Professional Documents
Culture Documents
THE PITFALLS
A paper presented to the Society of Construction
Law at meetings in Southampton on
27th November 2013, Birmingham on 2nd April
and Leeds on 11th September 2014
www.scl.org.uk
TERMINATION:
THE PITFALLS
Adam Robb, Jess Connors
and Patrick Hennessey
INTRODUCTION
1.
1.
Termination disputes are often very bitter, expensive and hard fought.
They usually arise when there has been a complete breakdown in
relationship between the employer and the contractor. If the party who
believes that it is entitled to terminate the contract gets it wrong, it is
very likely that its conduct will be regarded as repudiatory and the other
party will be entitled to accept that breach and claim damages.
2.
3.
2.
4.
Completed performance;
4.2.
Frustration;
4.3.
By agreement;
4.4.
4.5.
5.
(1)
(2)
6.
7.
Although all breaches of contract give rise to a right to damages, not all
breaches of contract give rise to a right in the innocent party to treat
itself as discharged from further performance or acceptance. The
innocent party must show that the breach of contract by the defaulting
party gives rise to that right, in other words that the guilty party is in
repudiatory breach of contract.
8.
9.
10.
11.
12.
13.
1
2
3
13.1.
13.2.
13.3.
13.4.
Hugh Beale (general ditor), Chitty on Contracts (31st edition, Sweet & Maxwell, London
2012), para 24-001.
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26; also
[1962] 2 WLR 474, [1962] 1 All ER 474, [1961] Lloyds Rep 478 (CA).
Hayes (t/a Orchard Construction) v Gallant [2008] EWHC 2726 (TCC).
14.
15.
Termination for fault at common law can be divided into two categories.
16.
17.
2.
18.
19.
contract.7
20.
4
5
6
7
8
3.
Renunciation/anticipatory breach
21.
Particular difficulties arise when, before the time fixed for performance,
the innocent party becomes concerned that the other party does not
intend or is not able to perform its contractual obligations in a material
respect.
22.
If one party clearly and expressly states that it refuses to perform its
contractual obligations, then the other party will be entitled to accept
that renunciation or anticipatory breach.
23.
24.
4.
25.
The Nanfri
26.
We start with The Nanfri, in which the House of Lords held that it is no
defence to a party who has repudiated a contract to say that he acted in
good faith under a mistaken understanding of the law.10
27.
The Nanfri concerned time charters by which ships were let for periods
of about six years. Most of the cargoes were carried on cif terms, the
shippers paying the freight in advance and receiving freight pre-paid
9
10
bills of lading. The charters provided for the payment of hire twice
monthly in advance; the owners to have the right to withdraw the vessel
in default of payment.
28.
29.
The charterers made deductions from hire which the owners did not
accept were permissible. The owners informed the charterers that the
authority of the charterers or their agents to sign any bill of lading was
being withdrawn. The owners also instructed the masters not to sign any
bill of lading endorsed freight pre-paid or not bearing an indorsement
incorporating a lien in favour of the owners on all cargoes and subfreights belonging to the charterers and any bill of lading freight.
30.
If the order to the masters had been implemented, it would have had
disastrous consequences for the charterers. The charterers treated the
totality of the owners conduct as a repudiation of the charters, which
they accepted.
31.
32.
The owners argued that their conduct was not repudiatory because they
had acted on the advice of their lawyers in New York and London, and
they were under an honest misapprehension as to their rights.11
33.
11
They relied on James Shaffer Ltd v Findlay Durham & Brodie [1953] 1 WLR 106 (CA),
Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699(CA) and Ross T
Smyth & Co Ltd v TD Bailey, Son & Co [1940] 3 All ER 60 (HL).
35.
36.
He concluded that:
... the irresistible inference is that they were saying, We will only
perform the contract upon our terms and not on yours and, as
Lord Denning MR has said, they were holding a pistol to the heads
of the charterers and we have the finding as to their true purpose
which I have read from the award.15
37.
12
13
14
15
Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1978] QB
927; also [1978] 3 WLR 309, [1978] 3 All ER 1066, [1978] 2 Lloyds Rep 132 (CA),
pages 979E 980A.
The Nanfri, note 12, page 991D.
The Nanfri, note 12, page 991E.
The Nanfri, note 12, page 992E.
16
17
39.
Woodar v Wimpey
40.
The next case, Woodar v Wimpey, is often relied upon by the defaulting
party in support of an argument that insistence on an erroneous
interpretation does not constitute a repudiatory breach.18
41.
The appellant was the purchaser under a contract of sale and the
respondent was the vendor. The contract contained a term which
entitled to the appellants to rescind the contract in certain defined
circumstances. The appellants considered that those circumstances had
arisen and purported to rescind the contract. The respondents contended
that the circumstances under which the appellants were entitled to
rescind the contract had not arisen and the judge at first instance agreed.
The appellants did not dispute this finding but appealed against the
finding that in issuing the relevant notice they were in repudiatory
breach of contract.
42.
notice indicated that both sides would simply await the decision of
the court and abide by such decision.
43.
44.
18
(c)
(d)
19
20
21
47.
48.
or a similar consequence;
48.3. The majority in Woodar felt able to conclude that, despite the
(1)
(2)
(3)
(4)
50.
22
23
24
25
10
facilities and increase the number of beds from 43 to 49. Further phases
of redevelopment would increase the number of beds further to 75.
51.
52.
DAB believed, as Mayhaven was aware, that those sums had not been
paid although it later transpired that they had.
53.
In light of its belief that the sums had not been paid, DAB suspended
work. The same day, Mayhaven notified DAB that it considered its
suspension as wrongful and constituted a repudiatory breach of contract
which Mayhaven purported to accept.
54.
55.
56.
58.
CSL initially offered without prejudice to settle the final account value
in the sum of 735,000 whilst maintaining its true entitlement was much
higher. The offer was made on the express understanding that the
outstanding sums are certified with immediate effect. After further
26
Jim Ennis Construction Ltd v Combined Stabilisation Ltd [2010] CILL 2820 (TCC).
11
60.
61.
62.
63.
64.
JEC subsequently paid the unpaid balance of the previously agreed sum
(7,362.88) which was accepted by CSL not in full and final settlement
of the revised final account but on a purely account basis.
65.
66.
consideration for the actual payment of the sum but the agreement
to pay the sum;
68.2. the agreement of the final account was not conditional upon the
agreement that the full sum be paid but that that term amounted to
a condition with the consequence that threatened failure to perform
ie anticipatory breach entitled CSL to elect to treat the
agreement at an end;
69.3. He rejected the submission that the parties were to be regarded as
27
28
As such, CSL remained bound by the Final Account Agreement and JEC
were entitled to the declaratory relief sought.
Ennis v Combined Stabilisation, note 26, para 35.
Ennis v Combined Stabilisation, note 26, para 45; Woodar v Wimpey: note 18.
13
Etherton LJ, with whom Sullivan and Mummery LJJ agreed, held that
Eminence was not in repudiatory breach. The respondent submitted that
Woodar30 was authority that an act or declaration wrongly terminating a
contract will not be a repudiatory breach only where the parties have
agreed in advance that, if and when the act is done or the declaration
made, the question of the validity and effectiveness of the act or
declaration will be brought before the courts and the parties will abide
by the courts decision.
73.
Eminence Propety Developments Ltd v Heaney [2010] EWCA Civ 1168, [2011] 2 All
ER (Comm) 223 (CA).
Woodar v Wimpey: note 18.
14
Etherton LJ applied these principles to the facts of the case before him:
74.1. Eminence was ready, willing and able to complete the sale and
they did not notice the error or they wanted to rely on the error so
that they could fortuitously extricate Mr Heaney from the
contracts. There was no reason to think that if the error had been
pointed out, Eminence would not have corrected it;
74.5. As a result of the error, the notices of termination were served
Conclusion
75.
How are the two approaches (Woodar, Eminence on the one hand and
The Nanfri, Dalkia on the other31) to be reconciled?
76.
