission by act of party. Because it is no defence to a claim for rescission that the representor had reasonable grounds to believe the representation true, that is not a defence where the court is considering damages under section 2(2). In this way, where rescission remains an option, a claimant may do better under section 2(2) because that defence is not available against him. That is no doubt why the Government seeks to rely on it in addition to section 2(1).

It is also stated in paragraph 6-097 of Chitty that, if the power to award damages under section 2(2) is restricted to situations in which rescission remains possible, then it would be strange because there would be no power to award damages in situations where the right has been lost for example, because a car which has been misrepresented has been re-sold. The answer to that point is the claim to damages under section 2(1) - though here as a matter of policy it has been enacted that there should be the reasonable-grounds-of-belief defence.

The question has come before the courts on a number of occasions. In Alman v Associated Newspapers Group Ltd, Browne-Wilkinson J., 20 June 1980, unreported, it was accepted by the plaintiffs that, if, as the judge held, actual rescission was impossible, they could have no claim to damages under section 2(2).

In Atlantic Lines v Hallam Ltd., the "Lucy" [1983] 1 Lloyd's Rep. 188 Mustill J. held that, if he had found an operative misrepresentation, the court could have declared the defendants entitled to avoid the contract and so the matter would then have fallen within section 2(2).

In William Sindall plc v Cambridgeshire County Council [1994] 3 All E R 932 the Court of Appeal held that no misrepresentation or mistake to found a claim for rescission had been made out. Having, however, heard full argument the court went on to consider what claim might otherwise have been made under section 2(2). The court was mainly concerned to explore the remedy in damages and did not consider the point which concerns me. It did however refer to the origin of the Act, namely the Tenth Report of the Law Reform Committee, Innocent Misrepresentation, Cmd 1782. The Report recommended the abolition of the bar to rescission which the law then imposed once a contract had been completed or performed. That abolition was given effect to by section 1 of the Act. In paragraph 11 of its Report the committee considered that this wider right to rescission could work injustice in some situations, as where, for example, the misrepresentation was as to something of minor importance so rescission would be harsh on the representor. It therefore recommended in paragraph 12 that:

'wherever the court has power to order rescission it should, as an alternative, have a discretionary power to award damages if it is satisfied that these would afford adequate compensation to the plaintiff, having regard to the nature of the misrepresentation and the fact that the injury suffered by the plaintiff is small compared with what rescission would involve.'

The issue was considered and decided by Jacob J. in Thomas Witter Ltd. v TBP Industries Ltd [1996] 2 All ER 573. He had held that rescission was no longer available because it was not possible to restore the parties to their positions before the contract. He held that the wording of section 2(2) was sufficiently ambiguous to justify reference to the proceedings in Parliament at the Act's passing. He referred to a reply given by the Solicitor General (741 HC Official Report (5^th series) cols 1388-1389, 20 February 1967). He held that this showed that it was the Solicitor General's view that damages could be awarded under section 2(2) where rescission was no longer possible. He accordingly held (at page 590j) that the power to award damages under section 2(2) did not depend on an extant right to rescission - it only depended on a right having existed in the past. I accept that the reply taken by itself does suggest that that was the Solicitor General's view, though it may not be absolutely clear. But given that this was an ex tempore answer given a little after 3 o'clock in the morning, I question how much weight should be given to it where it does not accord with other statements. In introducing the Bill in the House of Lords on 17 May 1966 (Report column 921 and following) the Lord Chancellor, Lord Gardiner, stated that:

'My Lords, this bill implements the recommendations of the Committee under five heads. ... Thirdly, it empowers the court to award damages instead of ordering rescission of the contract.

...

I now come to damages as an alternative to rescission. The Committee recommended that a discretionary power should be conferred on the court to award damages in lieu of ordering rescission where damages could afford adequate compensation to the victim of an innocent misrepresentation, whether it was made negligently or not. They thought that there would be a number of cases where the remedy of rescission might be too drastic in the circumstances. This is the recommendation which is implemented by Clause 2(2).'

