What is meant by common mistake?

The general rule under English law is that a contract is likely to be deemed void if, at the time it was concluded, both parties wrongly assumed a particular state of affairs which for some reason did not in fact exist.

It is also generally accepted that a common mistake cannot occur when one party has made a warranty that a state of affairs exists, with the result that performance of the contract becomes impossible.

The key elements to a common mistake are that the contract becomes impossible to perform, and also the subject matter of the contract becomes “essentially and radically different from the subject matter which the parties believed to exist”.

This rule was examined by the English High Court in the case of Triple Seven MSN 27251 Ltd and Anor v. Azman Air Services Ltd [2018] EWHC 1348.

The facts

In June 2016, the airline (Azman Air Services) entered into separate leases for two Boeing 777’s belonging to a lessor (Triple Seven Ltd). The aircraft were to be used to perform pilgrimage flights to Saudi Arabia from West Africa over a 5-year period. Shortly after the leases were signed however the airline was informed by the Saudi regulator that it would not be licensed to operate these services, even though the Nigerian equivalent had given its approval. The airline therefore refused to accept delivery of the aircraft as a result of the Saudi regulator’s decision, relying on what it said was a ‘common mistake’. Specifically, the airline alleged that both parties believed (or at least understood) that the airline would be approved to operate the pilgrimage flights, and this was the sole purpose for the aircraft agreements. The airline failed to make any rent payments when they became due under the lease. The lessor did not accept that there had been a common mistake and proceeded to bring a claim for damages against the airline having unilaterally terminated the aircraft leases.

The decision

The court considered the key elements of common mistake set out above and applied them to the facts of this case. It was decided that the parties had entered the leases on the assumption that a) the Nigerian regulator had given its approval; b) the Saudi regulator may/may not do likewise; c) the airline was expecting to receive Saudi approval; d) the Saudi regulator had not made its decision at the time the leases were signed.

It was held by the court that whilst there were certain shared mistaken assumptions, they were not sufficiently fundamental, and did not make the leases essentially and radically different from the parties original understanding, nor would they render the agreements impossible to perform. It is worth noting that the Saudi regulator’s failure to approve the proposed services only applied to the first year of the operation. Approval may have been granted for the subsequent periods during the 5-year lease period.

The Judge (Mr Peter Eggers QC) stated that the 2016 pilgrimage was just one such event within the 5-year lease period; the airline could have made significant profit from the remainder of the period; whilst revenue earned from the 2016 pilgrimage was important it was not sufficiently important to the performance of the agreements as a whole, and also there was nothing to suggest that the knock-back for the 2016 pilgrimage by the Saudi regulator would necessarily apply in subsequent years.

The Judge was also persuaded that under the leases there was an allocation of risk (that the Saudi regulator would not provide its approval) to the airline. The leases provided that the airline’s obligations were “absolute and unconditional, irrespective of any contingency or circumstance whatsoever”.

The Judge therefore found for the lessor, awarding them in excess of USD $22million in damages for breach of contract.

Practice points

• Make allowance for any risks which are specific to the performance of the contract when negotiating with your opposite party.
• Draft appropriately. Make sure that the contract provides for, and apportions the risk that an expected set of circumstances (which are crucial to the performance of the contract) do not occur.
• Don’t waste time attempting to argue common mistake if the contract imposes absolute or unequivocal obligations.

Contact

To discuss any issues raised by this article, or any other issues relating to an aviation commercial dispute then please contact me – gdoldham@oln-law.com

*Disclaimer – the views expressed in this article are those of the writer, and not necessarily those of the firm. 

Introduction

On 1 October 2019, Hong Kong became the first jurisdiction to have an arrangement with Mainland China on interim measures in aid of arbitral proceedings.  The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (the “Arrangement”) was signed on 2 April 2019 and came into force on 1 October 2019.

Prior to the Arrangement, parties to foreign-seated arbitrations could not apply to the Mainland courts to grant interim measures.  The new Arrangement has now given the green light to do so. 

The Arrangement

In a gist, the Arrangement has empowered parties to Hong Kong-seated arbitral proceedings to seek interim measures in Mainland courts in aid of the arbitral proceedings and vice versa.  To better understand the benefits of this, one must first understand the pre-Arrangement scenario.

Before the Arrangement came into force, parties to an arbitration in Hong Kong could only seek interim measures from the Hong Kong courts such as injunctions against Hong Kong properties.  That meant that if a party had assets in the Mainland, there was nothing the other party could do in Hong Kong to restrain asset dissipation.  Likewise, no such assistance was available from Hong Kong to parties conducting arbitration in the Mainland.

After the Arrangement, interim measures, including property preservation, evidence preservation and conduct preservation can now be applied for by Hong Kong arbitral parties to the Mainland courts.  This Arrangement, however, is only available to parties engaging in administered arbitrations as opposed to ad hoc arbitrations.

