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Mutual Mistake Did Not Render Aircraft Leasing Contracts Void

aircraft7Signing a commercial contract is often a momentous event and it really is essential to take legal advice so that you know for sure that you can keep your side of the bargain. The point was underlined by a High Court case concerning aircraft leasing agreements with the object of transporting pilgrims to Mecca.

The owners of two Boeing 777 aircraft had by two separate contracts leased them for five years to a company that specialised in flying pilgrims from West Africa to Saudi Arabia for the Hajj. Within hours of signing the contracts, the company was informed that the Saudi authorities had refused permission for it to participate in that year’s Hajj airlift on grounds that it had not met economic, security and safety requirements.

On tendering the aircraft for delivery to the company, and on being informed that the latter was not in a position to accept them, the owners terminated the contracts and launched proceedings in London. The company, however, argued that the contracts had been entered into on the basis of a common mistake and were therefore void.

By the time the contracts were signed, the Saudi authorities had already made up their mind to refuse the required permission and the Court accepted that both the owners and the company had thus been mistaken as to an existing state of affairs. The company had been candid and the mutual mistake was not its fault.

In upholding the owners’ claim, however, the Court found that the mistake was not so fundamental as to render the contracts either radically different from what the parties had agreed or impossible to perform. They were for five-year periods and, on the assumption that permission to participate in the Hajj airlift would be granted in subsequent years – there was no evidence that it would not be – the company could still have made a substantial profit.

Whilst the Court accepted that the parties would have been unlikely to have entered into the lease agreements had it not been for their shared mistaken assumption, that was insufficient to render the contracts void. The owners were awarded just over $22 million in damages, plus interest.