I conclude that both the Report of the Law Reform Committee and the manner in which clause 2(2) of the Bill was introduced in the House of Lords make clear that section 2(2) gives the court a discretionary power to hold the contract to be subsisting and to award damages where it would otherwise be obliged to grant rescission or to hold that the contract had been rescinded by the representee. The court does not have that power, and does not need to have that power, where rescission is no longer available. In short, the power to award damages is an alternative to an order for rescission or the upholding of a prior rescission by the representee if that has occurred. So, if, contrary to my view, the wording of section 2(2) is unclear on this point, the matter is to be resolved in this way in accordance with the Report and what was said by the Lord Chancellor. I should not follow the decision in Witter. I should not leave this point without mentioning the helpful discussion provided by Professor Beale in 111 L.Q.R. 385.

As rescission is no longer available as a remedy to the Government, it is not open to the Government to claim damages under section 2(2) of the Act.

It is the case of BAeLH that the Government's claims for damages for misrepresentation under both sections 2(1) and 2(2) of the Act are barred by clause 23 of the purchase contract. The clause is set out in the contract as a single paragraph. For ease of reference I will set it out in three parts which I will head A, B and C:

23

A The parties have negotiated this Contract on the basis that the terms and conditions set out herein represent the entire agreement between them relating in any way whatsoever to the Aircraft and the Initial and Continuing Spares which form the subject-matter of this Contract and

B accordingly they agree that all liabilities for and remedies in respect of any representations made are excluded save insofar as provided in this Contract.

C 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.

Part A is what is often called an entire agreement clause. The wording of this part of clause 23 does not affect the Government's right to rely on any misrepresentations. I refer to Alman at page 27 and to the Court of Appeal's judgment in Deepak Fertilisers v ICI [1999] 1 Lloyd's Rep 387 at 395, paragraph 34.

Part B clearly excludes liability for misrepresentations unless the misrepresentation has become a term of the contract - which is not the case here. Section 3 of the Misrepresentation Act as amended provides that such a clause shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977. The burden of showing that it does is laid by the section on BAeLH. Section 11(1) states that the requirement:

'is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.'

In Witter Jacob J. had to construe a clause by which a party acknowledged that he had not been induced to enter the agreement by any representation except those contained or referred to in a schedule. The representation relied on there was referred to in the schedule. But on an alternative basis he considered the effect of section 3. He said at page 598c:

'But I have to say that even if clause 17.2 had exclusionary effect it would to my mind be neither fair nor reasonable. The problem is its scope. The 1967 Act calls for consideration of the term as such. And it refers to 'any liability' and 'any misrepresentation'. It does not call for consideration of the term so far as it applied to the misrepresentation in question or the kind of misrepresentation in question. The term is not severable: it is either reasonable as a whole or not. So one must consider its every potential effect. The clause does not distinguish between fraudulent, negligent or innocent misrepresentation. If it excluded liability for one kind of misrepresentation it does for all. I cannot think it reasonable to exclude misrepresentation for fraudulent misrepresentation - indeed Mr Kaye accepted it would not work in the case of fraud. It may well be, with a different clause, reasonable to exclude liability for innocent misrepresentation or even negligent misrepresentation, but since the width of this clause is too great I would have held that it failed the requirement of reasonableness and so was of no effect.

A possible route around this latter objection would be to construe the clause so that it did not apply to the fraudulent misrepresentation. This approach is artificial. It is unnecessary now that the 1977 Act exists to destroy unreasonable exclusion clauses. The construction involves creating an implied exception in the case of fraud. What about an implied exclusion of negligence? Or gross negligence? It is not for the law to fudge a way for an exclusion clause to be valid. If a party wants to exclude liability for certain sorts of misrepresentations, it must spell those sorts out clearly.'

Section 3 came before the Court of Appeal in Grimstead & Son Limited v McGarrigan, 27 October 1999, unreported. It was again not part of the court's actual decision because it was held that on their true construction the representations which had been made were correct, and in any event the clause - which was an acknowledgement of no reliance - was no bar. Chadwick L.J. gave the leading judgment. He assumed, without deciding, that such an acknowledgement fell within section 3. Having referred to the test he continued:

'In the present case the evidence showed that the draft accounts were available; and that the purchaser had had the opportunity to investigate the company's books and records, if it had chosen to do so. The parties entered the agreement... with the benefit of advice...

