Amiri Flight Authority v BAE Systems Plc

The appellant claimant, the Amiri Flight Authority, sues as successor to the Private Department (“PD”) of the Ruler of the United Arab Emirates. The PD in 1987 bought a BAE-146 aircraft from the first defendant, the respondent to this appeal (“BAE”). The purchase was pursuant to a contract in writing dated 27^th September 1987, which (it is suggested) was in BAE’s standard form and was (it is common ground) drafted entirely by BAE and signed by the PD in Abu Dhabi on the day after BAE had submitted it to PD there. The contract provided for BAE to supply the PD with a maintenance programme for the aircraft and with ongoing services in connection with that programme.

In 1999 very serious corrosion was found in the aircraft’s fuel tanks, caused by microbiological (fungal) contamination. Corrosion by such contamination is a known risk, against which preventive steps can be taken using biocidal agents. Amiri’s claim against BAE is that the corrosion occurred as a result of negligence by BAE in relation to the maintenance programme and associated obligations. More specifically, it is said that the original programme made no provision at all for biocide treatment, and that, although the programme was subsequently revised and amended at various dates between 1989 and 1998 to provide for such treatment, the provision made was inadequate. The claim is put both in contract, on the basis that there was breach of an implied obligation, and in tort.

Tomlinson J determined under CPR Part 24 that Amiri’s claim stood no real prospect of success and dismissed it, on the basis that (a) it fell within an exclusion clause (at clause A.10 of Appendix C to the contract) and (b) the contract was an international supply contract within the meaning of s.26 of the Unfair Contract Terms Act 1977, so that the exclusion clause could not be subject to any requirement of fairness or reasonableness under that Act. Tomlinson J gave permission to appeal, and both points come before us now.

I start by setting out certain relevant parts of the contract:

“Object

2.1

The Seller agree to sell and the Buyer agrees to buy one (1) aircraft.

2.2

The aircraft shall:

2.2.1.

be constructed to the standard defined in the Specification; …..

Aircraft Supply Programme

7.1

The Seller shall offer the Aircraft for acceptance at its works within the following period from the date the buyer complies with the provisions of Clause 5.1.1. Subject to the provisions of this Contract the final working day of such period shall be due Date of Offer for the Aircraft…

Aircraft Acceptance Procedure

12.1

Seller shall offer the Aircraft for acceptance at its works in the United Kingdom and notify the Buyer at least 21 days before the estimated Date of Offer of the Aircraft and shall give to the Buyer not less than 7 days notice of the confirmed Date of Offer of the Aircraft.

Transfer of Title and Collection

13.1

On the delivery date, the Buyer shall execute and deliver to the Seller the Certificate of Acceptance for the Aircraft and shall pay to the Seller the balance of the Invoice Price for the Aircraft. Thereupon the Seller shall deliver the Aircraft to the Buyer and title to and risk in the Aircraft shall pass by delivery from the Seller to the Buyer.

Customer Support Services

Appendix A contains the Specification referred to in clause 2.2.1. Appendix B, incorporated by clause 14, is headed Customer Support Services. It commences:

“The Seller shall provide to the Buyer at no additional charge except where otherwise stated, the services herein defined to assist the Buyer in the introduction of the Aircraft into service and in its continued operation in service with the Buyer.

This Appendix comprises:

PART A Ground Training

PART B Flying Training

PART C Operations Support

PART D Technical Representation

PART E Technical Data and other documents”

Under clause A.2 the training was to include refresher courses for both pilots and maintenance engineers during 18 months following delivery of the aircraft. Under clause A.8 the training programme for maintenance engineers was to include time on the BAE simulator for training in fault identification and engine running. Under clause D.2 BAE was to “furnish field support representation to advise the Buyer on the maintenance and technical operation of the Aircraft”. Clauses D.3 and D.6 provide:

“Additional Technical Support

D.3 The Seller shall provide technical advisory assistance with respect to the Aircraft and all accessories, equipment and parts installed in the Aircraft at the time of delivery. Such technical assistance shall include:-

(a)

Analysis of and comment on any service or operational difficulty experienced by the Buyer in order to determine the nature and cause of such difficulty and to suggest the solution thereof.

(b)

Analysis and comment on the Buyer engineering releases relating to structural repairs not covered by the Seller’s Structural Repair Manual.

…

Maintenance Planning

D.6 The Seller in conjunction with the Buyer will develop a Maintenance Programme to be finalised three months before Date of Offer of the Aircraft.”

Appendix C, incorporated by clause 17 of the contract, is headed Product Support Assurances, and commences:

“The Seller makes to the Buyer the assurances herein contained in respect of the Aircraft in service with the Buyer

This Appendix comprises

PART A Aircraft Warranty

PART B Supplier Warranty

PART C Spares Warranty”

Appendix C Part A includes the following:

“2.

The Seller warrants that subject to all the conditions of this warranty all parts of the Aircraft shall conform to any applicable specifications referred to in this contract at the Date of Offer and shall be free from fault due to:

2.1

Defective material or

2.2

Defective workmanship or

2.3

Defective design on the part of the Seller having regard to the state of the art at the date of such design.

3.

The Buyer’s remedy and the Seller’s obligations under this warranty shall be limited to faults which:

3.1

are discovered by the Buyer within 24 months of the Date of Offer of the Aircraft in which the fault occurs, and

3.2

are notified by the Buyer to the Seller on a Warranty Report Form (of which a specimen is annexed as schedule C/A.1) within 30 days of each such discovery, and

3.3

are proved by the Buyer to the Seller’s satisfaction to be within the terms of this Warranty.