It may be that the key issue is that in The Nanfri the repudiation
consisted of an act the instruction of the master not to sign pre-paid
bills of lading which had the immediate effect of substantially
depriving the charterers of virtually the whole benefit of the charter
since the issue of the bills was essential to the maintenance of the
charterers trade. By contrast, the notice of termination in Woodar did
not have a similar consequence.32
31
32
Woodar v Wimpey: note 18, Eminence Property v Heaney: note 29, The Nanfri, note 10,
Dalkia v Celtech, note 21.
The Nanfri, note 10; Woodar v Wimpey, note 18.
15
77.
It also appears that where the innocent party is aware that the
defaulting party is acting under a misapprehension of the legal or
factual position, does not take steps to correct the misapprehension and
if the misapprehension had been corrected the defaulting party would
have remedied its breach, the courts are unlikely to be sympathetic to the
innocent party.
5.
78.
79.
80.
In the case of Urban I v Ayres the Court of Appeal re-stated the rules in
relation to delay and repudiatory breach.33
The facts
82.
83.
84.
The Ayres were told of the anticipated February 2009 completion date
for the first time in October 2008. In November 2008, the Ayres were
informed that the mortgage needed to be completed and drawn down by
31 December 2008 as the lender was ceasing to offer 90% LTV
33
Urban I (Blonk Street) Ltd v Ayres [2013] EWCA Civ 816, [2014] 1 WLR 756, [2013]
BLR 505, [2014] 1 P & CR 1 (CA).
16
products. The Ayres attempted to extend the date and find alternative
mortgage, but were unable to do either. They also requested Urban I
allow access for their mortgage valuer. That request was not granted.
85.
By the end of January 2009, completion was set for May 2009. In
March 2009 the Ayres wrote to Urban I terminating the contract due to
unreasonable delay stating that it was clear that completion had been
unreasonably delayed beyond the deemed completion date, that Urban I
were in repudiatory breach and giving notice that they accepted the
breach as discharging the contract.
86.
The trial judge concluded that viewed objectively the overall delay by
the date of the [Ayres] solicitors letter of 20 March 2009 or by the time
[Urban I] served its notice to complete on 1 September 2009 was such as
to amount to repudiation of the Contract entitling the [Ayres] to refuse to
complete. The trial judge relied on the following factors:
87.1. There had been six month period of delay against an overall
timeframe of 2 years;
87.2. Urban I were behind their own projected programming;
87.3. The contractors own financial circumstances caused by the delay
The appeal
88.
89.
The Court of Appeal noted that the trial judge was in a difficult
situation:
This field of law is complex. The case law has developed in
significant respects over time and it is not always consistent.
Observations by Lewison LJ and Rix LJ in the recent case of
34
17
35
(2)
Where a contract for the sale of land does not contain any
specified date for completion, and subject to any contractual
indication to the contrary, it is implied that completion will
be within a reasonable time. There is no breach of contract
until that that time has arrived: Behzadi at 12G-13A and
23E.
(3)
(4)
(5)
18
(7)
91.
Applying those principles to the current case, the trial judge had been
correct that in the absence of any express stipulated date, it was an
implied term of the contract that completion of the apartment, and hence
the consequential completion of the contract, was to be within a
reasonable time. What is a reasonable time is a mixed question of fact
and law.
92.
However, the judge did not expressly consider whether that implied term
was, in all the circumstances and on a proper interpretation of the
contract, a condition in the strict sense, a warranty in the strict sense or
an innominate term. It was clear from the judgment that he regarded it
as an innominate term which was plainly correct.
93.
36
20
94.
The trial judge had been greatly impressed by the prejudice to the Ayres
in losing their mortgage, but they had lost that opportunity at a time
when the delay in completing the apartment was not unreasonable. Both
the Chancellor and Floyd LJ expressed some degree of sympathy for the
position the Ayres found themselves in, but noted that it was not caused
by Urban Is breach but because the contract they had entered into did
not have a fixed long-stop date whereas their mortgage offer was
conditional on the commencement before the earliest date at which
completion was projected to take place.
96.
He held that the court should give this issue a broad consideration, with
the benefit of hindsight, viewed from the time as at which one party
contends that a reasonable time for performance has been exceeded.
97.
take it to perform;
97.2. Whether that estimate has been exceeded and, if so, in what
circumstances;
97.3. Whether the party for whose benefit the relevant obligation was to
38
is most straightforward
in a case where no performance at all of the obligations of one of
the contracting parties has taken place and there is a
straightforward refusal of performance;
98.2. In any case in which there has been any degree of performance
Astea (UK) Ltd v Time Group Ltd [2003] EWHC 725 (TCC.
The judge referred to the test formulated by Diplock LJ in Hongkong Fir (note 2): Astea
v Time Group, note 37, para 149.
21
done, but also the value of that to the other party if nothing else is
done;
98.4. A flat refusal to continue performance will probably amount to
(2)
98.6. Indeed in the above circumstances it may well seem that the
Peregrine Systems Ltd v Steria Ltd [2005] EWCA Civ 239 (CA).
Automotive Latch Systems Ltd v Honeywell International Inc [2008] EWHC 2172 (Com
Crt), para 142.
Gold Group Properties Ltd v BDW Trading Ltd [2010] EWHC 1632 (TCC).
22
102. The claimant landowner (Gold) sought damages from the defendant
commencement.
103.4. Minimum sale prices for each of the properties were set out in a
schedule;
103.5. Clause
10 of
provisions; and
the
agreement
contained
revenue-sharing
103.6. Clause 11 provided that each party should act in good faith.
104. In the event, BDW undertook little work on the site, its position being
that the fall in the property market caused by the recession meant that
the minimum prices were unlikely to be achieved and the agreement was
therefore frustrated.
105. On 19 November 2008, BDW wrote to Gold suggesting either that the
23
(1)
(2)
(3)
106.4. There was no doubt that the breaches were repudiatory. BDW
Berkeley Community Villages Ltd v Pullen [2007] EWHC 1330, [2007] 3 EGLR 101
(Ch) and Automasters Australia (Pty) Ltd v Bruness Pty Ltd [2002] WASC 286.
24
The facts
108. On 7 October 2008, Telford (a developer/landlord) and Ampurius
credit crunch reduced the demand for flats. On 23 March 2009, Telford
decided to stop work on blocks A and B and to allow work on block C to
slip to assist with cash flow. In July 2009, Ampurius was told for the
first time inter alia that work on blacks A and B was on hold. Telford
managed to secure a cash injection to continue work on blocks B and C.
110. Work progressed on blocks C and D (for which the concrete frames
25
Your clients will never carry out the works to Blocks A and B
and/or your clients will carry out the works over a period of time
that would inflict damage and/or interfere with the business to be
set out in the commercial units.45
112. Telford responded denying this was the position and stating that it had
blocks A and B was a breach of clause 2.3(vi) and that by the end of
2009, if not before, Telfords ongoing breach had become sufficiently
substantial to be repudiatory.
The Court of Appeal
115. Having considered the judgment of Diplock LJ in Hongkong Fir,
account any steps taken by the guilty party to remedy the accrued
breaches of contract;
115.3. The court must also take account of likely future events judged
45
46
47
26
ultimate objective of the contract, viz the grant to Ampurius of 999 year
leases.
117. The next issue to consider was the effect of the breach on the injured
party. He said:
What financial loss has it caused? How much of the intended
benefit under the contract has the injured party already received?
Can the injured party be adequately compensated by an award of
damages? Is the breach likely to be repeated? Will the guilty
party resume compliance with his obligations? Has the breach
fundamentally changed the value of the future performance of the
guilty partys outstanding obligations?48
118.
Lewison LJ held that the trial judges application of the principles had
been incorrect for the following reasons:
118.1. The trial judge had been impressed by the four blocks being
27
time.
122. Lewison LJ then reverted to Diplock LJs checklist in Hongkong Fir51
loss;
122.2. Future delay was likely to require Ampurius to fund the deposits
was not possible to say, as at October 22, that the actual and reasonably
foreseeable effects of Telfords breaches were such as to deprive
Ampurius of a substantial part of the benefit of the contract. The appeal
was allowed.
Conclusion
124. The key issues are:
Urban I52
124.1. The first issue is to determine whether the relevant term is a
50
51
52
28
53
54
55
29
repudiatory.
6.