... it would have been clear that Mr McGarrigan was only prepared to enter into the agreement on the basis that the purchaser relied on its own investigations and judgment. In such a case it seems to me wholly fair and reasonable that the purchaser should seek his remedies (if any) within the four corners of the agreement; and should not be permitted to rely on pre-contractual representations which are, deliberately, not reflected in contractual warranties.'

That is a decision on the particular facts of the case as they had emerged during the trial. Judging from the Government's letters to British Aerospace in 1996 and to the High Commission in 1997, the Government would say that the situation in the present case was very different. Chadwick L.J. continued, however, in more general terms:

'There are, as it seems to me, at least two good reasons why courts should not refuse to give effect to an acknowledgement of non-reliance in a commercial contract between parties of equal bargaining power - a fortiori, where those parties have the benefit of professional advice. First, it is reasonable to assume that the price to be paid reflects the commercial risk which each party - or, more usually, the purchaser - is willing to accept. The risk is determined, in part at least, by the warranties which the vendor is prepared to give. The tighter the warranties, the less the risk and (in principle, at least) the greater the price which the vendor will require and which the purchaser will be prepared to pay. It is legitimate, and commercially desirable, that both parties should be able to measure the risk, and agree the price on the basis of the warranties which have been given and accepted.'

Although the judgment had earlier quoted the first of the two paragraphs which I have set out from the judgment of Jacob J. in Witter, which relies on the effect of the possible inclusion of fraudulent misrepresentations, that point is not otherwise referred to by Chadwick L.J.

Before me Mr Gault relied for the Government in connection with section 3 primarily on the judgment of Jacob J. in Witter. He submitted that the clause here would include fraud and was thus unreasonable. Mr Hollander invited me not to follow Jacob J. and submitted that it was long-established that a clause excluding or limiting liability is not to be taken as covering fraud. Thus it is stated in Chitty in paragraph 14-125: 'No exemption clause can protect a person from liability for his own fraud or require the other party to assume what he knows to be false. Mr Hollander referred me to the first authority cited - Pearson & Son Limited v Dublin Corporation [1907] AC 351. The claim there was in deceit (or fraud) for false information given as to the position of an existing wall which was relevant to works to be carried out by the plaintiff. The contract provided that it was for the plaintiff to satisfy itself as to the existing works and that the corporation did not hold itself responsible for the accuracy of such information. Lord Loreburn L.C. stated at page 353:

'Now it seems clear that no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other party shall not rely on them. I will not say that a man himself innocent may not under any circumstances, however peculiar, guard himself by apt and express clauses from liability for the fraud of his own agents. It suffices to say that in my opinion the clauses before us do not admit of such a construction. They contemplate honesty on both sides and protect only against honest mistakes.'

Lord Halsbury stated at page 356:

'The action is based on fraud, and no subtlety of language, no craft or machinery in the form of the contract, can estop a person who complains that he has been defrauded from having that question of fact submitted to a jury.'

Lord James stated at page 362:

'Such a clause would be good protection against any mistake or miscalculation, but fraud vitiates every contract and every clause in it.'

This is high and long-standing authority. And even in the contracts of today it surely has the ring of common sense that clauses dealing with representations are not intended by the parties to apply where a representation has been fraudulently made. I respectfully differ from Jacob J. and I hold that clause 23 would not apply where fraud is alleged. I should say that there is no suggestion of fraud here. So I am against Mr Gault on his primary point on this issue.

The fraud point apart, Mr Gault did not advance a positive case that clause 23 was not reasonable. He said that the material was not available before the court to enable a decision under section 3 to be made. Mr Hollander submitted that it was incumbent on the Government to advance a case if they had one and I should decide the point in favour of BAeLH.

