Triple Seven Msn 27251 Ltd & Anor v Azman Air Services Ltd

A common mistake avoids a contract only in exceptional circumstances. The shared assumption must be fundamental, must have been wrong when the contract was made, and must make the contract or its performance essentially and radically different from what the parties understood, or impossible in accordance with that assumption. The fact that the assumption induced the contract is necessary but insufficient. The doctrine has no application where the contract allocates the relevant risk. A five-year aircraft lease was not avoided merely because approval for one short period of intended operations had already been refused. The contractual allocation of risk independently required the lessee to perform its obligations.

The claimants leased two Boeing 777 aircraft to the defendant for five years. The aircraft were intended principally for Hajj and Umrah operations. Before the leases were signed, the Saudi aviation authority had decided to exclude the defendant from the 2016 Hajj airlift, although the defendant learned of that decision only afterwards.

The defendant refused to take delivery and argued that the leases were void for common mistake. It accepted that, if that defence failed, it was liable for breach. The issues were whether the parties shared a sufficiently fundamental mistake and whether the leases allocated the risk of the missing approval.

1. Common mistake. The leases were not void. The parties assumed that the defendant expected to obtain approval and that the Saudi authority had not yet decided the issue. The latter assumptions were wrong when the contracts were concluded, so there was a mistake as to an existing state of affairs.
2. The court formulated the applicable inquiry by assessing the fundamental nature of the shared assumption and comparing the assumed and actual states of affairs. The difference must be fundamental, essential or radical. The doctrine applies only in a small number of exceptional cases, consistently with contractual certainty.
3. The defendant’s inability to participate in the 2016 Hajj airlift did not meet that standard. The leases lasted five years, and the 2016 operation represented only a short part of that period. Performance remained possible, future Hajj approvals were not necessarily excluded, and the transaction was not transformed into something fundamentally different. The parties’ inducement by the shared assumption was necessary but not sufficient.
4. The leases also allocated the risk to the defendant. Clause 8.3 imposed absolute and unconditional obligations despite any contingency or circumstance. Clause 20.1.1(f), together with the relevant warranty in Schedule 2, also treated the failure to obtain required approvals as an event of default. Even if the mistake had been fundamental, the contractual allocation of risk would have prevented the leases from being void.
5. The claimants therefore succeeded in damages for breach. They recovered US$16,246,020 for loss of profit, US$5,612,958.92 for consequential expenses and US$148,910.06 under the contractual costs provision, totalling US$22,007,888.98, together with compound interest at LIBOR plus 10 per cent under clause 8.2. The precise form of order was left for discussion.

First-instance decision. No prior appellate decision is stated in the judgment.