Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333

The Government of Zanzibar acquired an executive aircraft through financing arrangements and alleged that assurances about its condition and reliability were misleading. Difficulties developed, instalments ceased and the aircraft was subsequently disposed of in circumstances affecting the possibility of unwinding the transaction. The government pursued remedies for misrepresentation, including damages under section 2(2) of the 1967 Act. The court considered whether that discretionary remedy remained available where rescission itself could no longer be obtained. Contractual provisions said to restrict liability also formed part of the proceedings.

Could damages in lieu of rescission be awarded under section 2(2) after the right to rescind was no longer available?

The High Court held that damages in lieu under section 2(2) of the Misrepresentation Act 1967 depended on an available right to rescind. They were not a free-standing substitute whenever rescission had become unavailable. On the circumstances involving the aircraft's disposal and the lapse of time, the proposed rescission-based route could not support the claimed alternative award.

The court distinguished section 2(2) from section 2(1), which provides a different damages claim subject to its statutory defence. The case also considered contractual exclusion issues, but those did not collapse the two subsections into one remedy. The central point is the relationship between subsisting rescission rights and the discretion to award damages instead, rather than a universal prohibition on compensation whenever goods cannot be returned.

Section 2(2) damages are awarded in lieu of an available right to rescind for a non-fraudulent misrepresentation. They are not an independent damages remedy after that right has been lost. Section 2(1), fraud and other causes of action require separate analysis.

Government of Zanzibar clarifies the structure of the Misrepresentation Act's remedies. The words in lieu matter: section 2(2) gives a choice between rescission and retaining the contract with compensation, not a general damages claim whenever unwinding is impossible. Salt v Stratstone later confirms that approach while stressing the practical flexibility of restoring parties after use or depreciation. Students should therefore test whether rescission is genuinely barred before assuming that imperfect physical restoration necessarily defeats it.