It is stated in the witness statement of Victoria Brown of Eversheds made on behalf of BAeLH as follows:

'12. The agreements between the parties are sophisticated agreements that were entered into at arm's length between substantial entities in respect of a major transaction. Mr Cope has advised me that all documentation was approved by the Claimant, including its most senior Judge/Lawyer. In addition Mr Cope recalls that the Claimant had an independent report prepared by its London based advisor, Bankers Trust. There is no reason to believe that there was an inequality of bargaining position in the entering into of the agreements or that there was anything unfair as to the entering into the agreements.'

It is consistent with this that the Government did not receive advice from lawyers in London experienced in such agreements.

No evidence relevant to this point is referred to in the witness statement of Mr Lloyd which refers only to what I may call the fraud point.

It may be that if the matter were fully investigated the court would uphold the present clause. Reasons such as those advanced by Chadwick L.J. in Grimstead may be conclusive. But that must depend on how far the facts of this case fit with that passage of his judgment. As the actual decision of Chadwick L.J. on the case before him shows, the court must consider the particular facts. They include the nature and circumstances of the negotiations which led to the agreement in question. I am not in a position to conduct that enquiry. Nor is it an appropriate exercise on applications such as the present. I conclude that it is not shown that the Government have no real prospect to resisting the case to be made by BAeLH that part B of clause 23 is reasonable within the terms of section 3.

Part C of clause 23 was described by Mr Hollander as a warranty that the Government has not relied on any representations. He submitted alternatively that it provided an estoppel. There is a discussion of how a somewhat similar term may operate in Grimstead at pages 23 and 24. But however the present term operates, in my view it comes within section 3 of the Act. I assume that a representation was made, and I assume that it was in fact relied on by the Government. Part C is then

'a term of the contract which would exclude or restrict -

(a) any liability to which a party to the contract may be subject by reason of any misrepresentation made by him before the contract was made.' - section 3.

A term which negates a reliance which in fact existed is a term which excludes a liability which the representor would otherwise be subject to by reason of the representation. If that were wrong, it would mean that section 3 could always be defeated by including an appropriate non-reliance clause in the contract, however unreasonable that might be.

So I consider that part C of clause 23 has to satisfy the requirement of reasonableness. In that respect it stands in no different position to part B: I cannot determine the issue.

The next point taken by Mr Hollander was that the draft points of claim served in action 679 introduced new causes of action in that they pleaded misrepresentations which differed from what was set out on the writ.

CPR 51(5) provides:

51.5 Filing and Service of pleadings where old process served - Where a case has been begun by an old type of originating process (whether served before or after 26 April 1999) filing and service of pleadings will continue according to the previous rules.

Order 18 rule 15(2) of the rules of Court provided as follows:

15(2) A statement of claim shall not contain any allegation of claim in respect of a cause of action unless the cause of action is mentioned in the writ or arises from facts which are the same as, or include or form part of, facts giving rise to a cause of action so mentioned; but subject to that, a plaintiff may in his statement of claim alter, modify or extend any claim made by him in the indorsement of the writ without amending the indorsement.

So, provided a cause of action in the statement of claim arises from facts which 'are the same as, or include or form part of' facts giving rise to a cause of action mentioned in the writ, all is well. The reference to 'include' might suggest that provided, say, three of the six primary facts giving rise to a cause of action pleaded in the statement of claim gave rise to a cause of action mentioned in the writ, that would do. If this was right, it could lead to some surprising consequences by way of dramatic enlargement of the claims made in the writ. That it is not right was made clear by the Court of Appeal in Brickfield Properties Ltd v Newton [1971] 3 All E.R. 328. At page 333h Sachs L.J. stated:

'Without wishing to lay down any general formula as to how the sub-rule should be applied, it seems that in general it is meant to relate to cases in which some part of the facts necessary to establish the claim made in the writ would suffice to establish some other, perhaps narrower, cause of action.'

This appears to have been agreed with by Edmund Davies L.J. at 339g. Cross L.J. stated at 342f:

'When the rule speaks of 'facts which are the same as, or include or form part of, facts giving rise to a cause of action' mentioned in the writ, the word 'the' is, I think, to be implied before the second word 'facts'. It is not enough for the plaintiff to show that there is some overlap - substantial or insubstantial - between the two sets of facts.'