Pursuant to Article 3 of the Arrangement, an application for such interim measures should be made to the Mainland court where the other party is resident or where the asset or the evidence is located.  An application can only be made prior to an arbitral award being made.

It should be noted that however, the requested court in the Mainland may require the applicant to provide security among other things pursuant to Article 8 and that once an application has been made, the applicant cannot make a separate application to another Mainland court.

Conclusion

In view of the benefits of preventing the deliberate destruction of evidence or dissipation of properties which may not be undone or tracked down, we believe the Arrangement will now attract more parties to choose Hong Kong as the seat for arbitration (particularly where the other party has Mainland assets), as opposed to other jurisdictions which do not have such an arrangement in place.

Hong Kong will no doubt benefit from this and further cement its position as an arbitration hub particularly in the Asia-Pacific region.

OLN provides a wide range of dispute resolution services including arbitration services. If you have any questions on the above, please contact Selwyn Chan, Partner and Notary Public at selwyn.chan@oln-law.com. 
 
For more information about Selwyn Chan, Partner of Oldham, Li & Nie, please visit the following link: https://oln-law.com/selwyn-chan.  
 
Disclaimer:  This article is for reference only.  Nothing herein shall be construed as legal advice.  Oldham Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Background

Looking at the stats, there are over 90 million passengers every year flying between the EU and Asia (by Asia I mean the Far East, Gulf states and the Indian Sub-Continent). Almost all of these journeys cover a distance which exceeds 3,500 km. When these flights are delayed, the delays can run into many hours and it can be difficult for the flight crew to make up time over such long distances.

Typically, these routes are flown using large wide-bodies such as B777’s and A380’s which can hold 350 – 500 passengers respectively. Load factors are also generally strong on these routes. It doesn’t take a mathematician to work out that at 600 Euros per delayed passenger, there is a lot of money swilling around to be claimed in the event of a flight delay.

European Law

A passenger travelling on a European flight to, or from Asia which was cancelled or delayed may have the right to compensation under European law. The law still applies even if the passenger resides in Asia. Regulation EU 261 covers European airspace, so the passenger doesn’t have to be an EU citizen to make a claim. The regulation says that affected passengers can claim compensation from an airline when a flight lands at its destination more than three hours late. With a cancelled flight, the passenger has the right to take an alternative flight with the same airline to the destination, or cancel the flight and receive a full refund. Airlines don’t always pay out however, and may try to avoid doing so if the delay is caused by a so-called ‘extraordinary circumstance’ such as bad weather or crew strikes – see below.

Previously, airlines refused to pay out for delays caused by technical faults claiming they counted as extraordinary events. But, in 2014 two English Court rulings declared that airlines should pay out when a delay was caused by a technical fault.

How much a passenger is entitled for a delay or cancellation depends on the flight that they booked, and the amount of time they were delayed. The flight must have departed from an EU airport and can either be operated by any airline (so this includes all European, Asian and Gulf carriers), or it must have arrived into an EU airport and have been operated by an EU airline. The ‘EU airport’ definition also includes any airport in Iceland, Liechtenstein, Norway and Switzerland.

Airline’s duty

Airlines have a duty to look after stranded passengers, even if cancellations are because of extraordinary circumstances beyond their control. Passengers should keep a record of what they spent (including receipts) in order to try to reclaim from the airline using the EU 261 rule. Airlines should compensate passengers if their flight is cancelled or badly delayed. They should also offer meals, refreshments and hotel accommodation whilst passengers wait for a rearranged flight.  

When making a claim, passengers will need to confirm the airline and flight number, the names of other passengers if travelling as a group, and the reason given by the airline for the delay. A four hours (or more) delay on a journey which exceeds 3,500km between an EU and non-EU airport (in Asia) gives a compensatory award of 600 Euros. It is always a good idea for passengers to keep hold of boarding cards as proof of travel.

If a flight is cancelled, passengers should be offered an alternative flight with the same airline to their destination either on the day or the following day if there is space, or a full refund for the flight. If this is not possible then they should be given the option of a flight with a different airline, if there’s room. If the passengers end up paying for this on top of the cost of the original ticket, they should be able to claim any extra money back – if they can prove that no other suitable option was given by the original airline. If passengers were given more than 14 days’ notice about the cancellation, they will only be entitled to a new flight or a refund for the original flight. But, if they were given 14 or less days’ notice they might be able to claim compensation on top of a refund, or alternative flight. The amount of compensation differs depending on when passengers were told about the cancellation, the length of the flight, and how long they had to wait for a new flight. The cancellation also needs to have been something which could have been avoided by the airline, so again passengers won’t be able to claim for reasons such as extreme weather conditions or a crew strike.

