Excluding Liability For Implied Conditions Under The Sale Of Goods Act: Distinguishing The Mercini Lady

Air Transworld Limited v. Bombardier Inc [2012] EWHC 243 (Comm)

Under English law, limitation of liability and exclusion clauses are interpreted strictly against the party relying on them. This means that if the clause is ambiguous and/or does not expressly limit or exclude liability for a particular loss or breach of contract, it will be taken not to cover that loss or breach. This is because the English courts will not accept that a party intended to give up valuable rights under a contract which it is entitled to under the law unless it says so expressly in the contract.

An issue which clearly arose in this case (and which has arisen in the past) is whether an exclusion clause covered a breach of condition (contractual or statutory, express or implied), or warranty, each of which has different legal consequences under English law, or both. In simple terms, breach of a condition entitles the innocent party to terminate the contract and claim damages. Breach of a warranty entitles the innocent party to claim damages but not to terminate the contract. Past case-law has tended to the view that, in order to exclude liability for the statutory conditions imposed by the Sale of Goods Act 1979 (as amended) ("the Act") as to the satisfactory quality and/or fitness for purpose of the goods in question, the exclusion clause must expressly state that it applies to "conditions".

The decision in the present case is interesting because the exclusion clause in question did not in fact expressly use the word "conditions". Nonetheless, the judge found that it was sufficiently widely drafted as to effectively exclude the implied terms under the Act. This approach reflects the English courts' view that, when dealing with commercial parties of similar or equal bargaining power, the court should uphold whatever terms they agree in their contract, so long as those terms are sufficiently clear and they are not illegal or contrary to public policy.

The background facts

The facts of the case are immaterial except insofar as to say that the contract in question was an agreement for the purchase of an aircraft. The purchaser subsequently sought to reject the aircraft, alleging that it did not correspond with description, was not of satisfactory quality and was unfit for purpose within the meaning of Sections 13 and 14 of the Act. The seller argued that the terms of the contract excluded any such liability under statute and replaced it with the warranties set out in...