4.

This Warranty shall not extend to:

4.1

Normal wear and tear. The Buyer acknowledges that this results in a life expectancy of less than 24 months for some parts.

4.2

Any parts not manufactured by the Seller or to it’s detailed design, but it shall extend to any workmanship on the part of the Seller in installing any such part in the Aircraft.

4.3

A part regarded as faulty for the sole reason only that some modification, alteration or replacement thereof is required by a change in regulation on the part of an airworthiness authority after acceptance of the Aircraft.

4.4

Parts or equipment damaged as a result of a fault in another part.

5.

If any part is proved to be faulty and within the terms of this Warranty, the Seller at its option shall:

5.1

Repair or rectify the part without charge, or

5.2

Replace such part with a similar part free from fault, and any part so replaced shall become the property of the Seller, or

5.3

Reimburse the Buyer’s costs in rectifying the fault in accordance with paragraph 8 below, or

5.4

In respect of faults in design, replace such part without charge with a modified part or parts and similarly supply such modified part or parts in respect of all Aircraft purchased by the Buyer which are within Warranty and subject to the same fault.

…

9.

The Seller shall diligently remedy a fault within the terms of this Warranty and the provisions of this Warranty shall apply to any repair, rectification, replacement or modification pursuant to paragraph 5 provided however that the Seller shall not be liable under this Warranty for any faults not discovered within 36 months after the Date of Offer of the Aircraft.”

Clause A.10 in Appendix C is the critical exclusion clause, which appears in capitals:

“NOTHING IN THIS CLAUSE SHALL BE CONSTRUED AS A WARRANTY OR REPRESENTATION AS TO THE TIME FOR WHICH AN AIRCRAFT OR ANY PART THEREOF WILL OPERATE WITHOUT FAULT, OR AS UNDERTAKING BY THE SELLER TO MODIFY THE AIRCRAFT OR ANY PART THEREOF TO CONFORM TO NEW DEVELOPMENTS IN THE STATE OF DESIGN OR MANUFACTURING ART. THE PROVISIONS OF THIS WARRANTY ARE IN SUBSTITUTION FOR AND EXCLUDE ALL EXPRESS OR IMPLIED STATUTORY OR OTHER WARRANTIES, GUARANTEES, CONDITIONS OR LIABILITIES (WHETHER AS TO FITNESS, QUALITY, STANDARD OF WORKMANSHIP OR OTHERWISE) AND THE PROVISIONS HEREOF SHALL OVERRIDE ANY ALLEGED REPRESENTATION OR COLLATERAL AGREEMENT TO THE CONTRARY. EXCEPT AS EXPRESSLY PROVIDED FOR IN PARAGRAPH 5 ABOVE THE SELLER SHALL BE UNDER NO LIABILTY WHATSOEVER TO THE BUYER AT ANY TIME WHETHER IN CONTRACT OR IN TORT (INCLUDING BUT NOT LIMITED TO NEGLIGENCE) OR FOR BREACH OF STATUTORY OBLIGATIONS IN RESPECT OF THE AIRCRAFT OR ANY EQUIPMENT PART OR REPLACEMENT THEREOF OR TRAINING ADVICE OR SUPERVISION GIVEN IN RESPECT THERETO WHETHER OR NOT COVERED BY THE FOREGOING UNDERTAKINGS AND HOWSOEVER ANY DEFECT MAY BE CAUSED AND WHETHER ANY LOSS DAMAGE OR LIABILITY THAT MAY BE INCURRED BY THE BUYER IS DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO OR ARISES CONSEQUENTLY FROM ANY DEFECT OF THE SAID AIRCRAFT OR ANY EQUIPMENT PART OR REPLACEMENT THEREOF.”

Appendix C Part B contains Supplier Warranties. It provides in essence for BAE to cause vendors or suppliers of equipment installed in the aircraft (including the engine manufacturer) to offer adequate warranty protection, and to assign the benefits of such warranties to PD. Appendix C Part C contains the spares warranty, incorporated by clause 18.8 of the contract. It contains its own distinct exclusion clause at (g), again set out in capitals:

“THE PROVISIONS OF THIS WARRANTY ARE IN SUBSTITUTION FOR AND EXCLUDE ALL EXPRESS OR IMPLIED STATUTORY OR OTHER WARRANTIES, GUARANTEES, CONDITIONS OR LIABILITIES (WHETHER AS TO FITNESS, QUALITY, STANDARD OF WORKMANSHIP OR OTHERWISE) AND THE PROVISIONS HEREOF SHALL OVERRIDE ANY ALLEGED REPRESENTATION OR COLLATERAL AGREEMENT TO THE CONTRARY.

EXCEPT AS EXPRESSLY PROVIDED IN PARAGRAPH (f) ABOVE THE SELLER SHALL BE UNDER NO LIABILITY WHATSOEVER TO THE BUYER AT ANY TIME WHETHER IN CONTRACT OR IN TORT (INCLUDING BUT NOT LIMITED TO NEGLIGENCE) OR FOR BREACH OF STATUTORY OBLIGATIONS IN RESPECT OF THE SPARE PART OR ANY EQUIPMENT, PART OR REPLACEMENT THEREOF WHETHER OR NOT COVERED BY THE FOREGOING UNDERTAKING AND HOWSOEVER ANY DEFECT MAY BE CAUSED AND WHETHER ANY LOSS, DAMAGE OR LIABILTY THAT MAY BE INCURRED BY THE BUYER IS DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO OR ARISES CONSEQUENTIALLY FROM ANY DEFECT OF THE SAID SPARE PART OR ANY EQUIPMENT, PART OR REPLACEMENT THEREOF.”