(1) those cases in which the parties had agreed either that the
term was so important that any breach would justify
termination or that the particular breach was so important
that it would justify termination;
(2) those cases in which contractors walked away from their
obligations thus clearly indicating an intention no longer to
be bound; and
(3) those cases in which the cumulative effect of the breaches
which had taken place was sufficiently serious to justify the
innocent party in bringing the contract to a premature end.
126.2. The test of what was sufficiently serious to bring the case within
own sake, but also for what it showed about the future. The
judge was right to ask whether the cumulative breaches were
such as to justify an inference that the contractor would continue
to deliver a sub-standard performance, such that the council
would be deprived of a substantial part of the totality of that
which it had contracted for that year, subject to the additional
possibility that some aspects of the contract were so important
that the parties were to be taken to have intended that depriving
the council of that part of the contract would be sufficient in
itself.
56
Rice (t/a The Garden Guardian) v Great Yarmouth Borough Council [2003] TCLR 1 :
(2001) 3 LGLR 4.
30
7.
127. In Alan Auld Associates v Rick Pollard Associates, the Court of Appeal
when
deciding whether one party no longer had the intention to be
bound by an agreement inferences could be drawn from past
breaches and the likelihood of future breaches,
No
payments were made on time and the breaches occurred against a
background of repeated complaints. In those circumstances the
defendant was entitled to consider that he would be treated in the
same way for the duration of the rest of the agreement.
57
58
Alan Auld Associates Ltd v Rick Pollard Associates [2008] EWCA Civ 655, [2008] BLR
419.
Rice v Great Yarmouth: note 56.
31
8.
130. In Eribo & Eribo v Odinaiya Jonathan Acton Davis QC, sitting in the
back into the property until June 2006. Even at that stage, the works
were defective and not complete.
136. Although the works continued on 21 September 2006 all the electrical
systems broke down and the claimants were unable to contact the
defendants. More than 4 months had elapsed since the most recently
promised completion date of 11 April 2006.
137. An independent surveyor was engaged by the claimants and his report
concluded:
137.1. The Works were significantly incomplete and many fixtures and
caused damage;
137.4. The floor tiling and underfloor heating was so poorly installed
59
32
137.5. All rooms were affected by defects. Rooms with floor tiling
were worst affected as the whole floor area required stripping out
rendering all the rooms unusable for one week or more;
137.6. Removal of the floor tiling would also require re-plumbing of the
and accepting that there were some delays which were not the
defendants fault and variations and additional works, it was fair to say
that on receipt of the independent surveyors report on 2 October 2006
the claimants had no alternative but to terminate.
Introduction
141. Rather than run the risk of applying this uncertain set of rules, many
identified clauses will entitle one or other party to terminate the contract.
Other determination clauses identify a threshold level of breach which
must be shown before termination rights arise, eg substantial breach or
material breach or even any breach. The courts have given some
guidance as to what these types of phrases may mean see below.
However, it would be a mistake to infer from these that the phrases in
question have an unvarying meaning, wherever they appear. As always,
context is key.
60
61
Yeoman Credit Ltd v Apps [1962] 2 QB 508, [1961] 3 WLR 94, [1961] 2 All ER 281
(AC).
Sutcliffe v Chippendale & Edmondson (1971) 18 BLR 149 (QBD), page 161.
33
143. Often, determination clauses provide for a warning notice of some kind,
followed by a termination notice. It has been said62 that the reason why
parties frequently adopt this course is:
143.1. When a contract is going adrift an employer is faced with a
clause, the parties often specify who must serve them, upon whom, how
and so on. The Courts approach to these requirements is discussed
below.
145. The question which arises in every case where some requirement has not
2.
62
34
or a particular individual;
146.6. That the notice should be sent (or delivered) by some particular
mode of transmission;
146.7. That the notice should contain certain specified information;
and/or
146.8. That the notice should be given within a certain period of time.
147. It is often said that any stated preconditions to a contractual right to
terminate must be followed to the letter. For example, many cases cite a
passage from earlier editions of Chitty on Contracts, to the effect that:
The terms of the [termination] notice may provide that notice can
only be given after a specified event. Prima facie the validity of
the notice depends on the precise observance of the specified
event.63
148. However, the current edition of Chitty on Contracts gives a more
operating a determination clause, but has not yet done so, is that he must
look carefully at what the contract requires and do exactly that.
150. However, as the cases below illustrate depending always of course on
the facts of the case at hand it is not necessarily true to say that all is
certainly lost if there has been some error in operating the contractual
mechanism. In particular, there may well be scope to argue, by
reference to commercial purpose of the clause, that a particular
requirement is merely directory and not mandatory.
151. Requirements which may tend to be enforced particularly strictly include
63
64
Prof HE Guest (general editor), Chitty on Contracts (27th edition, Sweet & Maxwell,
London 1994), para 22-046.
Chitty on Contracts (31st edition), note 1, para 22-049.
35
in question did not allow the architect to issue a second default notice in
respect of the same default by the contractor, and therefore the issue of
that second notice by the architect did not prevent the employer from
serving a notice of termination when it did.67
155. In so saying, the judge, endorsed passages from Hudson and Keating
In Von Essen v Vaughan, Von Essen agreed to buy the Vaughans shares
in a small chain of luxury hotels.69 A dispute broke out when the parties
were unable to agree the completion accounts. Von Essen brought a
claim for breach of warranty.
157.
The Vaughans claimed that Von Essen failed to give valid notice within
the time set in the share purchase and asset agreement (the Agreement).
Notification could be given by actual service of a notice or deemed
service.
158.
159. Clause 11.9 of the Agreement provided for the service of notices.
65
66
67
68
69
70
Robin Ellis Ltd v Vinexsa International Ltd [2003] EWHC 1352, [2003] BLR 373, 93
Con LR 92 (TCC).
Robin Ellis v Vinexsa, note 65; there was no signed contract, but it was found that a
contract had been entered into incorporating the terms of the JCT IFC 84 form of
contract.
Under the JCT Intermediate Form of Building Contract, 1984 edition, Joint Contracts
Tribunal, clause 7.2.3.
Robin Ellis v Vinexsa, note 65, para 22.
Von Essen Hotels 5 Ltd v Vaughan [2007] EWCA Civ 1349.
Von Essen v Vaughan, note 69, para 7.
36
corresponded with PDT, not with Kendall and Davies, about the
Agreement, the completion of accounts and the exercise of an option
contained in the Agreement. It was expressly agreed that the notice
exercising the option should be given and payment should be made to
PDT. However, no such express agreement was made that notice of
claim for breach of warranty should be served on PDT.
71
72
37
the warranty claims by first class post to the Vaughans at the home
address stated in the Agreement.
164. Copies of the letter and enclosures were sent with a compliment slip to
2005. They informed PDT of their holiday plans. They never actually
received the letter sent to them by Goodman Derrick. PDT had no
instructions or authority to accept service. Thus there was no actual
service. The case would turn on deemed service.
167. The Vaughans preliminary point was that service of a copy of the notice
on Kendall and Davies was required for deemed service, this was not
done before 30 September 2005 and accordingly Von Essen failed to
comply with the requirements for deemed service and was not entitled to
pursue its claims for breach of warranty.
168. Von Essen submitted that it had served notice on the Vaughans by
sending them the letter by first class post and that notice was deemed to
have been served on the second business day after that; it was irrelevant
to the deeming provision that the notice was not actually received and
that no copy was sent to Kendall and Davies before the deadline. They
claimed that that requirement was permissive rather than mandatory.
Further, PDT were within the definition of Vaughans solicitors for the
purposes of service and they had implied actual authority to receive the
notice for the purpose of service.
169. The Vaughans succeeded at trial and before the Court of Appeal. The
mean Kendall and Davies where the context admits. Here the
38
agreement was made. This was the agreement which Family Mosaic
purported to terminate by their letter dated 3 June 2009, giving three
months notice.
