The High Court has held that there is no general principle that a contractual termination clause applies to a party terminating for repudiatory breach at common law.
In the case of Vinergy International (PVT) Ltd v Richmond Mercantile Limited FZC [2016] EWHC 525 (Comm), Richmond Mercantile FZC ("Richmond"), entered into an agreement to supply bitumen to Vinergy International (PVT) Limited ("Vinergy"). The contract contained the following termination clause:
"Clause 17.1.1. Either party may terminate this Agreement immediately upon: (i) failure of the other party to observe any of the terms herein and to remedy the same where it is capable of being remedied within the period specified in the notice given by the aggrieved party to the party in default, calling for remedy, being a period not less than twenty (20) days"
Richmond purported to terminate for repudiatory breaches by Vinergy, namely: a breach of the exclusivity provision; delaying payment of an invoice for almost a year; and a failure to pay demurrage for 2 of the 39 shipments completed. Vinergy argued that Richmond's failure to give it an opportunity to remedy the alleged breaches in accordance with the termination clause was unlawful and itself amounted to a repudiatory breach. Following an arbitration decision that the termination was valid, Vinergy appealed.
Mr Justice Teare summarised the question before the Court as being whether Richmond was able to rely on an unhindered common law right to terminate the agreement by reason of a repudiatory breach so as to completely bypass the notice and remedy requirements in the termination clause.
Decision
Mr Justice Teare rejected Vinergy's argument that, where a contract provided for notice to be given as part of a contractual termination procedure, that notice requirement would always also apply when a party sought to terminate at common law. The Court held that it was a matter of construction whether a clause requiring notice and a remedy period applied to a party terminating at common law for a repudiatory breach. The Court decided that the termination provisions at clause 17.1.1 did not expressly apply to a repudiatory breach at common law and that a term to this effect should not be implied.
The inference from the clause was that the 20 day notice period only applied to the specific right to terminate under clause 17.1.1 (breaches capable of remedy) and did not apply to any other express rights to terminate under clause 17, nor to the common law right to accept a repudiatory breach of contract as terminating the contract. The arbitration tribunal had already ruled that the exclusivity breach was not remediable and therefore the terminating party was entitled to rely on the breach to justify termination without first giving notice and a chance to remedy the breach.
Comment
This decision does not lay down any new principles or tests, but it does emphasise the importance of ensuring that the wording of any termination provisions is carefully drafted. If the parties do want notice and remedy periods set out in the contract to apply to repudiatory breaches at common law, they should include an express term to this effect.
This decision also raises the practical question of whether, when purporting to terminate under common law rights, a party should comply with any notice and remedy period that applies when terminating the contract under the contract's termination provisions. The cautious approach would be to comply with the contractual termination provisions. However, in some circumstances, the damages which are available to the terminating party will differ depending on whether the contract is terminated under the contract or under the common law. The terminating party may therefore need to take care to be clear that it is exercising its common law termination rights (as opposed to its contractual termination rights), notwithstanding that it is complying with the notice requirements set out in the contract.