Extraordinary circumstances

Airlines don’t have to accept every claim, and can refuse to pay if ‘extraordinary circumstances’ apply. If the airline turns down the claim because of extraordinary circumstances, passengers can challenge this if they do not believe it to be true. They can take the matter up with the local Civil Aviation Authority if it is not settled properly. Many airlines still try to wriggle out of such claims, and a good example of this is an airline claiming technical faults as extraordinary circumstances. This is because the regulation gives no definition of exactly what extraordinary circumstances are, but does give some examples. Typically, they would include acts of terrorism, security risks, extreme weather e.g. volcanic ash, political unrest, industrial action strikes not relating to the airline, and hidden manufacturing defects in an aircraft. If the airline tries to claim extraordinary circumstances, challenge them to explain exactly what they were, and why they could not have been reasonably avoided. The onus is on the airline to prove this.

How far back can I claim?

Regulation EU 261 does not set a time limit on how far back claims can go, instead stating that this should be determined by the laws in respective countries. In Hong Kong for example, the statute of limitations law is six years, so by this logic an airline should consider claims for delays dating back six years from the time the claim is submitted. Again though, it is important though that passengers have kept their flight documents as proof of travel.

Denied boarding

EU 261 also applies to denied boarding claims. Passengers should not volunteer to surrender their seat if asked to do so by the airline. In cases where they volunteer to give up on a seat in exchange for a travel voucher, airline miles or other form of compensation they will be no longer eligible to claim under the EU Regulation. Passengers won’t be entitled to compensation either if they failed to check-in on time, were not at the gate on time, did not have the required travel documents (boarding pass, passport, visas etc.), or they created/represented a health, safety or security concern. In other words, passengers are only covered when they have been denied boarding against their will. This often happens in cases of overbooking i.e. the airline (over) sold more tickets than there are seats on the plane. They do this to compensate for passenger “no-shows”, i.e. passengers who booked a ticket but then do not show up for a flight. If passengers are denied boarding because of an overbooked flight, they are also entitled to compensation.

Need any help?

It seems, thus far, that the Asian travelling public have overlooked, or were simply unaware of their air passenger rights under EU law.

Not to worry, that is all about to change. Watch this space………

Come on Asia, it’s time to claim!

Contact

To discuss any issues raised by this article then please contact me – gdoldham@oln-law.com

I often provide independent legal advice (“ILA”) to people living in HK who wish to obtain financing from financial institutions in Canada, sometimes for investment purposes and other times, to obtaining financing for their beloved family members studying or working in Canada. Since the documents are governed by Canadian law, they usually require a Canadian solicitor to provide ILA.

Clients often wonder why the meeting takes such a long time and why I ask so many questions. Here is why.

Purpose of ILA and who is the client

In most jurisdictions in Canada such as Ontario and British Columbia (as in Hong Kong and other common law jurisdictions), the purpose of the ILA is to give protection to financial institutions that fear challenges to the validity of the agreement based on the borrower’s or guarantor’s subsequent claims of undue influence, duress or lack of understanding. Financial institutions generally do not sign off on the financing documents until ILA has been properly given. Given the many potential ways to challenge the validity of the agreement, a solicitor needs to ask the right questions and based on answers to those questions, provide legal advice. Although the obtaining of ILA is the financial institution’s requirement, the solicitor only owes a duty to the client, not to the bank.

Wide areas that must be explored

In giving ILA, the solicitor’s obligation goes beyond explaining the legal aspects of the matter and assessing whether the client appears to understand the advice. The duty also requires an understanding of the individual’s personal circumstances, financial (current and future) prospects, health and family circumstances to ascertain if he/she is entering into the transaction with informed voluntary consent without pressure from anyone else and with the requisite mental capacity. Digging into the reasons for the transaction, the individual’s financial situation and relevant family dynamics or the characteristics of the parties involved may uncover critical information. Extra care also needs to be given to those who appear to be vulnerable (e.g. some elderly individuals) or who lack fluency in the English language. In Ontario, the Supreme Court has even identified “the client’s expectations arising from life in general” as a relevant factor in deciding whether the person entered into the transaction under undue influence (Brandon v. Brandon [2007] O.J. No. 2986 (Ont. S.C.J.) affirmed on appeal)

When rendering ILA in the context of a mortgage, I generally cover the following areas (at a minimum):

• the nature and consequences of a mortgage
• the nature and consequences of a guarantee
• the effect of power and sale/judicial sale and foreclosure
• the effect of an action on the covenant and the liability for any insufficiency
• the consequences of his or her spouse’s default
• the possible consequences of failure to honour the financial obligations (loss of her or his house, business and all other property)
• the possibility of obtaining security for the financial obligations (loss of his/her house, business and all other property)
• that an indemnity will be worthless if the spouse declares bankruptcy
• the risks to the client if there is a breakdown of the marriage
• the availability of qualified advisors in other fields who might advise the client from a business/accounting/tax point of view

If you reside in HK and wish to have a confidential discussion about independent legal advice in the context of financing a Canadian investment or a loan, please feel free to contact our partner, Ms Eunice Chiu at eunice.chiu@oln-law.com, +852 2186 1885. Ms Chiu is an experienced disputes and private client solicitor, qualified to practise in Hong Kong and British Columbia, Canada.