I have already set out the wording from the writ which relates to misrepresentation. It relates to the type of aircraft as opposed to any specific aircraft and is that it was in design and construction 'airworthy, reliable and without design or construction defects.' The representations pleaded in the draft Points of Claim are:

1 that the aircraft was a high quality, state of the art, aircraft fitted with a modern avionics system;

2 that it was the best replacement for the Government's existing aircraft;

3 that it would meet all the travel needs of the President, and in particular could land at small airports in Zanzibar and Tanzania;

4 that it could carry up to 14 passengers in VIP comfort;

5 that with a payload of 2,600 lbs. it had a range of 3,400 miles.

A number of breaches of these representations are pleaded. At least some of the breaches might be breaches of the representation set out in the writ. Some of these representations might come within the representation pleaded in the writ. Thus an aircraft might need a modern avionics system to be 'airworthy, reliable and without design... defects': I do not know.

Looking at the writ and the draft points of claim in the context of the history which I have set out, it is reasonably clear what has happened. The draftsman of the writ sought to set out the representation or representations which he anticipated from the brief information then available to him. Later fuller instructions were provided. It does not seem that in formulating the points of claim regard was given to what was in the writ.

I am satisfied that the points of claim in the form served is not permissible under Order 18 rule 15(2). For the representations which are pleaded cannot be related to, and limited to, what is set out in the writ. It may be that some at least of the representations which appear in the points of claim in fact fall within the umbrella of the more general allegation which appears in the writ. But that is not made clear in the points of claim. The answer to this point is that the Government should have an opportunity to produce a further draft points of claim pleading such representations as they may, which representations can be sufficiently seen to come within the ambit of what is in the writ, or sufficiently close to it to be permissible. I do not know to what extent that may be possible.

As an alternative to his submissions under Order 18 rule 15(2) Mr Gault asked for leave to amend the writ under CPR 17.4(2). This provides:

17.4(2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.

The rule derives from section 35(5)(a) of the Limitation Act 1980, and is in similar terms to its predecessor under the old rules, Order 20 rule 5(5). In Hancock Shipping Co.Ltd v Kawasaki Heavy Industries Ltd., the 'Casper Trader' [1991] Lloyd's Rep. 237 at 246 Staughton L.J. stated of the old rule:

'In Steamship Mutual Underwriting Association Limited v Trollope & Colls (City) Limited (1986) 33 B.L.R. 77 at 99 Lord Justice May evidently approved the test that there must be a sufficient overlap between the facts supporting the existing claim and those supporting the new claim. Manifestly they do not have to be exactly the same. No more precise test has been formulated by the Rule Committee, and in my judgment it would not be right for the Courts to devise one. Sufficient overlap is little more than a paraphrase for the requirement that the facts must be substantially the same.'

In Welsh Development Agency v Redpath Dorman Long Ltd [1994] 4 All E.R. 10 at 19 Glidewell L.J. stated:

'Nevertheless, as the judge said, whether or not the new cause of action arises out of substantially the same facts as that already pleaded is substantially a matter of impression.'

In my view if, for example, a party relies on two different and distinct representations in entering an agreement, he will ordinarily have two different causes of action. I say that because, if he establishes one but fails to establish the other, a claim for rescission may nonetheless succeed. Also, if an award of damages is to be made under section 2, different damages might be awarded in compensation for different representations. So, where a claimant seeks to add a new representation to his claim, he is seeking to add a new cause of action. If he has referred to specific representations in his writ and he wishes to add to them, he must establish that the facts are substantially the same in order to bring himself within the rule. In the case of two representations relied on in connection with the same contract, many of the underlying facts will be the same. But the representations themselves may be quite different. I take the example from this case of a representation that the type of aircraft was without design defects, and a representation that the aircraft would meet all the needs of the President. The aircraft might be without design defects but for quite different reasons fail to meet the needs of the President. If that were the case I would not think that the facts underlying the two claims were substantially the same. On the other hand, if the reason why the aircraft did not meet the needs of the President was a design defect, all might be well.

