Foreign procurement legislation does not render aircraft lease governed by English law invalid

21 February 2020

In a judgment handed down on Friday 21 February 2020, Mr Justice Butcher in the Commercial Court held that an aircraft lease governed by English law was not rendered invalid by reason of breaches of foreign procurement legislation.  He awarded US$40 million including interest and costs against the Defendants, Air Tanzania and the Tanzanian Government following a 2-week trial in a dispute arising out of an aircraft leasing transaction.

In November 2007, the lessor Wallis Trading Inc (“Wallis”) leased an Airbus A320 aircraft to Air Tanzania pursuant to an operating lease governed by English law.  Air Tanzania’s obligations under the lease were guaranteed by the Tanzanian Government by a guarantee governed by Tanzanian law.  Following numerous defaults in payment by the Defendants, Wallis terminated the lease and repossessed the aircraft in October 2011.

After two years of negotiations, in October 2013 Wallis entered into a compromise and settlement agreement with the Defendants under which they agreed to pay Wallis US$ 45 million plus interest.  The settlement agreement did not contain a choice of law clause.  The Defendants paid US$ 26 million but then ceased payment, and Wallis sued for the balance owed under the settlement agreement plus interest.

In their Defence and Counterclaim, the Defendants attacked the validity of the lease, the guarantee and the settlement agreement on multiple grounds largely by reference to provisions of Tanzanian law.  In particular, they alleged:

  • the lease was invalid because of breaches of Tanzanian procurement legislation; illegality in connection with the lease; lack of authority on the part of Air Tanzanian’s managing director to sign the lease; fundamental breaches of the lease and misrepresentations by the lessor, Wallis;
  • the guarantee was invalid because the Tanzanian minister who approved it did not have power to do so under Tanzanian legislation and various internal approvals had not been properly obtained;
  • the settlement agreement was only an agreement as to quantum and/or was itself unenforceable because the underlying lease and guarantee were unenforceable and illegal.

Following a 2-week trial, these arguments were all rejected, and judgment was entered in favour of Wallis against both Air Tanzania and the Tanzanian Government.  In his judgment, Butcher J held that:

  • because the lease was governed by English law, by virtue of the Rome Convention (as scheduled to the Contracts (Applicable Law) Act 1991) validity of the lease was governed by English law and therefore non-compliance with Tanzanian procurement legislation did not render the lease invalid;
  • by virtue of provisions in the lease in which Air Tanzania warranted and represented that the lease was valid and binding on it, it was contractually estopped from advancing arguments based on invalidity under Tanzanian procurement legislation.

He dismissed the Defendants’ other arguments on the evidence before him and upheld the validity of the lease, the guarantee and the settlement agreement.  He held that there was a valid settlement agreement and awarded Wallis the outstanding sums which it claimed pursuant to that agreement.

The judgment illustrates why English law is routinely chosen as the governing law in aircraft leasing transaction between international parties.  Potential invalidity arising under other laws (such as procurement legislation) would not render invalid a lease governed by English law.  It also illustrates the important role that virtually standard representations and warranties found in aircraft leases play in ensuring the validity of such agreements through the doctrine of contractual estoppel.

The judgment can be read here.

Bajul Shah, instructed by Bob McCunn of Thomas Miller Law, appeared for the successful Claimant, Wallis.  The Defendants were represented at trial by the Attorney General of Tanzania, the Deputy Solicitor General of Tanzania and Mr Mussa Mbura.