Appendices D-G are each separately incorporated by different clauses of the contract and are of no present relevance.

Amiri’s claim relates to alleged negligence in respect of the maintenance programme developed under clause D.6 of Appendix B and in respect of the technical advisory assistance provided thereafter under clause D.3.

This was not a well-drafted contract. The central issue is whether clause A.10 in Appendix C has any relevance or application to a claim for alleged negligence in the course of performance of obligations allegedly arising under Part D of Appendix B. The submissions before us regarding its meaning and effect very largely repeat those made to and considered by the judge below. But before us, it was argued, somewhat faintly and (it appears) for the first time, that, even if clause A.10 covered contractual claims for negligence in performing such obligations, it could not embrace Amiri’s alternative formulation of its claims in tort.

The placing of clause A.10 is at the heart of Amiri’s case regarding its scope and proper interpretation. Amiri’s first submission is that clause A.10 is confined in scope by and to its natural environment, consisting of Part A of Appendix C. On that basis, the words of exclusion relating to “training advice or supervision” are, Amiri submits, meaningless surplusage. Amiri reinforces this by a submission that there is nothing in the contract to give any or sufficient notice that clause A.10 would contain any words having any effect going beyond the subject matter of Part A of Appendix C. Alternatively, if the words do address any subject matter outside Part A of Appendix C, then Amiri submits that they can only cross-refer to Part B (Flying Training) or to Parts A (Ground Training) and B (Flying Training) of Appendix C. Even if this is not so, however, Amiri submits that the words cannot be treated as extending to negligence of the kind alleged by Amiri.

Clause 17, which incorporates “all parts” of Appendix C into the contract as though they were set forth there in full, bears the general heading “Warranty”. It is no surprise to find in a warranty restrictions on the supplier’s responsibility. But clause A.10 appears in Part A and starts with a reference to “this clause”, clearly meaning Part A. The positive rights conferred by Part A are limited to faults in the material, workmanship or design of the aircraft as supplied, discovered at a relatively early stage (within 24 months of the “Date of Offer” of the aircraft, or within 36 months in the case of work done to remedy a previously remedied fault: cf clauses A.3 and A.9 of appendix C). The natural conclusion, Amiri submits, is that any exclusion in Part A relates to the same subject-matter as those rights, rather than to different rights set out in some different part of the contract, such as in Appendix B, or Part D of Appendix B in particular. There is nothing in Appendix C to confer any right in respect of faults resulting from a poor maintenance programme, or from poor maintenance advice, which might be developed, or given, years later, particularly pursuant to clause D.3 of Appendix B. If the exclusion in respect of “training advice or supervision” related to such faults, it would therefore mean that BAE was under no liability at all for them. The court should, in Amiri’s submission, avoid so wide and extreme a construction.

In support of these submissions, Amiri invokes, firstly, the principle that words of exclusion must be clear and unambiguous, and should, failing this, be construed strictly against BAE, which put them forward and is seeking to rely on them: see Ailsa Craig Fishing Co. Ltd. v. Malvern Fishing [1983] 1 WLR 964; and, secondly, upon the principle derived from the “ticket” cases that the more extreme the exemption clause, the clearer the notice required before it will be regarded as having been incorporated: see Thornton v. Shoe Lane Parking Ltd. [1971] 2 QB 163 and Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd. [1989] 1 QB 433. Amiri submits that these two principles reinforce each other in this case, but that, even if the second principle does not apply, the first does and is sufficient to enable it to succeed.

As I read both the judgments in Interfoto the decision there was that the “holding fee” clause was not incorporated. The formal reason was that no sufficient notice had been given of so stringent a clause. But Bingham LJ, in deciding accordingly, stressed that whether or not sufficient notice had been given was a question which also involved broad considerations of fairness and reasonableness, having regard to the nature and effect of the clause and the circumstances relied upon as constituting notice that the contract was to contain a clause of such a nature and effect. It is unnecessary in this case to consider whether there may be contracts in writing to which such reasoning would also apply: cf Rix LJ’s doubt in HIH Casualty and General Insurance Ltd. v. New Hampshire Insurance Co. [2001] 2 Ll.R. 161. One could take the case of a car-owner entering a car-park and being asked to sign a ticket handed to him by a car-parking attendant, or that of the holiday-maker required to sign a long small-print document in order to hire a family car at an airport, if, in either case, the relevant document proved on close reading to contain a provision of an extraneous or wholly unusual nature. It is possible that other arguments could then also exist, e.g. that the nature or effect of the document had been impliedly misrepresented.

Normally, in the absence of any misrepresentation, the signature of a contractual document must operate as an incorporation and acceptance of all its terms. Here, we are concerned with a written contract which Amiri had the opportunity to read and consider overnight before signing. In the absence of any suggestion that BAE in any way misrepresented the nature or effect of clause A.10 of Appendix C, I find it difficult to see the relevance of the principle in Interfoto in the present case. The issue is, and is pleaded in Amiri’s reply simply as, one of construction. If, on its true construction in the light of Ailsa Craig, clause A.10 is sufficiently clear to cover the obligations arising under Appendix B which are at the basis of Amiri’s claim, there is no scope in this case for applying some further principle, whereby Amiri would nonetheless not be bound by clause A.10 in relation to such obligations.

