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20 May 2020
Aircraft leases will typically include standard representations and warranties regarding:
The recent High Court case of Wallis Trading Inc v Air Tanzania Company Ltd(1) demonstrates the utility and importance of these standard representations and warranties, including as an estoppel against a defendant's claim that a lease is void and unenforceable as a result of alleged breaches of foreign public procurement legislation and lack of authority. The case also demonstrates the benefit of choosing English law as the governing law of a contract, particularly between international parties that may be concerned about how local law may interfere with a contract's enforceability.
Wallis Trading Inc, a Liberian company which acquired and leased aircraft, sought more than $30 million in unpaid sums from the defendants, Air Tanzania Company and the Tanzanian government, arising out of its lease of an Airbus A320 aircraft to Air Tanzania.
Wallis had leased the aircraft to Air Tanzania pursuant to an English law-governed lease agreement entered into in November 2007. The Tanzanian government had guaranteed the obligations of Air Tanzania under the lease pursuant to a Tanzanian law-governed guarantee. Before entering into the lease, Air Tanzania's board of directors and the Tanzanian attorney general had approved the entry into the lease, provided that certain terms deemed unacceptable were renegotiated and that Air Tanzania's board of directors delegated authority to Air Tanzania's managing director to sign the lease. The managing director managed to renegotiate some of these terms and subsequently signed the lease. Both the lease and the guarantee contained standard representations and warranties relating to power and authority, legal and valid effect, non-conflict and authorisations.
In October 2011, following numerous payment defaults by Air Tanzania, Wallis accepted early redelivery of the aircraft and the lease's termination. In October 2013 Wallis and the defendants entered into a settlement agreement with respect to the unpaid sums owed to Wallis. Subsequently, the defendants made six payments to Wallis in 2013 and 2014, then stopped paying. In April 2017 Wallis issued proceedings against the defendants for the outstanding amount.
Wallis's primary case was that the defendants were liable for the unpaid sums pursuant to the settlement agreement. Alternatively, Wallis claimed damages for breach of the lease and guarantee.
The defendants put forward numerous defences to Wallis's claim.(2)
Alleged invalidity of lease due to non-compliance with Tanzanian law
The defendants contended that they were not liable to pay the unpaid sums to Wallis principally because the lease was invalid and null and void because Air Tanzania had failed to comply with Tanzanian public procurement legislation, so the lease had been entered into in breach of such legislation. Therefore, Air Tanzania had had no power to enter into the lease.
Alleged unenforceability of lease due to illegality
The defendants further argued that the non-compliance with the Tanzanian public procurement legislation rendered the lease unenforceable on the basis of the English law principle that the English courts will not enforce an obligation which requires a party to a contract to do something unlawful under the law of the country where the contract will be performed.
Alleged lack of authority
Air Tanzania also claimed that its managing director had lacked the authority to sign the lease on the basis that they had:
Alleged unenforceability of guarantee
The defendants also contended that the guarantee was unenforceable because it had not been issued in compliance with Tanzanian public procurement legislation. Alternatively, they argued that as there was no primary enforceable obligation under the lease, the guarantee was unenforceable.
Alleged unenforceability of settlement agreement
The defendants argued that the settlement agreement was also unenforceable because the lease and guarantee were unenforceable or illegal (for the reasons discussed above) and the settlement agreement was illegal under Tanzanian law.(3)
Lease's invalidity due to non-compliance with Tanzanian law
The judge found that as the lease was expressly governed by English law, by virtue of Article 8 of the Rome Convention (as scheduled to the Contracts (Applicable Law) Act 1991), "the existence and validity of a contract is to be determined by the law which would govern the contract under the Convention if the contract were valid".(4) Accordingly, as the Tanzanian public procurement legislation does not form part of English law, non-compliance with such legislation did not render the lease invalid, null or void as a matter of English law.