I have not seen any draft of the proposed amendment, and I do not consider that the matter can be considered without one. In so far as an alleged representation is substantially different to that contained in the writ it cannot not be permitted. I do not think that in these circumstances I should say anything as to the exercise of the court's discretion under CPR 17.4, whether to allow an amendment which falls within the rule.

This brings me to the final issue relating to action 679 - whether it should be dismissed because of the delay in serving the points of claim. Service was acknowledged on 5 October 1998. So the points of claim should have been served by 19 October 1998. Draft points of claim to be served in the consolidated actions were provided on 27 May 1999. That is the minimum period of delay, namely some 7 months.

In its recent decision in Biguzzi v Rank Leisure plc [1999] 4 All E.R. 934 the Court of Appeal considered how the court should deal with cases of delay and breach of the rules in actions begun before 26 April 1999. What delay and breaches of the rules have occurred prior to 26 April should be assessed in accordance with the old rules, but the court should consider and apply the wider powers now open to it under the new rules in deciding what to do in consequence. Biguzzi was applied by the Court of Appeal in Axa Insurance Co Ltd v Swire Fraser Ltd, 9 December 1999, the Times - 19 January 2000. It is clear from the combination of Biguzzi and Axa that the court is no longer concerned in these situations to consider prejudice in the sense of Birkett v James [1978] A.C. 297, but the court will consider prejudice as part of its general enquiry as to what is just. The court's approach to delay should not be more lenient than under the old rules, but the wider powers enabled a more flexible approach.

Two things are apparent. First, when the writ was served the Government was not in a position to proceed with the action: the necessary work in preparation had not been done. Second, the Government had not then given instructions 'how they wish to proceed with this matter' - Lloyd & Co's letter of 25 September 1998. The choice was whether or not to litigate against BAeLH, and I can only interpret the letter as meaning that the Government had not then given instructions whether to pursue the action. The writ had been issued, as Mr Lloyd's witness statement makes clear, to protect the limitation position. It is also plain that service was effected simply because, if it was not, it would be too late.

It is accepted that any claim for misrepresentation became barred 6 years after the Government entered the purchase agreement in reliance on it, because it then suffered damage in that it became bound by the agreement. So the writ was issued at the last possible moment. In addition to the limitation period a party is ordinarily given in effect another 4 months before it has to proceed actively with its action: that is the effect of allowing four months after issue of the writ for service of it - Order 6 rule 8 of the old rules, and now CPR 7.5(2). The party must then be in a position to proceed. It would make a nonsense of these provisions if a party were to be able to obtain substantial further time merely to get its case in sufficient order so it could proceed with the action and serve points of claim (or a statement of case), let alone in which to decide whether to give instructions to press ahead with the action. Yet that is what has happened here after full advantage has been taken of the limitation period and the further 4 months. It is properly described as an abuse of the court's process to serve a writ at the very end of the permissible period without having decided whether to proceed with the action and without having taken the steps in preparation necessary to proceed with the action. It was 7 months before the situation was remedied.

I do not think that that delay has caused any very substantial prejudice to BAeLH. It will of course have made the action somewhat more difficult to try because of the continuing process of fading memories. The problem at a trial will be that the court will have to determine so long after the events whether these largely oral representations were made. But that problem has mainly been caused by the elapse of 6 years before the action was begun. Likewise such problems as there may be in locating documents and witnesses.

On the Government's side, although the claim has not been pursued with much energy, it is also true that it has been pursued in some spasmodic way throughout the period. It is a large claim and it is no doubt important to the Government.

The issue is whether the action should be dismissed or whether some other sanction is sufficient in the circumstances. I do not think that an order for costs against the Government would be sufficient. A stronger order would be that the Government pay into court a substantial sum which would be available to BAeLH as security for its costs, and to show that the Government is now serious in its intention to pursue the action. The court now has power to make such an order under CPR 3(5).