Turning therefore to the construction of clause A.10, this clause is found in Part A (“Aircraft Warranty”) which is in turn part of Appendix C (“Product Support Assurances”), “by all parts of which” Amiri agreed in clause 17 of the contract “to be bound as though set forth in full in this Contract”. Clause 17 is headed simply “Warranty”. On turning to and considering Appendix C, a reader would see that it contained three Parts, the third (Part C) of which was “Spares Warranty”. Appendix C, incorporated by clause 17, is therefore dealing in that respect with the subject matter of clause 18 of the contract. The reader would be expected to note that Parts A and C of Appendix C contain clauses in capitals, drawing attention to fact that they dealt with matters of importance. In my view the reader would be expected to read these clauses then with some care.

Both clause A.10 and clause C(g) are on their face closely worded and widely drawn exclusions, requiring detailed consideration, if Amiri as buyer was, and was in any way concerned, to know the extent and limits of its rights. If such consideration had been given, it would have been apparent that clause A.10 was intended to exclude any liability on BAE’s part (whether in contract or tort or for breach of statutory duty) “in respect of the aircraft or any equipment part or replacement thereof or training advice or supervision in respect thereto”, whether or not covered by the undertakings contained in clauses A.2 to A.6 and A.8 to A.9, at least in so far as any complaint against and potential liability on the part of BAE related to some defect (“howsoever …. caused”) of the aircraft or any equipment part or replacement thereof.

As mentioned above, clauses A.3 and (in the case of work done under clause A.5 to remedy a previously discovered fault) clause A.9 contain time-limits for any complaints against BAE, by reference to the “Date of Offer” of the aircraft. Their background was clearly a desire on BAE’s part for an end to its exposure, combined probably with the belief at the time when the contract was prepared that faults would be likely to manifest themselves within a relatively short number of years. It seems unlikely that the parties envisaged the process of amending or improving the maintenance programme under clauses D.3 and/or D.6 of appendix B, which is alleged actually to have occurred. Clause D.6 of appendix B contemplates expressly that the maintenance programme would be completed three months before the Date of Offer. Clause D.3 covers “Additional Technical Support”, additional that is to the “Field Service Support” to be provided under clause D.2 for 12 months from delivery, and it refers to “the Aircraft and all accessories equipment and parts installed in the Aircraft at the time of delivery”. Clause D.7 of appendix B contemplates that BAE would provide “from time to time additional special services”, but such services were to be “subject to mutually acceptable terms and conditions” and so outside the scope of Part A of appendix C; no such services are relied on as relevant in this case.

BAE submits and the judge accepted (paragraph 19) that the operation of clause A.10 is not limited to circumstances in which there was some “defect” in the aircraft, or any equipment, part or replacement. I do not agree. The words “and howsoever any defect may be caused” and “whether any loss damage or liability …. is directly or indirectly attributable to or arises consequentially from any defect” seem to me to postulate that some defect has been caused, in some way, by the matters complained of. However, the heavy corrosion in the aircraft’s outboard fuel tanks, affecting its airworthiness, which is the subject of the present complaint, must constitute a defect within the meaning of the clause.

I see no basis for limiting the operation of clause A.10 to defects existing at the Date of Offer or delivery of the aircraft. The clause itself speaks of defects in the aircraft, equipment, parts or replacement thereof, so catering for defects in a replacement part supplied post-delivery under clause A.5.2 of appendix C. Clause A.10 also excludes any “warranty or representation as to the time for which an aircraft or any part thereof will operate without fault” (emphasis added)) and provides that BAE shall be under no liability whatsoever to Amiri at any time.

This brings me to the words “training advice and supervision”, which (unless rejected as surplusage) must in my opinion embrace post-delivery activities. The word “Training” provides a most obvious cross-reference to Parts A and B of appendix B, where it can be seen that training is to extend to the post-delivery period (see e.g. Parts A.2 to A.4 and B.2 of appendix B). It is suggested that the word “training” should be read as adjectival to the words “advice and supervision”. However, punctuation is generally erratic in this contract - compare the phrases “any equipment part or replacement” and “loss damage or damage” in clauses A.10 and C(g) of appendix C; and (lest this be thought too analytical an approach) an adjectival reading anyway appears to me artificial, unnatural and most unlikely. The natural meaning is that the draftsman was catering for defects resulting from training or advice or supervision, rendered under the contract. Training obviously cross-refers, as I have said, to Parts A and B of appendix B. It seems also clear that the word “training” must cover the training mentioned in clause C.2 of appendix B. This is so in each case, although Parts B and C contain indemnity clauses (clauses B.9 and C.7). That in turn is some confirmation that the presence in Part D of appendix B of an indemnity clause (clause D.9) is no necessary reason to conclude that the words “advice and supervision” may not be directed to obligations arising under appendix B.

Summarising the position thus far, while Part C of appendix C refers to the subject matter of clause 18 of the contract, so it is now clear that clause A.10 in Part A deals with a subject matter within clause 14 of the contract. Clause 17 (with its general heading “Warranty”) appears at a point in the contract, when it is not surprising to find the draftsman seeking to cover the issue of liabilities generally in relation to a variety of contractual provisions. As Tomlinson J observed, clause A.10 within appendix C itself appears at such a point in relation to the detailed obligations arising under appendices A and B.

