Wallis Trading Inc v Air Tanzania Company Ltd & Anor

A contract governed by English law is not rendered invalid merely because its formation breached procurement legislation of another country. Contractual representations and warranties may create an estoppel preventing a party from relying on its own non-compliance. A company may also be bound by its chief executive’s ostensible authority where the counterparty is unaware of internal limitations, and subsequent conduct may ratify the contract.

A later agreement may constitute a freestanding compromise which fixes the amount due and gives up claims under earlier agreements. Consideration may consist of abandoning honestly held claims and allowing a discount for early payment.

Wallis claimed sums arising from an aircraft operating lease entered into with Air Tanzania and guaranteed by the Government of Tanzania. The defendants alleged, among other matters, non-compliance with Tanzanian procurement legislation, lack of authority, invalidity of the lease and guarantee, illegality, unconscionability and absence of consideration.

Wallis relied principally on minutes recording an agreement of 4 October 2013, under which the defendants acknowledged a debt and agreed a discounted payment arrangement. The central issues were whether the lease and guarantee were enforceable and whether the 2013 agreement was a binding compromise.

1. The claim succeeded. Wallis was entitled to US$30,114,230.73 under the agreement of 4 October 2013, with interest to be determined. If that agreement had not replaced the earlier obligations, the defendants would nevertheless have been liable under the lease and guarantee.
2. The lease was governed by English law. Under Article 8 of the Contracts (Applicable Law) Act 1991 and the parties’ choice of law, its existence and validity were governed by English law. Tanzanian procurement legislation was not part of English law, so non-compliance did not make the lease invalid, void or unenforceable.
3. ATCL was contractually estopped by its representations and warranties that the lease was valid and that all necessary authorisations had been obtained. The lease was also binding because its chief executive had ostensible authority. His position as CEO and Managing Director ordinarily carried authority to enter an aircraft lease, and no internal limitation was disclosed to Wallis. ATCL and the Government had, in any event, ratified the lease by accepting delivery, operating the aircraft, acknowledging liabilities and issuing the guarantee.
4. Non-compliance with procurement legislation did not deprive ATCL of corporate power to contract. The relevant provisions contemplated that a contract could exist despite procedural breach. Even if the transaction had exceeded internal powers, it remained enforceable absent notice to Wallis of the contravention.
5. The allegations of fiduciary breach failed. The relevant duties were subjective duties to act honestly and in what the director believed to be the company’s best interests. No dishonesty, bribery or bad faith was established. A breach of fiduciary duty would not, without more, have made the lease void.
6. The argument based on “fundamental breach” failed. The total-breach doctrine had not formed part of English law since Suisse Atlantique Societe d’Armement SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 and Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827. The certificate of acceptance also created a contractual agreement and estoppel as to the aircraft’s condition. Unpleaded misrepresentation, conditions-precedent and unconscionability arguments were rejected.
7. The guarantee was valid and enforceable. A lease of this kind was treated as a loan under section 4 of the Government Loans, Grants and Guarantees Act 1974. The Government was also contractually estopped from relying on alleged procedural defects in issuing the guarantee.
8. The 4 October 2013 agreement was a freestanding compromise. Objectively construed against its background, it recognised an existing debt of US$45,103,838.80, allowed payment of a discounted sum by a specified date, and made the full amount payable on default. Wallis supplied consideration by abandoning its claims under the lease and guarantee and agreeing to a discount for early payment.