QUEEN'S BENCH DIVISION
COMMERCIAL COURT
B e f o r e :
(Sitting as a Deputy High Court Judge)
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COMAU UK LIMITED |
Claimants |
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- and - |
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LOTUS LIGHTWEIGHT STRUCTURES LIMITED |
Defendants |
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MR. MATTHEW LAVY (instructed by Olswang LLP) for the Defendant
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Crown Copyright ©
Introduction
The Agreement and events following
"12.TERM AND TERMINATION12.1 This Contract shall commence on the Effective Date and shall (subject to the provisions of this Contract) continue in force unless and until terminated in accordance with this Clause 12.
12.2 This Contract may be terminated by either Party giving the other not less than 12 months notice in writing.
12.3 Either Party may terminate this Contract forthwith by notice in writing to the other Party if:
12.3.1 the other Party commits any material breach of any condition of this Contract and fails to remedy the same (assuming that the breach is capable of remedy) within thirty (30) days of service of a written notice by the non-defaulting Party specifying the breach and requiring it to be remedied ……
12.4 …
12.5 In addition to any other rights of Lotus to terminate the Contract Lotus may, at its option, and provided it is not then in breach of any payment obligation to [Comau] under the Contract immediately terminate the whole of the Contract but not only part at any time and for any reason, by giving written notice to [Comau]. Upon such termination … Lotus' sole liability to [Comau] shall be, subject to Clause 12.7, to pay to [Comau] the aggregate of the following amounts without duplication:
12.5.1 the part of the Price attributable to all Goods or Services which have been completed in accordance with the Contract and not previously paid for provided that the property in such goods shall pass to Lotus upon such payment; and12.5.2 the whole of the cost to [Comau] of work-in-progress and raw materials as at the date of termination together with [Comau's] margin on the same and costs which [Comau] has committed itself to incur (before or after the date of termination) in furnishing the Goods or Services under this Contract and/or having out itself in a position to comply with the Detailed Timing Plan and12.5.3 any and all additional costs reasonably incurred by [Comau] as a result of termination under clause 12.5 … which shall include but not limited to the termination of sub-contracts entered into by and between [Comau] and its sub-contractors, and material and equipment kept in stock, and12.5.4 the cost to [Comau] of its on Site and/or project specific labour for a period of 30 days following termination but not longer, and12.5.5 payment of any portion of the Price due and unpaid by Lotus to [Comau] under the Contractprovided that the margin to which [Comau] shall be entitled as referred to in clause 12.5.2 shall equate to the same percentage margin which [Comau] can show on an accountancy basis it had (on the date of this Contract) anticipated earning in the performance of its obligations under the Contract as reflected in the Price at such date.12.6 …
12.7 In respect of the sums which may become payable by Lotus to [Comau] pursuant to Clause 12.5, [Comau] agrees to use reasonable endeavours to mitigate the exposure of Lotus to pay such sums to [Comau] which mitigation shall include but not be limited to
12.7.1 disposing of or redeploying surplus material acquired in relation to the Goods or Services at such prices or values as may be reasonably available on the UK market, and12.7.2 promptly informing its subcontractors and suppliers to stop work and cease to incur additional costs, and12.7.3 negotiating such settlement with its suppliers as may result in any material saving."
"Dear SirLotus Lightweight Structures Limited ("Lotus")
Project Fuji – Contract number 025720 ("the Contract")
Notice of Material Breach of Contract
We refer to our notice dated 14 February 2012, to our meeting in Hethel with yourselves on 22 March 2012 and to the email from Andrew Lloyd to David Hewitt dated 3 July 2012.
Performance of the Contract was suspended by notice dated 14 February 2012 pursuant to clause 5.9 of the Contract due to the non-payment by Lotus of invoices E/11231 and E/11230.
Invoice E/11230 has since been paid.
Invoice E/11231 (copy attached) remains unpaid.
Pursuant to clause 5.2 of the Contract, the Specification and the Payment Schedule, Invoice E/11231 was due for payment on 30 December 2011.
Lotus's failure to pay invoice E/11231 amounts to a material breach of the Contract.
Please accept this letter as our written notice pursuant to clause 12.3.1, specifying that Lotus is in material breach of the Contract and requiring this breach to be remedied within 30 days.
In order to remedy this material breach, Lotus must:
1. Pay invoice E/11231 in the amount of £488,435.30;2. Pay interest (calculated at 4 per cent above the Bank of England Base Rate pursuant to clause 5.8 of the Contract) in the amount of £14,231.85 as at the date of this letter and increasing at the rate of £60.05 per day.The total outstanding is therefore £502,667.15.
Payment of the total outstanding sum should be made to the following account:
[Bank details were set out]
If the above total sum is not provided within 30 days of the date of this notice, we shall terminate the contract pursuant to clause 12.3 and commence action against Lotus without further notice to recover all costs and losses incurred as a result of the breach and termination.
In addition to the outstanding payment, we require the technical information and data necessary to perform our contractual activities pursuant to clause 9.3 of the Contract along with Lotus's authority to proceed on the basis of the information provided.
Finally, we reserve our right to recover those costs and losses incurred by us as a result of Lotus's breach and the resulting suspension of services.
We look forward to receipt of the above payment within 30 days of this letter.
All our rights remain reserved.
