Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000]

Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000] EWHC 221 (Comm) revolved around the dispute involving misrepresentation in the context of a contract for the purchase of an executive jet.

The Government of Zanzibar had entered into a contract with British Aerospace through a finance company to purchase the jet. The finance company bought the plane and leased it back to the government. However, the plane had persistent faults, leading to the government ceasing payments under the lease agreement. The government sought to rescind the contract with British Aerospace or, alternatively, claim damages under Section 2(1) or Section 2(2) of the Misrepresentation Act 1967. The government argued that representations were made regarding the airworthiness, reliability, and absence of design or construction defects in the plane.

British Aerospace contended that counter restitution, putting the parties back in their original positions by returning the jet, had become impossible since the finance company had already sold the plane. British Aerospace argued that this barred rescission and, consequently, precluded damages under Section 2(2) if rescission was not possible. Additionally, British Aerospace relied on clause 23 of the sale agreement, stating that the buyer would not rely on the seller's representations, to exclude liability under Section 2(1).

Judge Raymond Jack QC held that the Government of Zanzibar had no right to rescission or damages. Rescission was not possible because the plane had been sold, making counter restitution impossible. As a result, damages under Section 2(2) were not available, as they were dependent on the right to rescission. The judge explained that Section 2(1) provides a right to damages for non-fraudulent misrepresentation, subject to the defence that the representor had reasonable grounds to believe the representation was true. Section 2(2), on the other hand, grants the court the power to award damages when it is more equitable than making an order for rescission or upholding a previous rescission by the act of a party.

Regarding Clause 23, the judge stated that whether it excluded liability under Section 2(1) depended on passing the reasonableness test under Section 3 of the Misrepresentation Act 1967, in conjunction with the Unfair Contract Terms Act 1977 Section 11 and Schedule 2. Although there was insufficient evidence to determine whether the clause passed or failed the reasonableness test, the judge noted that Zanzibar would not necessarily fail in showing that the clause was unreasonable.
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