The words “advice and supervision” do not find any place in the headings to Parts of appendix B. But, bearing in mind that “training” obviously refers to Parts A, B and C of that appendix, it is natural to look at the whole of appendix B as a likely subject matter. When one does this, one sees that both clauses D.2 and D.3 deal expressly with advisory assistance. Clause D.6, although not directly so described, is also dealing with a subject which falls under the head of either advice or supervision. In my view, “advice and supervision” were words chosen to refer compendiously to activities of BAE under appendix D Parts C, D and E. I add in this connection that it is Amiri’s pleaded claim that BAE gave repeated “advice” regarding the maintenance programme, twice in 1996 and once in 1998 (paragraph 25).

For these reasons, clause A.10 is in my view clear and unambiguous in its exclusion of liability for the defects which this aircraft is alleged to suffer in consequence of breaches by BAE of its duties under clauses D.3 and/or D.6 of appendix B. If there were any real doubt about its scope, that doubt should be resolved against BAE, since the clause is an exemption clause and put forward and relied on by BAE. But, on reading the contract with appropriate care, I do not consider that there is any such real doubt.

It was argued - as I have said somewhat faintly - that, even if clause A.10 embraced Amiri’s contractual claims, it cannot embrace the further claim which Amiri has pleaded in tort. But the clause expressly covers liability in tort, and the tort claim which Amiri pleads derives solely from activities said to have been undertaken in the course of fulfilling contractual obligations under this contract: see paragraphs 6, 7, 14, 16 and above all 25 of Amiri’s pleaded claim. The last paragraph reads:

“25.

It is averred that the advice provided in each of the faxes dated 29 May 1996, 3 December 1996 and 7 January 1998 was in performance of the contractual obligations under Clause D6 and Appendix B of the BAE Contract. It is further averred that in developing, issuing and revising the maintenance programme and in providing subsequent advice as stated above, BAE assumed a responsibility towards Amiri and/or in any event, as pleaded in paragraph 7, owed a duty of care in tort to Amiri in respect thereof.”

Further, in response to BAE’s plea (paragraph 40 of its defence) that “the information or advice given on behalf of BAE was supplied pursuant to Appendix B, Part D, clause D3 of the Contract”, Amiri pleaded in its reply (paragraph 20(i))that:

“The information or advice referred to in Paragraph 40 was given pursuant to Appendix B, Part D, clause D6. Alternatively, if or to the extent that said information or advice was given pursuant to Appendix B, Part D, clause D3, such information or advice was given in breach of the implied term set out in paragraph 2(iii) above [that is, an implied term of the BAE Contract that BAE would provide the necessary technical advisory assistance referred to in Appendix B, Part D, clause D3 with reasonable care and skill]”

In these circumstances, I do not consider that there is any basis for Amiri’s suggestion that its tort claim could survive, if its contact claim is (as I consider it is) within and barred by clause A.10.

For these reasons, which for the most part mirror those of the judge in his judgment, I agree with Tomlinson J’s conclusion that Amiri’s claim is barred by clause A.10 of appendix C to the contract, subject only to the possible application of the Unfair Contract Terms Act 1977.

Amiri pleads that the exemptions provided by clause A.10 of appendix C are or were not fair and reasonable, and are invalid pursuant to the Unfair Contract Terms Act 1977. Whether Amiri is entitled to a trial of the issues so raised depends in the first instance upon whether the contract is an international supply contract within the definition contained in s.26 of the Unfair Contract Terms Act 1976. S. 26 provides:

“26 - (1) The limits imposed by this Act on the extent to which a person may exclude or restrict liability by reference to a contract term do not apply to liability arising under such a contract as is described in subsection (3) below.

(2)

The terms of such a contract are not subject to any requirement of reasonableness under section 3 or 4: and nothing in Part II of this Act shall require the incorporation of the terms of such a contract to be fair and reasonable for them to have effect.

(3)

Subject to subsection (4), that description of contract is one whose characteristics are the following –

(a)

either it is a contract of sale of goods or it is one under or in pursuance of which the possession or ownership of goods passes; and

(b)

it is made by parties whose places of business (or, if they have none, habitual residences) are in the territories of different states (the Channel Islands and the Isle of Man being treated for this purpose as different States from the United Kingdom).

(4)

A contract falls within subsection (3) above only if either –

(a)

the goods in question are, at the time of the conclusion of the contract, in the course of carriage, or will be carried, from the territory of one state to the territory of another; or

(b)

the acts constituting the offer and acceptance have been done in the territories of different states; or

(c)

the contract provides for the goods to be delivered to the territory of a state other than that within whose territory those acts were done.”

The present contract is a contract for sale of goods, as well as being, on any view, “one under or in pursuance of which the possession or ownership of goods” passed, and the parties’ places of business were in territories of different states. So the requirements of s.26(3) are satisfied. The critical issue is whether the contract “provides for the goods to be delivered to the [United Kingdom]”, within the meaning of s.26(4)(c). BAE does not suggest that the contract provided for the goods to be delivered anywhere other than in the United Kingdom. Nor does BAE any longer suggest that s.26(4)(a) covers the present contract. It is common ground that the acts constituting the offer and acceptance were in the present case done in one and the same state, that is in Abu Dhabi in the United Arab Emirates. So s.26(4)(b) is also inapplicable. However, if (as the judge concluded) the words “delivered to” cover not merely goods moved from one state to another, but goods simply delivered “in” one state (here the United Kingdom), then s.26(4)(c) will apply.