172. The determination clause, clause 2(7), provided:
73
74
75
39
follows:
174.1. Family Mosaic argued that as a matter of language, subclause (c)
parties into the agreement without any exit route, which cannot
have been their intention. If the notice and consent requirements
were cumulative, then Family Mosaic had no right to terminate
the agreement without Pimlicos consent unless: (a) Pimlico was
dissolved or otherwise ceased operations (clause 2(7)(a)); or (b)
there was a gross breach of the agreement which entailed risk to
the health or safety of the residents or the financial viability of
the project (clause 2(7)(b)). Therefore, even a gross breach by
Pimlico, which did not constitute a risk to health and safety or
financial viability, would not entitle Family Mosaic to terminate.
Pimlico would also be without an exit route, except for
dissolution or cessation of business by Family Mosaic within
clause 2(7)(a).
175.2. Pimlico countered that its arrangements with Family Mosaic
were intended to be long term ones. That being so, it is, so it was
said, understandable that there should be stringent restrictions on
the termination of the 1992 agreement. The defendant Pimlico
came into being to facilitate the provision of staff
accommodation and exists only for that purpose. It makes sense,
it was argued, that its role should not be capable of being brought
40
Shell v Centurian
177. Shell Egypt West v Dana Gas Egypt was a dispute arising out of a farm-
occurred within nine months following the agreement date, then Shell
could elect to terminate the agreement by giving 30 days notice in
writing. A termination under clause 3.1.8 did not generate in Shell any
right to recovery of sums paid under the agreement.
179. Closing was conditional on various matters, including Centurion
acquiring the 25% interest in the relevant oil and gas concessions which
it did not then own (the CTIP Acquisition).
180. By Clause 3.1.9, if the reason for closing not having occurred within
nine months of the agreement date was that the CTIP Acquisition had
not completed then Shell, on electing to terminate under Clause 3.1.8,
were additionally entitled to the return of all payments made under the
contract, including an initial payment of $15m.
181. At the time that Shell sent its termination letter, Centurion were then
asserting that they had drilled five wells. If that was correct, then unless
Shell terminated the contract before 6 January 2007, it would have
become liable to pay $20m to Centurion.
182. By a letter dated 22 December 2006, Shell gave 30 days notice of
41
78
79
Shell Egypt West v Dana Gas Egypt, note 77, para 22.
Shell Egypt West v Dana Gas Egypt, note 77, para 26, where the paragraph is set out.
42
189. Centurion relied upon the statement of Sir Denys Buckley in Norwest
3.1.8, and did refer to clause 3.1.9, it was clear that it would be
read by a reasonable recipient in the position of Centurion as
unequivocally communicating an election by Shell to terminate
the contract under clause 3.1.8.
191.3. The obvious mistake contained in Shells 22 December 2006
Norwest Holst Ltd v Harrison [1985] ICR 668 at 683, quoted in para 27, Shell Egypt
West v Dana Gas Egypt, note 77.
Walkinshaw v Diniz [2001] 1 Lloyds LR 632, page 643, cited in para 27: Shell Egypt
West v Dana Gas Egypt: note 77.
43
December 2005 did not comply with the notice requirements of clause
7.1 of the contract, and therefore the purported determination on 17
January 2006 was invalid and unlawful, and amounted to a repudiation
of the contract which the defendant accepted.
195. Clause 7.1 of the contract provided:
82
83
84
Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75, [2010] QB 27,
[2009] 3 WLR 677, [2009] 2 All ER (Comm) 1129, [2009] 1 Lloyd's Rep 461, [2009] 1
CLC 134, [2009] BLR 196, Moore-Bick LJ, para 44.
Dalkia v Celtech: note 21.
Construction Partnership UK Ltd v Leek Developments Ltd [2006] EWHC 88 (TCC),
[2006] CILL 2357; the contract was on the JCT Intermediate Form of Building Contract,
1998 edition, with amendments.
44
employer (by normal post, not special or recorded delivery). The fax
was received by the employer at 8:46am on 23 December, the Friday
before the Christmas break, when the employer closed at 12 noon. The
evidence was that the employer first saw the letter on the morning of 3
January 2006.
197. The defendant employer argued that the words actual delivery meant
matter.
198.8. Having arrived at the employers offices on its fax machine, the
85
45
Hill v Camden
199. In JM Hill & Sons London Borough of Camden, the Court of Appeal
Form.88 Thereafter:
200.1. On 15 March 1979 an interim certificate was issued in Hills
read:
(1) Without prejudice to any other rights and remedies which the
Contractor may possess, if
(a) The Employer does not pay to the Contractor the amount due
on any certificate within 14 days from the issue of that
certificate and continues such default for seven days after receipt
by registered post or recorded delivery of a notice from the
Contractor stating that notice of determination under this
Condition will be served if payment is not made within seven days
from receipt thereof
then the Contractor may thereupon by notice by registered post or
recorded delivery to the Employer or Architect forthwith
determine the employment of the Contractor under this Contract;
86
87
88
46
one day.
204. The Court of Appeal (Lawton and Ormrod LJJ) held that Hills action in
cutting their labour force and removing plant did not evidence an
intention no longer to be bound by the contract and was not a
repudiatory breach.
205. Although the question was strictly obiter, Lawton LJ refused to accept
89
90
47
whether the notice must actually be communicated to the other party and
whether it takes effect at the time of dispatch or of receipt.91
207. By contrast, the employer Camdens own determination notice, issued
The contractor
defended the termination on the grounds that the subcontractor had
wholly suspended the works and/or failed to proceed with the works
expeditiously, in breach of an express term of the contract; and this
breach was assumed to have occurred, for the purposes of deciding as a
preliminary issue whether (on that hypothesis) the defendants notice
terminating the contract:
209.1. Was a rightful termination of the subcontract pursuant to its
determination clause;
209.2. Was a rightful termination of the contract at common law; or
209.3. Was an unlawful repudiation of the contract?
210. Clause 20 of the AIS/James Gibbons subcontract provided:
92
93
See for example Chitty on Contracts (31st edition), note 1, para 22-051 and the cases
cited there, namely: Scarf v Jardine (1882) 7 App Cas 345, page 348; Re London and
Northern Bank [1900] 1 Ch 220; Tenax SS Co Ltd v The Brimnes [1973] 1 WLR 386;
affirmed [1975] QB 929; Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem
PVBA [1978] 2 Lloyds Rep 109. Hill v Camden: note 87.
Condition 25(1)(b) gave the employer the right to serve a notice requiring the contractor
to remedy the default within a certain period. The condition required that such a notice
should be given by the architect. One of the grounds on which such a notice could be
given under condition 25 was that the contractor had failed to proceed regularly and
diligently with the work.
Architectural Installation Services Ltd v James Gibbons Windows Ltd (1989) 46 BLR 91,
16 Con LR 68.
48
above qualified only the third of the three situations listed there, ie
where AIS failed to remedy defective work. However:
212.1. The judges crisp verdict on that argument was: I fail to see any
required AIS to comply with clause 20 and work the full working day
required by that condition. The judge held that this was a notice of
default under clause 8:
... despite the fact that it does not refer to condition 8 or to the
consequences of non-compliance, although it would have been
preferable if the threat of termination in the event of noncompliance had been made explicitly.
214. Some 11 months later, on 21 August 1986, James Gibbons purported to
94
49
216. On the facts of AIS and James Gibbons, there was no sensible
Lockland v Rickwood
217. Lockland v Rickwood concerned a contract which contained the
95
Lockland Builders Ltd v Rickwood (1995) 77 BLR 3, 46 Con LR 92 (CA), paras 45-46.
50
relevant to the overall outcome, as illustrated by Ellis Tylin v Cooperative Retail Services.96
221. Ellis Tylin made a contract with CRS to maintain and repair mechanical
and electrical plant at its 730 or so Co-op premises across the UK. The
contractor started to provide services on 5 February 1996 and a written
contract was entered into in October 1996. The contract was to run for
three years with provision for revision of rates of payment at the end of
year 1 and year 2.
222. The mechanism provided that either party could propose a rate increase
after 10 months, starting from the date when Ellis Tylin commenced
work and if no agreement could be reached within the next two months
then the agreement could be terminated by either party on notice. The
clause read:
1.8.1 After the expiry of 10 months from the date specified in
Clause 10, either party may propose, and thereafter only
once every twelve months, in writing to the other an
alteration in the amount of the Fees to take effect from a
date not being earlier than two months after the date of its
proposal.
