The High Court has found that a notice requirement within a contractual termination clause did not apply where a party terminated at common law following the counterparty's repudiatory breach of contract: Vinergy International (PVT) Limited v Richmond Mercantile Limited FZC [2016] EWHC 525 (Comm).

The decision may give some comfort to those who wish to terminate a contract for repudiatory breach, without following any procedural requirements that might apply if they were to terminate under an express contractual right.

However, as it is a matter of interpretation of the relevant contractual provisions, each case will turn on its facts and it would be dangerous to assume that the same conclusion will be reached in every case. In some cases, a court might conclude that the procedural requirements apply equally where a breach falls within the scope of the termination clause and would also amount to a repudiatory breach at common law. Gregg Rowan considers the decision further below.

Background

The Appellant (Vinergy) entered into an agreement with the Respondent (Richmond) for the supply of bitumen for an extendable period of 10 years. The contract provided that either party could terminate the agreement immediately upon the other party's failure to observe any of the terms of the agreement "and to remedy the same where it is capable of being remedied within the period specified in the notice … calling for remedy, being a period not less than twenty (20) days" (clause 17.1.1).

Richmond supplied 39 shipments to Vinergy before disputes developed resulting in Richmond terminating the agreement and commencing arbitration proceedings.

The arbitration tribunal found that Vinergy had committed three repudiatory breaches of contract: 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. The tribunal held that Richmond had lawfully terminated the contract and awarded Richmond damages.

Vinergy appealed against this decision on various points of law, including whether Richmond was able to rely on its common law right to terminate for Vinergy's repudiatory breach, so as to bypass the notice and remedy requirements within the contract.

Decision

The Commercial Court (Teare J) dismissed the appeal. Clause 17.1.1 did not expressly apply to the parties' common law right to accept a repudiatory breach as terminating the agreement. The question was whether one could imply in clause 17.1.1 an agreement that the procedure laid down in that clause had to be followed before a party could terminate whether pursuant to clause 17.1.1 or pursuant to the common law.

The court concluded that such an agreement could not be implied. The judge noted that clause 17 as a whole provided six contractual rights to terminate, including for example the right to terminate on the counterparty's insolvency.  As such, 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 (a breach which was capable of remedy) and not 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.

Teare J said there was a limit to the assistance that could be gained from the authorities to which he was referred, as they involved differently expressed terms. However, he noted that in Lockland Builders v Rickwood [1995] 46 Con LR 92 the Court of Appeal accepted that while notice of breach was required in respect of breaches that fell within the scope of the clause in question, notice of breach would not have been required in respect of a repudiatory breach. Similarly, in the more recent case of BSkyB v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC) (see post), Ramsey J drew a distinction between repudiatory breaches, to which the notice requirement did not apply, and material breaches within the scope of the relevant clause.

The court went on to consider the position if, contrary to the court's view, the 20 day notice period did apply to repudiatory breaches which fell within the scope of the clause – ie breaches which were capable of remedy. This would not make any difference to the court's conclusion, as the tribunal had held that one breach (the breach of the exclusivity provision) was not capable of remedy, and there was no appeal against that finding.