The judge did not believe that the draftsman of s.26 could have intended any substantive change to the test of a “contract for the international sale of goods” adopted in prior legislation (see paragraph 28 of the judgment); he considered that there could not have been any rational reason for such a change, and that Amiri’s construction of s.26(4)(c) “would frustrate the overriding legislative intention to accord freedom of contract to parties involved in substantial contracts of an international character” (paragraph 29). Acknowledging that it was perhaps “inelegant” to speak of the present contract as providing for delivery to be made to the United Kingdom, he said that he had, in the circumstances, no difficulty in swallowing the inelegance (paragraph 29).

The starting point must be the language of s.26 of the 1976 Act itself. But “legislative antecedents” may in some circumstances constitute relevant background: cf AG v. Prince Earnest Augustus of Hanover [1957] 436, 461, per Lord Simonds, referring to “other statutes in pari materia” (cited with approval in R v. Schildkamp [1971] AC 1, 23 per Lord Upjohn); and R v. Secretary of State for the Environment ex p. Spath Holme Ltd. [2001] 2 AC 349, 388, where Lord Nicholls used the phrase “legislative antecedents”. The House of Lords was concerned in Spath Holme with the antecedents of a purely consolidating statute. The present statute has a wider purpose, subsuming some of the subject-matter of prior legislation, but adding to it. Even in relation to purely consolidating legislation, the speeches in Spath Holme caution against routine investigation of statutory predecessors of provisions in a consolidating statute, particularly where the issue concerns the construction of a single word or expression: see at p.388C per Lord Bingham. Lord Nicholls at page 396C-D, Lord Cooke at page 400 and Lord Hope at page 404 C-D agreed with Lord Bingham’s speech on this point. Lord Nicholls added his own caution on the point at page 398C-E, as did Lord Hope at 405H-406A (stating his view that recourse to prior legislation should only be made in case of ambiguity) and Lord Hutton at page 411B-C.

On its face, the language of s.26(4)(c) seems clear. The words “delivered to the territory of a state” import movement from elsewhere into that state, although not accompanied by the further express words “from the territory of another state” which underlined this in the context of s.26(4)(a). Looking at the matter without recourse to further material, I am not persuaded that this necessarily would be a surprising test for the legislature to introduce. The structure of s.26(4) is on any view questionable. S.26(4)(a) can in reality only be significant in a case where the offer and acceptance were done in one and the same state. In other words, it can like s.26(4)(c) only matter in such a case. Yet the draftsman does not appear to have appreciated that. The relationship between s.26(4)(a) and (c) may well not therefore have been worked out completely. However, the draftsman must at least be taken to have had in mind that s.26(4)(a) is only concerned with goods which are being, or will be, carried between the territory of two different states. S.26(4)(a) does not therefore require the seller to have undertaken any obligation to deliver to any other state. Without going into its precise limits, one classical example within s.26(4)(a) would be the sale of goods on CIF or FOB terms. The supplier thereby undertakes to ship goods, or to give the receiver the benefit of a shipping contract, without undertaking that the goods will actually be delivered by the carrier to their overseas destination. When the draftsman came to consider the circumstances in which a contract made in one state should be treated as international, he may have thought that the trigger should also involve movement between different states. So far as the relationship between s.26(4)(a) and (c) is concerned, the latter is, in contrast to the former, concerned on its face solely with circumstances in which the supplier does undertake a delivery obligation.

That the definition of an international contract is capable of giving rise to difficult, and possibly even counter-instinctual, distinctions is a point which can also be made with reference to s.26(3). A contract for the purchase by a Swedish resident of a chair for his English holiday home from the home’s previous English owner will be subject to the Act, if he happens to place the order when in England, but will be an international supply contract if he places the order by telephone from Sweden. A contract by the same Swede to purchase a chair in the English holiday home from the holiday home’s previous owner, another Swedish resident, will not be an international supply contract, even if the offer and acceptance are done in different countries.

One may ask why s.26(4)(a) should apply whatever the states between which the carriage occurs or will occur, whereas s.26(4)(c) applies only to delivery to a state other than that in which the offer and acceptance were done. Since the scheme of s.26(4) is on any view open to the comment that it has not been fully worked through, the force of this question is diminished. It may have been thought that the classical types of international trading contract (CIF, FOB , etc.) should be excluded without more. In relation to other cases, with a potentially international flavour (made in one state, but between parties whose places of business or habitual residences were in different states), it seems at least possible that the draftsman may have had in mind nothing more than the desiderata of freeing (United Kingdom) exporters from controls and protecting (United Kingdom) importers, rather than the more sophisticated possibility of contracts with such a flavour, but not involving any international movement of goods. These are desiderata that are strongly stressed in the Law Commission reports to which I will shortly come.

I turn to the wider context, starting with the Uniform Law on the International Sale of Goods, scheduled to the Uniform Laws on International Sales Act 1967. Article 1 provides:

“1.

The present Law shall apply to contracts of sale of goods entered into by parties whose places of business are in the territories of different Contracting States, in each of the following cases:

(a)

where the contract involves the sale of goods which are at the time of the conclusion of the contract in the course of carriage, or will be carried, from the territory of one State to the territory of another;

(b)

where the acts constituting the offer and acceptance have been effected in the territories of different States;

(c)

where delivery of the goods is to made in the territory of a State other than that within whose territory the acts constituting the offer and the acceptance have been effected.

2.

Where a party to the contract does not have a place of business, reference shall be made to his habitual residence.”

Under s.1(3) of the Act, the Uniform Law only applies to a contract of sale, if chosen by the parties as the law of the contract. It can be said of the definition in the Uniform Law that it contains three distinct criteria: the first involving carriage between different states, the second involving contracting parties in different states, and the third involving the difference between a state where both parties contracted and a state where they agreed that delivery should be made. On this basis, each clause of the definition focuses on a distinct contrast, with movement between states only being critical under the first. However, the obvious difference between the definition in the Uniform Law and that in the 1977 Act is the change of wording of clause (c) from “delivery of the goods is to be made in” to “the contract provides for the goods to be delivered to” the territory of a State other than the contracting state.