1.8.2 If the amount of the proposed alteration is not agreed
between the parties on or before the last day of the two
month period referred to in Clause 1.8.1, this Agreement
may be terminated by CRS giving to the Contractor not
less than one or more than three months notice in writing,
or by the Contractor giving to CRS three months notice in
writing. In the interim, the Fees shall continue to be paid at
the rate and in the manner existing at the date of the
proposal made under Clause 1.8.1.97
223. Matters proceeded as follows:
223.1. The expiry of 10 months from the date specified in clause 10 (5
Ellis Tylin Ltd v Co-operative Retail Services Ltd [1999] BLR 205, 68 Con LR 137
(QBD).
Ellis Tylin v Co-operative Retail Services, note 96, para 12.
See paras 42 and 49 of the judgment; year 2 commenced on 5 February 1997.
51
proceedings.
224. The battle lines at trial were drawn as follows:
99
100
101
52
224.1. The employer CRS argued that the contractual timetable for
the tenant the right to determine the leases by serving not less than six
months notice in writing to expire on the third anniversary of the term
commencement date. The leases were for a term of ten years from and
including 13 January 1992.
226. The House of Lords held that an objective test had to be applied and the
103
CRS supported its argument for a strict approach by reference to: (1) the lease case
West Country Cleaners (Falmouth) Ltd v Saly [1966] 1 WLR 1485 per Dankwerts LJ,
page 1489; (2) the charterparty case Mardorf Peach & Co Ltd v African Sea Carriers
Corporation of Liberia [1977] AC 850, per Lord Wilberforce, page 870; (3) Bathavon
RDC v Carlisle [1958] 1 QB 461, a Court of Appeal decision about a notice to quit in a
tenancy case; (4) Afovos Shipping Co v Pagnan [1983] 1 WLR 195, a House of Lords
decision about a charterparty; (5) authorities regarding options to purchase, in which it
has been held that a party can only exercise or enforce if the conditions precedent have
been satisfied. See eg United Dominions Trust (Commercial) Ltd v Eagle Aircraft
Services Ltd [1968] 1 WLR 74. CRS also relied upon Goodwin v Fawcett (note 117),
Eriksson v Whalley (note 119), Hill v Camden (note 87) and Central Provident Fund v
Ho Bock Lee (note 122).
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; also
[1997] 2 WLR 945, [1997] 3 All ER 352, [1997] CLC 1124 (HL).
53
be free to negotiate for variation of the fee effective from the first
and second anniversaries of the contract, and if negotiations were
unsuccessful, either party should be at liberty to terminate, in the
case of Ellis Tylin by giving notice effective not earlier than
three months after the anniversary.
230.2. To take the benefit of clause 1.8, Ellis Tylin had to give the
54
allow CRS to say a substantial time after the event that the
clause 1.8 process never started because Ellis Tylins notice
under clause 1.8.1 was given too early.
230.7. CRS complained that the termination notice was given on the
wrong day to expire on the wrong day. Since the parties plainly
understood that the negotiations were for an alteration in fees to
come into effect on the first day of the second year (5 February
1997), the negotiations were due to end on the 4 February.
230.8. For Ellis Tylin to give notice on 3 February was on the face of it
premature.
230.9. If the parties had not been intending to continue negotiations, the
months, but that does not cause the notices given by those letters
to be defeated by the clause 1.8.2 requirement on Ellis Tylin of
giving three months notice in writing. Three months notice
was given, and it was plain that the three months was to begin on
5 February. A party in the position of CRS might wish to insist
on receiving the whole of the three months notice, because to
receive any less would deprive them of a valuable right to have
their equipment serviced. However, the parties to the agreement
cannot have intended that the notice given should be not a day
more than three months.
55
overridden by the agreement which was made for the second year
fees on 14 February 1997. Ellis Tylins letter of 17 February
1997 was, to the judges mind, the clearest indication that the
notice of termination was withdrawn and that the contract was
proceeding in the second year.
230.14. Therefore, the contractor had repudiated the contract by ceasing
The Afovos
231. The House of Lords decision in The Afovos serves as a warning to those
who wish to terminate not to jump the gun and cut short the period given
to the party receiving the notice to comply with its terms even if they
believe that there is no realistic prospect of the receiving party
complying if the full time is given.111
232. The contract in issue was a charterparty. The claimant owners let the
merchant in Reigate instead), the owners bankers did not receive the
hire on the expected date, namely 14 June 1979.
234. At 16:40 hours on 14 June after which time it was considered
impractical for the Charterers to pay the instalment the owners gave
notice that unless the hire were received by them, they were
withdrawing the vessel.
235. The House of Lords held that the owners notice was premature. Lord
Hailsham explained:
The question is not when the charterer would cease to be likely to
pay on time but when, to quote clause 5 punctual payment would
have failed. In my opinion this moment must relate to a particular
hour, and is not dependent on the modalities of the recipient bank.
It is the hour of midnight to which the general rule applies.112
236. The Afovos is authority for the sometimes useful proposition that where
109
110
111
112
56
franchisor; and
238.2. MMP, the Swiss franchisee a company with two employees, a
113
114
115
116
57
Goodwin v Fawcett
242. In Goodwin & Sons v Fawcett a contractor was building a house for an
invalid and his termination a repudiation of the contract: (a) because the
notice was sent by recorded delivery and not by registered post as
required under the contract; and (b) because the notice purported to
determine the contract and not merely the contractors employment
under the contract.
244. In arbitration, the contractors arguments succeeded. However, in the
Eriksson v Whalley
245. A stricter approach was taken by Collins J in the Australian case of
Eriksson v Whalley.119
246. Collins J decided that a notice by the architect to the builder pursuant to
purchase land had been validly exercised by the option holder. The
option clause read:
The option hereby granted shall be exercisable by notice in
writing given by or on behalf of Yates to Pulleyns or to Pulleyns
solicitors at any time between 6 April 1973 and 6 May 1973 such
notice to be sent by registered or recorded delivery post to the
117
118
119
Goodwin & Sons v Fawcett [1965] EGD 186; the contract was made on 1 July 1961 in
the RIBA form.
Goodwin v Fawcett: note 117.
Eriksson v Whalley [1971] 1 NSWLR 397.
58
post to the solicitors for the sellers exercising the option on behalf of the
buyers. Although the letter was received well in time the sellers
solicitors replied stating that the letter had not been sent by registered
post as provided for in the option clause. In an action for specific
performance by the buyers the judge held that the requirement that the
notice in writing had to be sent by registered post or recorded delivery
was a requirement that must be complied with. On appeal the Court of
Appeal held that the option had been validly exercised.
250. Lord Denning in his judgment took the view that the object of the
provision was for the benefit of the buyer so that he can be sure of his
position. He said (at p 126):
so long as he sends the letter by registered or recorded delivery
post, he has clear proof of postage and of the time of posting. But
if the buyer sends it by ordinary post, he will have no sufficient
proof of posting, or the time of posting. In that case, if the seller
proves that he never received it, or received it too late, the buyer
fails.
None of those reasons apply, however, when the seller does
receive it in time. So long as he gets the letter in time, he should
be bound. So I would hold, simply as a matter of interpretation,
that if the letter did reach the sellers in time, it was a valid exercise
of the option.121
251. Lord Scarman said:
I agree with the Master of the Rolls that the one question before
the court is the interpretation of clause 2 of the option agreement.
I read that agreement as requiring the option to be exercised by a
notice in writing which is to be actually received by Pulleyns or
Pulleyns solicitors.
When later in the clause one comes to the words which have to be
construed in this case such notice to be sent by registered or
recorded delivery post, I think they are a clear indication, and are
intended as such to the offeree, that if there is to be any issue as to
whether or not the notice has in fact been received, he had better
use registered or recorded delivery post if he wishes to put it
beyond doubt.
Of course, if there was any such issue, the burden would be upon
the party seeking to exercise the option to prove that his notice had
been received. The clause is a clear indication that one would
most easily and most efficaciously discharge that burden by using
registered or recorded delivery post.
120
121
Yates Building Co Ltd v Pulleyn & Sons (York) Ltd (1975) 237 EG 183, (1975) 119 SJ
370 (CA).