Applying the Court of Appeal's decisions in Peekay Intermark v Australia and New Zealand Banking Group(5) and First Towers Trustees Ltd v CDS,(6) the judge found that Air Tanzania was contractually estopped from advancing arguments based on the lease's invalidity due to non-compliance with the Tanzanian public procurement legislation. This was because Air Tanzania had represented and warranted in the lease that:
Lease's unenforceability due to illegality
The judge dismissed the defendants' argument that performance of Air Tanzania's obligations under the lease was unlawful in Tanzania because the amounts payable under the lease were to be made to Wallis's bank account maintained in Switzerland and not in Tanzania. The defendants did not suggest that payment to Wallis was illegal under Swiss law. The judge also found that, in any event, the defendants had failed to show that any performance under the lease was unlawful under Tanzanian law, even if its entry did not comply with Tanzanian public procurement legislation.
Invalidity due to lack of authority
Non-fulfilment of conditions imposed by Air Tanzania's board of directors
The judge held that as Wallis had been unaware of the conditions imposed by Air Tanzania's board of directors on its managing director signing the lease, the managing director had had ostensible authority to do so. Applying English law principles (which the judge found also applied in Tanzania), the judge determined that the managing director must be regarded as having had authority to sign the lease on Air Tanzania's behalf. Air Tanzania's managing director would usually have authority to enter into commercial transactions such as aircraft leases.
The judge also held that even if Air Tanzania's managing director had not had ostensible authority to sign the lease, Air Tanzania had ratified the lease by, among other things, taking delivery of and operating the aircraft and subsequently acknowledging its liability for arrears of rent when the aircraft was redelivered to Wallis.
Failure to comply with Tanzanian public procurement legislation
With regard to Air Tanzania's argument that its managing director had lacked authority to enter the lease on the grounds that the Tanzanian public procurement legislation had not been complied with, the judge considered that Air Tanzania was again contractually estopped from advancing this argument due to the representations and warranties contained in the lease.
Breach of fiduciary duties
The judge held that the defendants had not established that Air Tanzania's managing director had acted dishonestly or otherwise not in good faith, or that they had thought that they were acting in a way other than in Air Tanzania's best interests when they signed the lease. The judge found that this was evidenced by:
The judge found that, similar to Air Tanzania, the Tanzanian government was contractually estopped from relying on the argument that the guarantee was unenforceable because of non-compliance with Tanzanian law due to the standard representation and warranties relating to power and authority, legal and valid effect and non-conflict contained in the lease. While the relevant law of contractual estoppel here was Tanzanian law, the judge determined that nothing had shown that Tanzanian law was any different from English law. For this reason, and by reason of the lease being valid and giving rise to enforceable obligations against Air Tanzania (for the reasons discussed above), the judge concluded that the guarantee was enforceable against the Tanzanian government.
Settlement agreement's unenforceability
The judge considered that the defendants' argument that the settlement agreement was unenforceable owing to the lease and guarantee being unenforceable or illegal (for the reasons advanced by the defendants) was no answer to Wallis's case.
Therefore, the judge found for Wallis.
This case is a good demonstration of the doctrine of contractual estoppel and shows the importance of including standard representations and warranties regarding power, authority and validity in aircraft leases.
The court's decision also illustrates one of the benefits of choosing English law to govern aircraft lease transactions, particularly when this involves international parties. Arguments as to the validity of these agreements based on non-compliance with local laws would not generally cause an English law-governed lease agreement to be invalid.
For further information on this topic please contact John Pearson or Jack Goold at Vedder Price LLP by telephone (+44 20 3667 2900 ) or email (firstname.lastname@example.org or email@example.com). The Vedder Price LLP website can be accessed at www.vedderprice.com.
(7) The judge also found that, in any case, any non-compliance with the Tanzanian public procurement legislation was unlikely to render the lease invalid or unenforceable as a matter of Tanzanian law.
(8) The judge added that a breach by the managing director of their fiduciary duties in entering into the lease would not, in itself, have rendered the lease void, whether as a matter of English or Tanzanian law.
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