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Contractual estoppel: A relatively new legal concept, a recent case and some practical advice

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03/02/2021

Why is Wallis Trading Inc v Air Tanzania of interest?

If the parties to an agreement state that a particular set of facts are true, neither party can then later contend the opposite so as to try to argue that the agreement is invalid, in an attempt to renege on the deal [1]. This is the doctrine of contractual estoppel – a relatively new concept in English law.

A greater understanding of the potential circumstances in which a party may try to escape from a contract – and arguments which can be raised to prevent that – is likely to be of particular interest in the post-Covid climate, where changing financial and commercial circumstances mean that many businesses are seeking to reassess – and potentially to escape – some of their contractual commitments.

The recent case of Wallis Trading Inc v Air Tanzania Co Ltd [2] is of interest to commercial contract negotiators and drafters, as well as to anyone involved with commercial dispute resolution, as it adds flesh to the bones of contractual estoppel.  In particular, the case demonstrates the types of contractual representations which can found contractual estoppel – something that the courts have not previously explored.

What are the key takeaways and what practical advice arises?

This case confirms that a party cannot assert that a set of facts is true one minute, and then argue that the same facts are false, therefore allowing the party to escape their contractual obligations, the next.  This is a contractual version of not being able to have your cake and eat it!

Other cases on contractual estoppel (of which there have not yet been many – this is a developing area of law) have tended to focus on non-reliance and non-representation clauses.  This case, however, confirms that various different contractual provisions – here representations/warranties as to legality and authority to contract – can bring contractual estoppel into play.

It follows that there is significant value for parties in including, in any commercial contract, representations and warranties about legality/validity and authority, as it is now clear that clauses often overlooked in the ‘boilerplate’ can potentially found an estoppel to uphold the contract even if/when it later appears that there have been procedural and/or execution formality failings.

Parties should, of course, also take care when entering into contracts to ensure that they are not signing up to any representation, warranty or other provision, which might be contained within standard or boilerplate clauses or in the main body of a contract, which represents as true any facts or circumstances which that party may later wish to dispute.

What happened in the particular case?

Air Tanzania Company Ltd (ATCL) entered into an aircraft lease with Wallis Trading Inc (Wallis). The lease – simply a form of commercial contract – was governed by English law.  In it, the parties made various representations and warranties to each other. Specifically, ATCL represented that the lease was a legal, binding and valid obligation that would not conflict with any laws of Tanzania to which ATCL was subject. Additionally, ATCL represented that it had all the required consents and authorisations to enter into the lease. The Tanzanian Government guaranteed ATCL’s obligations under the lease.

ATCL then failed to meet the payment obligations under the lease.  Wallis accepted the return of the aircraft and terminated the lease. The remaining debt was subject to a settlement agreement between Wallis and the Tanzanian Government, payment of which was not made.

It later transpired that ATCL had in fact not followed the requirements of Tanzanian procurement law when entering in to the lease.

Wallis commenced proceedings in the English courts claiming sums due under the settlement agreement. ATCL defended on the basis that the lease and guarantee were invalid because they breached the requirements of Tanzanian procurement law and because ATCL and the Tanzanian Government signatories lacked requisite approvals and authority to sign. ATCL contended that the settlement agreement was unenforceable, in turn, because the underlying lease and guarantee were invalid.

The court dismissed ATCL’s arguments for various reasons, but primarily because the representations and warranties that ATCL had given in the lease that the necessary consents and authorisations had been obtained meant that it was contractually estopped from arguing later that the representations or warranties were false and that the lease was invalid.  That was the case even though, in actual fact, the representations were false.

How we can help

Walker Morris’ commercial dispute resolution specialists have extensive experience and expertise in relation to contractual disputes of all kinds, and in particular when it comes to a party trying to either avoid or enforce contractual obligations.  If you would like further advice or assistance on the matters raised in this article, or in connection with any contractual or commercial dispute issue at all, please do not hesitate to contact Gwendoline or Jack, who will be very happy to help.

 

[1] This is even the case where a statement was in fact not true at the time the parties entered in to the contract

[2] [2020] EWHC 339

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