Yates Building v Pulleyn, note 120, page 128.
59
hand delivered.
122
123
Central Provident Fund Board v Ho Bock Kee [1980-1981] SLR 180; [1981] SGCA 4,
decision dated 5 March 1981.
Central Provident Fund v Ho Bock Kee: note 122.
60
257. The contractor Ho Bock Kee argued that these provisions were
mandatory:
257.1. Clause 1A(d) by its terms took precedence over clause 34. If Mr
Seah sent a seven day notice under clause 34, he was exercising
the right to take action under clause 1A(d), which was reserved
to the chairman alone.
257.2. The mode of delivery requirement was included for the
notices to be invalid.
how much detail it needs to give in order to be valid, for example does it
need to say exactly what the receiving party has done wrong, does it
have to identify what is required to remedy the breach complained of,
and does it have to identify the particular clause relied upon and/or spell
out the consequences of failure to comply?
260. A not untypical example of a determination clause requiring a warning
2008 was not a sufficient and proper written warning for the purposes
of the EPC contract. The relevant clause (clause 27.2.10) entitled
SABIC to terminate SCLs employment forthwith if:
124
SABIC UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 2916, [2014] BLR 43
(QBD).
61
had to identify the respects in which SCL was failing to proceed with
due diligence and what was necessary in order to rectify it.
268. Stuart-Smith J rejected this argument. He reasoned as follows:
268.1. The terms of clause 27.2.1 and clause 27.2.10 were materially
125
126
62
leading to delay.
269.2. It highlighted many, though not all, of the matters upon which
concerns.
270. Although the case does not appear to have been cited to the court in
63
64
does not comply with the terms of the contract, and thereby breaches the
contract, the court is unlikely to find that to be a repudiatory breach by
the notice-giver if he made a genuine mistake in issuing the deficient
notice and the recipient was aware of the mistake and deliberately or
opportunistically refrained from pointing it out until after the noticegiver purported to terminate in reliance upon the deficient notice.133
275. In this regard, see for example the Court of Appeals 2010 decision in
3.
133
134
135
136
65
Lockland v Rickwood
280. The Court of Appeal in Lockland v Rickwood took a somewhat different
137
138
66
139
140
141
142
143
Lockland v Rickwood, note 95, pages 45-46; AIS v James Gibbons Windows, note 93.
Having considered Judge Bowshers analysis in AIS v James Gibbons Windows, as
indicated above.
Lockland v Rickwood, note 95, para 99.
Lockland v Rickwood, note 95, paras 101-102.
Chitty on Contracts (27th edition), note 64, page 1091, para 22044.
67
144
Amoco (UK) Exploration Company v British American Offshore Ltd [2001] EWHC
485 (Com Crt), para 104. Here, as elsewhere in this paper, paragraphs have been split
for ease of reading, and reference should be made to the original judgment for original
breaks in paragraphs.
68
I do not read those decisions as laying down any hard and fast
rules. Rather, in deciding whether by its conduct a party evinces
an intention not to be bound by the terms of the contract, the way
in which parties agreed to treat breaches within the terms of their
contract must be a factor to take into account.
In particular, if a breach of a term had to reach a degree of
seriousness before a contractual termination clause could be
applied, it is unlikely that a breach which was lessserious would,
by itself, amount to arepudiatory breach.
Equally, the fact that for a particular breach the contract provided
that there should be a period of notice to remedy the breach would
indicate that the breach without the notice would not, in itself,
amount to a repudiatory breach.145
288. However, it has also been said that there is a general presumption that a
4.
citing a bad ground for doing so may justify his refusal by showing that
a good ground for his refusal in fact existed.
290. However, the general rule is subject to a number of exceptions, some of
145
146
147
BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86, [2010] BLR 267, 129
Con LR 147, (2010) 26 Const LJ 289 (TCC), para 1366; Lockland v Rickwood: note 95
and Amoco v Bristish American Offshore: note145.
Dalkia v Celtech, note 21, para 21.
Modern Engineering (Bristol) Ltd v Gilbert Ash (Northern) Ltd [1974] AC 689 (HL),
page 717; also [1973] 3 WLR 421.
69
(a)
by the Court of Appeal in March 1922, is often cited as authority for the
proposition that:
It is a long established rule of law that a contracting party, who,
after he has become entitled to refuse performance of his
contractual obligations, gives a wrong reason for his refusal, does
not thereby deprive himself of a justification which in fact existed,
whether he was aware of it or not. 148
292. Roncoroni was a dispute arising out of a contract between the claimant
sellers and defendant buyers for the sale and purchase by five
instalments of large numbers of rabbit fur for use in making hats.
293. The defendant buyers took delivery of the first instalment of skins, but
the contract of sale. The buyers then obtained evidence that the goods
delivered did not comply with the contract description, because the fur
in question fell short of the quality stipulated in the contractual
description to a slight but appreciable degree, such that the defendant
buyers could have rejected the furs had they ascertained the fact in time.
Taylor v Oakes Roncoroni & Co [1922] All ER Rep Ext 866, page 869; (1922) 127 LT
267, page 269.
British & Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48; also
(1922) 13 Lloyds LR 67 (HL).
Braithwaite v Foreign Hardwood Company [1905] 2 KB 543 (CA). This case had
been described by the Commercial Court as a notoriously difficult decision to
explain. See Teare J in Flame SA v Glory Wealth Shipping Pte Ltd [2013] EWHC
3153, [2014] 2 WLR 1405, [2014] 1 All ER (Com Crt) 1043, [2013] 2 Lloyds Rep
653, [2013] 2 CLC 527 (Com Crt), who said (para 27): The problem arises from the
fact that the decision appears to be inconsistent with the rule that a party who refuses to
perform citing a bad ground for doing so may justify his refusal by showing that a good
ground for his refusal in fact existed. Attempts to explain the decision have been made
by Greer J in Taylor v Oakes, Roncoroni and Co (1922) 27 Comm Cas 262 at p268,
by Lord Sumner (the losing counsel in Braithwaite) in British and Benningtons Ltd v
NW Cachar Tea Co [1923] AC 48 at p70, by Scrutton LJ (the successful counsel in
Braithwaite) in Continental Contractors v Medway Oil and Storage Company (1925)
70
Angelos.152
151
152
23 Lloyds List Reports 124 at pp132-134 and by Salmon LJ in Esmail v J Rosenthal &
Sons Ltd [1964] 2 Lloyds Reports 447 at p466, whose views were endorsed by Lord
Ackner in [Fercometal SARL v Mediterranean Shipping Co SA] The Simona [1989] 1
AC 788 at p805. Sir Guenter Treitel has carried out a masterly and comprehensive
review of the facts of Braithwaite and of three possible justifications for the decision in
Benjamins Sale of Goods at paragraphs 19-176 - 19-180. The first justification is that
there was no breach by the sellers, the second is that if there was a breach it was not
repudiatory and the third was that the buyer was precluded by his conduct from relying
upon the sellers breach.
British & Beningtons v North Western Cachar Tea, note 149, pages 71-72.
Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos)
[1971] 1 QB 164 (CA), pages 193B and 195; also [1971] 1 QB 164, [1970] 3 WLR
601, [1970] 3 All ER 125, [1970] 2 Lloyd's Rep. 43.
71
(1) If the point which was not taken could have been put right.
See the Court of Appeals decision in Heisler v AngloDal;154 or
(2) If an unequivocal representation to the contrary effect was
made and acted on by the other party, so that it would be
unfair and unjust for the party who made the representation
to rely on his contractual rights.
302. On the facts of Glencore v LORICO, neither the Heisler nor the
154
72
have misled the buyers into believing that the freight pre-paid
requirement was no longer important to them.
302.3. It followed that the sellers were entitled to rely on the buyers
ground for rejection, however valid it may be, and the general in
Roncoroni does not save him. He is precluded from raising even a valid
ground, not because he failed to raise it at the time but because he
retained the goods and did not reject them on any ground. The basic rule
could apply, of course, if he did reject the goods, though giving an
invalid reason for doing so.155
305. A recent example of a case in which the Heisler exception applied,
because the Court found (obiter) that had the point been identified it
could have been put right, is Thai Maparn Trading v Louis Drefyus
Commodities.156
Cases of termination pursuant to determination clauses
306. As discussed above, determination clauses often involve a machinery
See Evans LJs judgment in Glencore, note 153, page 528E-G; Roncoroni: note 148.