The next reference is to the Law Commission’s First Report on Exemption Clauses in Contracts (Law Com. No 24), which recommended that the control of exemption clauses which the Law Commission advocated “should not apply mandatorily to any contract for the sale of goods which has an international character” (paragraph 120); and went on to adopt the definition in Article 1 of the Uniform Law as an appropriate model (with modification to refer to “territories of different States”, rather than to “territories of different Contracting States”). S.7 of the resulting Supply of Goods (Implied Terms) Act 1973 therefore incorporated that model into s.62(1) of the Sale of Goods Act 1893. The definition thus incorporated was the subject of severe academic criticism in an article by Clifford Hall, International Sales and the Supply of Goods (Implied Terms) Act 1973, (1973) 22 ICLQ 740.

In August 1975 the Law Commission published its Second Report on Exemption Clauses (Law Com. No. 69), which led to the Unfair Contract Terms Act 1977. In its paragraphs 213 and 214, the Law Commission summarised the position which it had expressed in its First Report as follows:

“International sales

213.

We also expressed the view that the controls we recommended in that report over the right to contract out of the provisions of sections 12 to 15 of the Sale of Goods Act 1893 should not apply to “international sales”. Our reasons for making that recommendation were (a) that, where goods were exported from the United Kingdom to another country , it was for the legal system of that country rather than that of our own to specify how far contractual freedom should be limited or controlled in the interests of consumers or other purchasers; (b) that contracts of an international character ordinarily involved transactions of some size between parties who were engaged in commerce and who wished to be free to negotiate their own terms; and (c) that it would be undesirable to make proposals which would place United Kingdom exporters under restrictions which would not apply to some of their foreign competitors.

214.

We recognised that the problem of defining contracts for the international sale of goods would be a difficult one but for the existence of a definition in Article 1 of the Uniform Law on Sales, scheduled to the Uniform Laws on International Sales Act 1967, which, with a small modification, seemed to us to be an appropriate model.”

In Part II of the Report, the Law Commission had recommended controls over the terms of contracts involving the supply, on one basis or another, of goods which it viewed as similar to contracts of sale and hire-purchase agreements, particularly contracts for hire, for work and materials and for exchange or barter. In paragraph 228 it said that the reasons (summarised in paragraphs 213) for proposing that there should be no such controls in relation to “international” sales applied with equal force to the further controls that it now proposed; and it added that the definition of a contract for the international sale of goods incorporated in s.62(1) of the 1893 Act

“could be used, with minor modifications, to define a contract for the international supply of goods”.

In paragraph 235, the Law Commission mentioned Mr Hall’s article, and said that it recognised “that the definition is not wholly satisfactory, although we do not agree that it leads to all the absurd results which have been alleged”. It continued:

“We do not, however, think that we should recommend any alteration of the definition now contained in section 62(1) of the Sale of Goods Act 1893. The Uniform Law on Sales has now become part of the law of this country. As a result the parties to a contract which is an international contract for the purposes of that Uniform Law are entitled to the full benefit of the provisions of the Uniform Law, which includes an absolute freedom to contract out of the terms in the Uniform Law which correspond to sections 12 to 15 of the Sale of Goods Act 1893. We are therefore under an international obligation not to deprive the parties to such a contract of that right. To adopt a different definition of an “international” or “non-domestic” sale, in deference to the criticism made of the existing definition of a contract for the international sale of goods, would in our view add immensely to the complication of the law without effecting any substantial improvement.”

The Law Commission at this stage therefore clearly envisaged leaving the existing law of international sales unaltered, and of using the same definition “with minor modifications” when it came to the new categories of supply of goods which it wished to bring within an expanded scheme of regulation. Clause 14 of the draft bill annexed to the Second Report would thus have left the position regarding sale of goods expressly undisturbed. S.62(1) would have continued to govern. The position regarding contracts for hire-purchase would also have remained undisturbed (there being no exception from the statutory controls in the case of “international” hire-purchase contracts: see Report paragraph 219). But in relation the other supply contracts, which the Commission was recommending should become the subject of regulation, clause 14 of the Commission’s draft bill proposed a saving for international contracts, which read:

“14.

– (1) Nothing in this Act applies to any term of –

(a)

a contract for the international sale of goods (within the meaning of the Sale of Goods Act 1893); or

(b)

such a contract as is described in subsection (2) below.

(2)

Subject to subsection (3), that description of contract is one whose characteristics are the following –

(a)

it is not a contract of sale of goods or a hire-purchase agreement;

(b)

subject to that, it is one whose performance involves –

(i)

the ownership of goods passing from one person to another (with or without work having been done on them) or the possession of goods passing by way of hire or otherwise; or

(ii)

goods being applied or expended in the doing of any work, or in the performance of any services, provided for by the particular contract; and

(c)

it is made by parties whose places of business (or, if they have none, habitual residences) are in the territories of different States (Northern Ireland, the Channel Islands and the Isle of Man being treated for this purpose as different States from Great Britain).