I have come to the conclusion that the right course is to dismiss the action. The Government was not in a position to proceed with its action either when the writ was issued or when it was served. By its conduct up to 27 May 1999 (when draft Points of Claim in the proposed consolidated actions were first served) the Government has sought in effect an additional 7 months in which to commence its proceedings beyond that provided by the law. Such a period should not be made available: it would nullify the effect of the Limitation Act. The appropriate remedy is dismissal. Where the issue is an improper use of the court's procedure to defeat the effect of the Limitation Act, the balance of detriment to either side in letting the action proceed or dismissing it has little part to play.

Action 1676

The points which are made on behalf of BAeLH are largely similar to those made in respect of action 679. So I can take some of them shortly.

The Government seek rescission of the novation, leasing and agency agreements. I accept that such rescission is not available. No misrepresentations are alleged against CIBC, and it is too late.

It follows that no claim can be made for damages under section 2(2) of the Misrepresentation Act.

BAeLH rely on clause 23 of the purchase agreement as barring reliance on any representations. Neither side sought to analyse in any depth how the Government's claims in this action might run. If I assume that when the Government entered the novation agreement it relied on representations made by BAeLH prior to the entering into of the purchase agreement, it does not seem to me that clause 23 would apply to that. In any event the case under section 3 of the Misrepresentation Act cannot be decided at this stage.

The position as to the Points of Claim exceeding the indorsement on the writ is the same as in action 679.

A point not taken in respect of action 679 is taken here. It is that any claim for damages under section 2(1) of the Misrepresentation Act is time barred because the damage arose no later than 2 June 1992 when the Government entered the purchase agreement in reliance on the same representations. In my view, if a party enters one contract in reliance on a misrepresentation, it then acquires a cause of action; and if it later enters a second contract in reliance on the same representation, it acquires a second cause of action. Only one element of the several which make up a cause of action for misrepresentation will necessarily be the same, that is the misrepresentation itself.

That analysis leads on to the following. It may be that the Government's main or primary claim is in respect of the purchase agreement, that is, the claim made in action 679. For the Government then became obliged to buy the aircraft. It appears that it was always foreseen that the purchase agreement might be re-arranged to allow a financing arrangement. On this basis the Government might have a claim to recover its recoverable loss over the whole transaction in action 679. On the other hand, what damage did the Government sustain by entering the agreements of November 1992 given that it was already obliged by the purchase agreement? These matters formed no part of the submissions which were made to me and I will not say more about them.

The claim that the action should be dismissed for delay involved very different dates to those in action 679. Draft points of claim in the proposed consolidated action were served on 27 May 1999. They should have been served by 14 April. So there was a delay of 6 weeks. Had an extension of time been applied for on the basis that the Points of Claim had been drafted but were being reviewed by the Government and Marlon Aviation, it is likely that an extension could have been obtained. I do not consider that in this action the delay merits any sanction. I say nothing at this stage as to who should bear the costs of the applications.

Action 1819

BAeLH make two applications in respect of this action.

The draft points of claim include a representation alleged to have been made on behalf of BAeLH on 24 December 1992 that the weather was then too bad to carry out a demonstration flight. This is quite different to the representation referred to in the writ - that the aircraft complied with the purchase contract. For reasons which I hope are sufficiently set out in relation to the similar complaint made in respect of action 679, I should not grant leave to serve points of claim containing this allegation nor should permission be given to amend the writ.

BAeLH ask that the action should be dismissed for delay. The writ was served on 26 March 1999 with that in action 1676. For the same reasons as with action 1676, this application fails.

Conclusion

Action 669 will be dismissed for want of service of the writ. Action 679 will be dismissed on the ground of delay. Action 1676 will not be dismissed, but the problem with the existing draft points of claim must be met if it can be. Action 1819 will not be dismissed, but the alleged misrepresentation as to the weather not permitting a demonstration flight now in the points of claim cannot stand. Subject to the resolution of the problem with the points of claim in action 1676, actions 1676 and 1819 may be consolidated.

[This is the approved judgment of the court. It has been directed that no further transcript need be made.]