Thai Maparn Trading Co Ltd v Louis Drefyus Commodities Asia Pte Ltd [2011]
EWHC 2494, [2011] 2 Lloyds Rep 704 (Com Crt); Heisler: note 154.
Roncoroni: note 148.
73
Shell Egypt West Manzala GmbH v Dana Gas Egypt Ltd [2010] EWHC 465 (Com
Crt).
Dalkia v Celtech, note 21, paras 143-144.
Dalkia v Celtech: note 21.
74
explained:
308.1. All that is required for acceptance of a repudiation at common
5.
terminating party to damages for loss of bargain. If the breach for which
the determination clause was operated was not a repudiatory breach
giving rise to a right to terminate at common law, then absent express
provision the terminating party may only be able to recover damages
in respect of loss suffered at the date of the termination.164
311. Further, questions of mitigation generally remain relevant.
If the
determination clause threshold is a relatively minor breach, then on
appropriate facts the court may say that the duty to mitigate obliged
the terminating party to enter into a new contract with the breaching
party.
161
162
163
164
75
312. See for example The Solholt, in which the Court of Appeal was
concerned with a contract for the sale of a ship.165 The vessel was not
available for delivery on the cancellation date and the buyer cancelled
and claimed damages of $500,000 being the difference between the
contract price and the market price of the vessel at the time of
termination. The seller conceded that the buyer was entitled to cancel.
However, the Court of Appeal dismissed the buyers damages claim,
holding that it could and should have avoided its loss by entering into a
new contract to buy the ship from the seller at the original price.
313. The principle in The Solholt was applied in Astea v Time Group, in
which Seymour J accepted the argument that even if there had been a
repudiatory breach of contract on the part of Astea, Time Group ought to
have permitted Astea to complete the services in reasonable mitigation
of its damages.166
314. For a useful discussion of the limits of the principle in The Solholt, see
the 2013 decision of the Court of Appeal in Manton Hire and Sales v
Ash Manor Cheese,167 per Tomlinson LJ, including a reminder of:
314.1. Lord MacMillans dictum in Banco de Portugal v Waterlow that:
6.
315. In principle the parties are free to agree whatever terms they wish for
termination.170 There are however certain stock ways of doing it. For
example:
315.1. Any breach and similar phrases;
315.2. A substantial breach;
165
166
167
168
169
170
Sotiros Shipping Inc v Sameiet Solholt (The Solhol) [1983] 1 Lloyds Rep 605, [1983]
CLR 114 (CA).
Astea (UK) Ltd v Time Group Ltd [2003] EWHC 725 (TCC).
Manton Hire and Sales Ltd v Ash Manor Cheese Company Ltd, [2013] EWCA Civ
548, especially paras 29-41.
Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 (HL), page 506; also [1932]
All ER 181.
Payzu Ltd v Saunders [1919] 2 KB 581 (CA), page 588.
However in certain circumstances the Uunfair Contract Terms Act 1977 may require a
party to show that the terms is fair or reasonable (section 3(2)(b)(ii)) and relief may be
given if the situation is one in which equity would grant relief against forfeiture. See
also the Unfair Terms in Consumer Contracts Regulations 1999.
76
(a)
316. The courts have shown some reluctance to interpret a termination clause
works;
318.3. Third, the landlords would grant Debenhams a lease of the
premises.
319. The landlords were to make a payment to Debenhams in three
19.1 If:
19.1.1
either party shall in any respect fail or neglect to
observe or perform any of the provisions of this Agreement; or
19.1.2
then either party may by notice to the defaulting party any time
after such occurrence terminate this Agreement, and upon service
of such notice this Agreement shall determine but any such
determination shall be without prejudice to any pre-existing right
of action of any party in respect of any breach by any other party
of its obligations under this Agreement. [emphasis added]
321. The landlord did not pay its second instalment on time. Two days after
the due date, Debenhams served a notice on the landlord terminating the
agreement under clause 19.
322. The landlord did not accept that Debenhams was entitled to terminate
Dominion Corporate Trustees Ltd v Debenhams Properties Ltd [2010] EWHC 1193
(Ch).
This argument by Debenhams was also rejected by the court. The landlords failure to
pay the second instalment punctually had not rendered Debenhams incapable of
performing its own obligations, nor had it substantially deprived Debenhams of the
77
the essence was because the payment was a contribution towards its
fitting works and it had to be paid on time so that the fitting works
deadlines as stipulated in the agreement could be met. The landlord
viewed Debenhams termination of the agreement as a repudiatory
breach and elected to accept it, thereby terminating the agreement
themselves.
323. Kitchin J gave judgment for the claimant landlords. In relation to clause
19 he held as follows:
323.1. Stripped of their context and relevant background, the words of
concerned with two contracts made between the Council and the
contractor to provide leisure management and grounds maintenance
services for a four year period. The contracts were in a standard form,
drafted by the Association of Metropolitan Authorities, and commonly
used by local authorities for contracts of this type.
325. The clause at the centre of the dispute was clause 23.2.1 which read:
173
174
whole benefit of the agreement. The landlords failure to pay the second instalment on
time did not go to the root of the contract and therefore did not constitute a repudiatory
breach of the agreement. Throughout the period in issue, the landlord had made it
quite clear that the payment was unlikely to be made on time and had explained why.
They had sought to establish whether Debenhams would consider taking some or all of
the payment as a rent-free period instead. They had also made it clear that they were
committed to the agreement and to the project generally, and that they intended to pay
the amount due. Debenhams had not been entitled to terminate the agreement,
especially as it had never given the landlord any warning of its intention to do so.
For example, clause 3 contained a series of obligations arising from what are defined as
Tenants Variations to Landlords Works. Clause 4 imposed on Dominion a series of
obligations to arrange project meetings and inspections, and specified how notice of
them was to be provided. Clause 6 required Debenhams to prepare in triplicate and
submit to Dominion plans and a specification of the Tenants Works. Clause 26
imposed on Dominion obligations in respect of the new ground lease from the council
required to allow delivery and completion of the Landlords Works.
Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191;
also [1984] 3 WLR 592, [1984] 3 All ER 229, [1984] 2 Lloyds Rep 235 (HL) and Rice
(t/a Garden Guardian) v Great Yarmouth Borough Council [2003] TCLR 1, [2000] All
ER(D) 902 (CA).
78
conclusion that he did on this issue and for the reasons he gave.175
328. This is not an exceptional decision. In The Antaios, the key issue was
The case is also useful on the approach to be taken to the question of whether the
cumulative effect of proven breaches is sufficiently serious as to justify the innocent
party in bringing the contract to a premature end, see also Alan Auld Associates Ltd v
Rick Pollard Associates [2008] EWCA Civ 655, [2008] BLR 419.
79
agreed held:
176
177
178
80
(c)
A material breach
breach?
335. In Glolite v Jasper Conran Neuberger J said that:
Crane v Wittenborg, note 178, Mance LJ (para 21), Stuart-Smith and Aldous LJJ.
Glolite Ltd v Jasper Conran Ltd unreported, 21 January 1998 (ChD).
81
on Leyton Orient football club shirts, which were not made available to
the public during that time.
337. In National Power v United Gas Colman J was concerned with a
Colman J held that that clause contemplated a breach that was capable of
being remedied, that material related to the magnitude of the
commercial consequences of the breach for the innocent party were it to
remain unremedied, and meant a breach which was:
... wholly or partly remediable and is or, if not remedied, is likely
to become, serious in the wide sense of having a serious effect on
the benefit which the innocent party would otherwise derive from
performance of the contract in accordance with its terms.
339. The particular breach was a failure to provide information as to past non
involved considering
... the actual breaches, the consequences of the breaches (the)
explanation for the breaches, the breaches in the context of the
Agreement, the consequences of holding the Agreement
determined, and the consequences of holding the Agreement
continues.182
341. It is sometimes suggested often on the strength of Dalkia v Caltech
National Power plc v United Gas Company Ltd unreported 3 July 1998.