(3)

A contract falls within subsection (2) above only if either –

(a)

the goods in question are, at the time of the conclusion of the contract, in the course of carriage, or will be carried, from the territory of one State to the territory of another; or

(b)

the acts constituting the offer and acceptance have been effected in the territories of different States; or

(c)

the contract provides for the goods to be delivered to, or to be delivered, applied or expended in the course of some service to be performed in, the territory of a State other than that within whose territory the acts constituting the offer and acceptance have been effected.”

Clause 14(3)(a) evidences not inconsiderable drafting activity, and a substantial re-phrasing of the previous definition, beyond that necessarily required to provide for the new categories of contract being brought under control. The use of the word “to” in clause 14(3)(c) was an innovation. In relation to pure hire or exchange/barter contracts, the Law Commission would, on the face of it, appear to have concluded that some element of international movement was an appropriate trigger for any escape from the statutory controls. In contrast, in relation to materials supplied in the course of a contract for work and materials, what the wording required was that some service to be performed abroad, in the course of which the materials were supplied. Law Commission draftsmen are experienced and careful, and well placed to appreciate the implications of what they provide.

The 1977 Act adopted a different approach to that of the Law Commission. It regulates both sale and supply contracts, repeals s.62(1) and introduces by s.26 a composite provision defining all those international supply contracts which were to fall outside the statutory controls. An “international supply contract” is defined by s.26(3) as (a) “a contract of sale of goods or …. one under or in pursuance of which the possession or ownership of goods passes” which is (b) made between parties with places of business (or habitual residences) in the territories of different states. The compendious definition in s.26(3)(a) is matched by the much shortened version s.26(4)(c). Critically for present purposes, s.26(4)(c) refers to a contract providing for the goods to be delivered to, rather than in, the territory of a state other than that within whose territory the acts constituting the offer and acceptance were done.

Bearing in mind the extensive attention that this clause must have received, it seems to me difficult to conclude either that some sort of mistake was made, or that the draftsman or Parliament (if one is speaking of imputed intention), meant “in” by using the word “to”, which the Law Commission had used in relation to pure hire or exchange/barter contracts, rather than the word “in” which applied under s.62(1). Even if one hypothesises that the Parliamentary draftsman or Parliament took the (erroneous) view that the intention of the previous definitions in article 1(1)(c) of the Uniform Law and s.62(1) of the 1893 Act was to do no more than take contracts involving the movement of goods from one country to another out of the statutory control, the clear intention of the words used was to restrict the concept of an international contract accordingly. It is true that, if one concludes that s.26(4)(c) requires international movement of the goods to a state other than that of the contract, there then appears a potential inconsistency, in the context of sale of goods, with the regime of the Uniform Law on International Sale of Goods - see Uniform Law article 3, giving parties who choose to apply the Uniform Law freedom to exclude its application “either entirely or partially” and Law Commission’s Second Report, paragraph 235. The Law Commission pointed out that it was this country’s international obligation to avoid such an inconsistency, but the point is one of some sophistication, not to mention remoteness, in view of the business community’s general failure to take up the opportunity given to it to choose the Uniform Law under contracts subject to English law; had it been in mind at all, one would have thought that the draftsman or Parliament would have reverted to wording along the lines of article 1 of The Uniform Law on International Sales and of s.62(1) of the Sale of Goods Act 1893, rather than employing the different phrasing of clause 14(2)(c), which was not concerned with sale of goods and was therefore outside the scope of, and uninhibited by, The Uniform Law on International Sales. In these circumstances, despite the background of the Law Commission’s Second Report, I think that it would be erroneous to conclude that Parliament’s intention must have been to reproduce the same definition as that in the previous legislation, when they were using different and evidently contrasting wording.

I would only add that neither party referred us to any parts of the Parliamentary debates which must have led to the 1977 Act, so that we must proceed on the basis that there is nothing in them to throw any admissible light on its construction.

Looking at the matter broadly, I fully understand the judge’s general point that the present contract was highly international in nature. On the other hand, it was also for goods to be manufactured and delivered in England by an English manufacturer. Had both parties made it here, rather than in Abu Dhabi, as well might have occurred, there would, on the basis on which the matter was argued before us, have been no question of its being an international contract. The scheme of s.26 leads on any view to what may be regarded as narrow or even arbitrary distinctions. Further, although the present contract clearly falls within criterion (b) mentioned by the Law Commission in paragraph 213 of its Second Report, it does not fulfil either of criteria (a) and (c), and it is of some interest to see how closely focused those criteria are on the international movement of goods. Be that as it may, scrutiny of the background history of the 1977 Act does not persuade me that any different intention should be imputed to Parliament from that which seems to me to follow from the very simple and ordinary words used. The text being the primary source of interpretation, there are here insufficient contextual or purposive reasons to give it any but its plain meaning (see per Lord Steyn in R. v. A (No. 2) [2001] UKHL 25; [2002] AC 45, paragraphs 39 and 44). I would therefore, with some diffidence, disagree with the judge’s conclusion that the present was an international supply contract, outside the scope of the controls in the Unfair Contract Terms Act 1977. To that extent I would allow the appeal, set aside his order dismissing Amiri’s claim as having no real prospect of success and remit the matter to the judge to determine the further issues which on that basis arise under the 1977 Act.

I agree.

I also agree.

Paragraphs 1 (3) and 4 of the order made by Tomlinson J dated 27^th November 2002 are set aside.

The claim against the respondent is reinstated and to be remitted to Tomlinson J for further directions

The respondent’s application dated 29^th April 2002 for summary judgment as against the appellant is dismissed

Costs of the appeal and the hearing before Tomlinson J to be costs in the case

Permission for the respondent to appeal is refused

Permission for appellant to appeal is refused