Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000] EWHC 221 (Comm) (26 January 2000)

The Government of Zanzibar purchased an executive jet aircraft from British Aerospace, alleging misrepresentations about its airworthiness and reliability. The court dismissed the main action for delay and abuse of process, holding that issuing writs at limitation's end without readiness to proceed was impermissible. The judgment clarified that damages under section 2(2) Misrepresentation Act require an extant right to rescission.

Facts

In 1992, the Government of Zanzibar purchased a BAe 125 series 1000 executive jet aircraft from British Aerospace (Lancaster House) Ltd (BAeLH) for the President’s use. The transaction involved a sale contract, purchase contract, and subsequent financing arrangements with CIBC Finance PLC including novation, leasing and agency agreements. The aircraft experienced defects after delivery. Following rental payment defaults, CIBC terminated the lease in 1994 and repossessed the aircraft, which was eventually sold in 1995.

The Government issued writs in June 1998, at the last moment before limitation expired, claiming rescission and damages for misrepresentation regarding the aircraft’s airworthiness, reliability and design. Further writs were issued in November and December 1998. BAeLH applied for summary judgment and dismissal on grounds including no real prospect of success, delay, and that the points of claim exceeded the writ indorsements.

Issues

Availability of Rescission

Whether the Government could still claim rescission of the purchase contract given the intervention of third party rights and passage of time.

Section 2(2) Misrepresentation Act 1967

Whether damages under section 2(2) could be awarded where the right to rescission had been lost.

Exclusion Clause

Whether clause 23 of the purchase contract excluded liability for misrepresentation and whether it satisfied the reasonableness requirement under section 3 of the Misrepresentation Act 1967.

Delay

Whether the actions should be dismissed for abuse of process due to delay in serving points of claim after writs were issued at the very end of the limitation period.

Judgment

His Honour Judge Raymond Jack QC held that rescission was no longer available as CIBC had become a party through novation, the leasing agreement had been entered, and the aircraft sold.

On section 2(2), the judge declined to follow Jacob J’s decision in Thomas Witter Ltd v TBP Industries Ltd, holding that the power to award damages under section 2(2) requires an extant right to rescission. The judge stated that the wording of section 2(2) clearly shows its effect is to give the court an alternative to rescission where a right to rescission has been established. The Law Reform Committee’s Tenth Report and Lord Chancellor’s introduction of the Bill supported this interpretation.

Regarding clause 23, the judge held that while an entire agreement clause does not affect misrepresentation claims, the exclusion provisions in parts B and C would require satisfaction of the reasonableness test under section 3. However, such clauses do not cover fraud. The judge disagreed with Jacob J in Witter on this point, holding that clauses dealing with representations are not intended by parties to apply where fraud is alleged.

On delay, the judge found that issuing a writ at the last possible moment without having decided whether to proceed and without taking necessary preparatory steps was an abuse of process. Action 679 was dismissed as the Government sought in effect an additional 7 months beyond that provided by law. Actions 1676 and 1819 were not dismissed as the delay was shorter.

Implications

This case authoritatively establishes that damages under section 2(2) of the Misrepresentation Act 1967 are only available where the right to rescission still exists. This resolved a disputed question in contract law and means claimants who have lost the right to rescind cannot claim damages under section 2(2), though they may still pursue claims under section 2(1).

The judgment also confirms that exclusion clauses will not be construed to cover fraudulent misrepresentation, following the long-established principle from Pearson v Dublin Corporation.

The case demonstrates the court’s approach to delay under the CPR, showing that issuing protective writs at limitation’s end without genuine readiness to proceed constitutes abuse of process warranting dismissal, as it effectively circumvents the Limitation Act’s purpose.

Verdict: Action 669 dismissed for want of service. Action 679 dismissed on grounds of delay and abuse of process. Actions 1676 and 1819 were not dismissed but required amendment to points of claim. The court held that damages under section 2(2) Misrepresentation Act are unavailable where rescission is no longer possible.

Source: Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000] EWHC 221 (Comm) (26 January 2000)