Phoenix Media Ltd v Cobweb Information Ltd unreported, 16 May 2000 (ChD).
Dalkia v Celtech: note 21.
82
185
and National
Power the determination clause in question does more than
simply confirm existing common law remedies, for example by
conferring additional remedies upon the terminating party,
questions of construction against redundancy will not arise, and it
will not be necessary to infer that the parties must have intended
to lower the bar for activation of the determination clause in
order to avoid the result that otherwise their contract will be
simply declaratory of the common law position (if indeed that is
such an objectionable result).
83
to go further and prove that such breach was actually material. Clause
11.4 should be construed so that the reference to breaches of clause 3.10
was not to any breach but to a material breach.
344. The trial judge dismissed this. In his view the clause was clear. The
parties agreed that any breach of clauses 3.10.1, 3.10.2 and 3.10.3 was to
be material and irremediable. The parties plainly attributed great
significance to compliance with those provisions. That was a matter for
them to decide. It was not a case of rather unfocused, general words
being contended to have a particular effect which seemed surprising.
The decision of HHJ Seymour on this aspect was not challenged in the
Court of Appeal.187
(e)
energy plant to supply electricity and steam to Celtechs paper mill. The
agreement was to last for 15 years and Celtech were to pay Dalkia
annual charges consisting of a finance and operation element. Payment
of the financing element amortised the capital cost of the plant over the
term.
347. Dalkia was entitled to terminate the contract if Celtch was in material
332,000 (three monthly instalments) was due and owing, for periods
ranging from about 73 to 12 days.
350. Celtech said this was not a material breach as:
350.1. this was 15 year term collaborative joint venture;
350.2. Dalkia was entitled to suspend services for non payment and had
186
187
188
Tele2 International Card Company SA v Post Office Ltd [2008] EWHC 158 (QB).
Tele 2 Interantional Card Company SA v Post Office Ltd [2009] EWCA Civ 9, [2009]
All ER(D) 144. The construction of clause 11.4 was not in issue.
Dalkia v Celtech: note 21.
84
VAT) of about 14,000,000 (ex VAT) payable over the term; and
350.4. the alleged breach was a failure to pay three monthly instalments
unpaid. The third instalment had only just become due and
Dalkia had been willing to postpone payment of it for a month.
The non-payment of that instalment, taken on its own, was,
therefore, of less significance than the non payment of the other
two. At the same time this instalment was the third of a series
and there was nothing to suggest that it had any better prospect of
being paid than its predecessors. ...
351.2. The sums involved were neither trivial nor minimal. ... the
Celtech. It would have the consequences that Celtech would have to pay
a sum representing the capital value of the plant, the commercial impact
of which would depend on whether it was able to obtain refinance.
However it would, on payment, be entitled to keep the plant. Whilst this
was a serious consequence it was not draconian. Moreover in relation to
the question of material breach the primary focus must be on the
character of the breach rather than the consequences to the guilty party
if the innocent party avails himself of his contractual remedy.
189
85
the contract in certain specific situations. These situations will often, but
not invariably, involve a breach of contract by the other party.
354. For example, section 8 of the 2011 JCT Standard Form of Building
principles to be applied:
1.
190
191
192
Standard Form of Building Contract, 2011 edition, The Joint Contracts Tribunal Ltd.
See also John Jarvis Ltd v Rockdale Housing Association (1987) 36 BLR 48, 10 Con
LR 51, (1987) 3 Const LJ 24 (CA).
Hill v Camden, note 87.
86
2.
3.
4.
5.
6.
following default by the employer and clause 8.12 sets out the
consequences of such termination.
The principles
363. What is the position of the innocent party if the defaulting party is guilty
193
194
Reinwood Ltd v L Brown & Sons Ltd [2007] BLR 10 (TCC), para 39.
Ferrara Quay Ltd v Carillion Construction Ltd [2009] BLR 367 (TCC).
87
365. However, the decision of whether to affirm the contract or to accept the
repudiatory breach is not an easy one and the courts have recognised that
the innocent party is entitled to a period of time for considering its
position.
366. This was made clear by Rix LJ in Stocznia Gdanska v Latvian Shipping:
and thus end any continuing right to elect to accept the former
repudiation as terminating the contract. Whether the innocent
party wishes to terminate at common law or under the contract,
the validity of the decision to bring the contract to an end will
be judged at the date of acceptance or the date of decision.
368. Unfortunately, the question of how long the innocent party has to decide
concerned is aware of the facts giving rise to its right and the
right itself.
369.2. The innocent party has to make a decision, because if it does not
do so then the time may come when the law takes the decision
out if [its] hands, either by holding [it] to have elected not to
195
196
88
There is no easy way to determine how long the innocent party has as
the issue is highly fact sensitive. The innocent party will (usually) be
found to have elected to affirm the contract if:
370.1. it knows (or has obvious means of knowing) of the facts giving
implied) to the other party that it will not exercise its strict legal
rights to treat the contract as repudiated. Such a representation
will be found if the innocent party has acted in a manner that is
consistent only with its having chosen to affirm the contract.
371. Once communicated affirmation is irrevocable. The innocent party is
Reinwood v Brown
372. In Reinwood v Brown, the contract was in the form of a JCT Standard
provided:
28.2.1 If the Employer shall make default in any one or more of
the following respects:
1.1 he does not pay by the final date for payment the
amount properly due to the Contractor in respect of any
197
198
89
If ...
- the Contractor does not give the further notice referred to
in clause 28.2.3 and
- the Employer repeats (whether previously repeated or
not) a specified default ...
and a further notice of default in January 2006, which was not valid.
375. The contractor then served a notice of determination in July 2006. The
contractor had waived its right to rely on the first notice of default
because:
376.1. in January 2006, it had served a second notice of default rather
default.
377. The Court of Appeal held:
377.1. The service of a valid notice of default in January 2006 would
not have entailed the waiver of the May 2005 notice of default.
There was nothing in the service of a second valid notice of
default that was inconsistent with continued reliance on the first
notice of default.
199
90
2.
Non-waiver clauses
378. In Tele2 v Post Office, the Court of Appeal was required to consider the
200
201
91
3.
380. There is the risk of getting it wrong. If the innocent party accepts what
and/or other events that may give rise to the right to terminate:
381.1. Be prepared to act quickly. You and your clients only have a
Do not rely on
uncommunicated reservations of rights to protect your clients
position. And
381.3. Make sure that everyone who is involved with the day-to-day
F.
202
203
92
383. For example, any instalments of the price which have been paid or
which were due prior to the date of termination will be retained or can
be claimed by the receiving party, even if that party is the defaulting
party.
384. In the construction context, this means that an employer who has
contract and this will include any loss of profit on the contract,
calculated in the usual way.
386. The innocent party can also elect to claim loss of wasted expenditure,
to a shop for a total contract sum of 32,000.205 Before the work was
completed, and after having been paid 26,000, Ferguson repudiated the
contract and this was accepted by Sohl. Sohl was able to complete the
works for less than the 6,000 left under the contract with Ferguson.
However, Sohl claimed against Ferguson in breach of contract and for
restitution for total failure of consideration.
388. The Court of Appeal held that Sohl had suffered no loss so that his
Andrew Robb, Jess Connors and Patrick Hennessey and the Society of
Construction Law 2014
The views expressed by the authors in this paper are theirs alone, and do not
necessarily represent the views of the Society of Construction Law or the editors.
Neither the authors, the Society, nor the editors can accept any liability in respect of
any use to which this paper or any information or views expressed in it may be put,
whether arising through negligence or otherwise.
204
205
Anglia Television Ltd v Reed [1972] 1 QB 60, [1971] 3 WLR 528, [1971] 3 All ER 690
(CA).
DO Ferguson Associates v Sohl (1992) 62 BLR 95 (CA).
93
MEMBERSHIP/ADMINISTRATION ENQUIRIES
Jill Ward
234 Ashby Road,
Hinkley, Leics LE10 1SW
tel: 07730 474074
e-mail: admin@scl.org.uk
website: www.scl.org.uk
94