Yours faithfully"
The Claim and the Application
Liability
"(a) Equity, before the Judicature Acts, insisted that prima facie time for payment was not essential. But equity's patience was exhaustible. It would allow the contract to be treated as repudiated if the party in default had been given the opportunity to mend his ways by the giving of a notice to comply within a reasonable time. Whilst this is described as making time of the essence in reality the notice is the means of bringing to an end equity's interference with the contract: Behzadi v Shaftesbury Hotels Ltd [1992] Ch 1;(b) Such a notice, which may be given in respect of any species of term, may not be served until the time for performance has expired; but it may be served as soon as that time arrives;
(c) Such a notice must state clearly what the other party is required to do and the consequence if he fails ie that the contract may be terminated; Afovos Shipping Co SA v R Pagnan and Flli (The Afovos) [1982] I Lloyd's Rep562, 565 col 2' [1882] 1 WLR 848, 854C;
(d) If the defaulting party fails to perform after service of such a notice, the failure is not automatically a repudiation of the contract, giving rise to a right to terminate. The breach must go to the root of the contract;
(e) The notice operates as evidence of the date by which the promisee considers it reasonable to require the contract to be performed, failure to perform by which is evidence of an intention not to perform: see Lord Simon of Glaisdale in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, 946E-947A; Astra (UK) Ltd v Time Group Ltd [2003] EWHC 725 (TCC) para 147."
(a) Read closely the letter dated 24 August 2012 concerns one of the several routes available under the terms of the Agreement towards contractual termination, rather than termination following common law repudiation. When it referred to termination it was referring, alone, to contractual termination under Clause 12.3.(b) Lotus' silence in response does it no credit, but must be construed in the context of what the letter dated 24 August said and the fact that the Agreement remained in the interim condition of suspension.
(c) As circumstances, the previous late payment and additional part payment are consistent with an intention to perform rather than evidence of intention not to do so.
(d) The percentages invoiced or paid as a proportion of the total contract price paid leave out of account the point that by reason of Clause 12.5 the total contract price might be a great deal less; a subject to which I return below.
(e) The period of suspension since the letter dated 24 August 2012 was 7 weeks, and in context that is a comparatively modest period of continuation of the suspension.
(f) It was open to Comau to send a further letter making quite clear that it was proposing now to rely on its rights at common law, and to that end that it was making time of the essence and that it would treat continued unexplained failure to pay as in repudiatory breach. It did not do this.
Quantum
(a) The present appears to be in the class of case in which the defendant's contractual obligations might have been lawfully performed in different ways.(b) Accordingly the approach considered by the Court of Appeal in Durham Tees Valley Airport Ltd v BMI Baby Ltd. [2011] 1 All ER (Comm) 731 at [79], cited by Comau, is probably not in point. Patten LJ was there concerned with the question of what level of performance is to be assumed in the assessment of damages in the context of a contract which imposed a single obligation that did not specify any particular level of performance (e.g. number of aircraft movements).
(c) Rather, the present case appears to fall for analysis in accordance with the reasoning of Atkin LJ in Abrahams v Herbert Reiach Ltd [1922] 1 KB 477 at 483:
"[i]f a merchant makes a contract to deliver goods to a shipowner to be carried by him for reward, and the merchant fails to provide the goods, the Court must first find what is the contract which has been broken; and if it was to carry the goods to one of two alternative ports at different distances from the port of loading at rates of freight differing according to the distance, the only contract on which the shipowner can sue is a contract for carriage to the nearer port. The plaintiff cannot prove a contract for performance of the more onerous obligation. This explains why in cases of this kind the Court regards only the lesser of two alternative obligations."(d) Comau's contractual expectation interest accordingly appears to be limited to such profit as it might have made until such time as Lotus chose to "terminate for convenience" under Clause 12.5.
(e) It appears that Comau's loss is be assessed on the basis that but for its breach Lotus would have availed itself of clause 12.5 to reduce its liability to Comau. In point is this passage from Chitty on Contracts 31st edition Vol 1 at 26-074:
"If the defendant fails to perform, when he had an option to perform the contract in one of several ways, damages are assessed on the basis that he would have performed in the way which would have benefited him most, e.g. at the least cost to himself… A similar situation arises where the contract-breaker had an option to terminate the contract: if the claimant accepts the anticipatory breach of the defendant as a ground for terminating the contract, but the defendant could have exercised his option to terminate the contract so as to extinguish or reduce the loss caused by the anticipatory breach, the court will assess the damages for breach on the assumption that the defendant would have exercised the option"See also Lord Denning MR in The Mihalis Angelos [1971] 1 QB 164 at 196G-197A.
(f) The fact, to which Mr Allen draws attention, that Lotus was only entitled to invoke clause 12.5 if it was not in breach, does not appear to be relevant because the assessment looks at what Lotus would do if there had not been a breach.
(g) It appears that any assessment of damages would proceed on the assumption that Lotus would have exercised its rights under clause 12.5, because any other assumption ignores the limited nature of Comau's "expectation interest" – that Comau was never entitled to profits on the whole of the goods and services to be supplied pursuant to the Agreement but was only ever entitled to such profit as it might have gained prior to any "termination for convenience". If the effect of clause 12.5 is ignored when assessing damages, the effect would be to give Comau the benefit of a better bargain than it actually made.
(h) In light of what has happened it appears that Comau will not be awarded more than nominal damages even if it does establish liability.
Conclusion