In Vinergy International (PVT) Limited v Richmond Mercantile Limited FZC (2016) the Court considered to what extent parties exercising their common law right to terminate for repudiatory breach are able to circumvent contractual termination provisions, which in this case required that notice and a cure period be given by the terminating party. The court held that the common law right to terminate will only be subject to contractual notice/cure provisions where the situation is one that falls squarely within such termination provisions; in the absence of this, the court will not imply an agreement that the terminating party must follow the contractual termination requirements.
In August 2008, the parties entered into a Master Supply Agreement whereby Richmond Mercantile Limited FZC ("Richmond"), the Respondent, agreed to supply bitumen to Vinergy International (PVT) Limited ("Vinergy"), the Appellant, for an extendable term of 10 years (the "Agreement").
39 shipments took place; however, following disputes between the parties, Richmond terminated the Agreement on 20 July 2012, alleging that Vinergy had committed three repudiatory breaches, namely:
- secretly contracting with another supplier in breach of the Agreement which required Vinergy to purchase all bitumen for the Indian market exclusively from Richmond;
- failure to pay the 2010-2011 invoice dated 9 July 2011 for almost a year; and
- failure to pay demurrage for certain shipments.
Clause 17.1.1 of the Agreement allowed either party to terminate immediately upon "failure of the other party to observe any of the terms herein" provided that, for breaches capable of being remedied, a cure period (of at least 20 days) had been given by the aggrieved party. Despite this requirement, Richmond gave no such notice arguing that: (a) their common law right to terminate the Agreement for repudiatory breach was not limited by clause 17.1.1; and (b) in any event, clause 17.1.1 only applied to breaches capable of remedy. Vinergy argued that Richmond should have terminated in accordance with clause 17.1.1 and that, as such, the termination was unlawful, amounting itself to a repudiatory breach.
The issue was first considered by the arbitration tribunal which found, in favour of Richmond, that the Agreement had been lawfully terminated. Vinergy appealed to the High Court where Teare J considered "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."
The High Court upheld the decision of the arbitration tribunal holding that clause 17.1.1 did not apply where an innocent party was seeking "to exercise his right at common law to accept a repudiatory breach as terminating [the Agreement]". Further, Teare J noted that, even if he was wrong in this view, clause 17.1.1 was only relevant in respect of breaches capable of being remedied, with the arbitration tribunal having already held that the breach of the exclusivity clause was incapable of remedy.
In reaching the decision, the High Court considered the case of Lockwood Builders v Rickwood (1995) in which it was held that a party seeking to terminate a building contract by reason of repudiatory breach should have followed the termination procedure contained in the contract and thereby given notice. Teare J, however, referred to the fact that, unlike in the present case, the breach in Lockwood fell squarely within the termination provision. Indeed the Court of Appeal suggested in Stocznia Gydinia SA v Gearbulk Holdings Ltd (2010), that Lockwood should not be be taken as laying down a general principle, emphasising that "all will turn on the language of the clause in question understood in the context of the contract as a whole and its commercial background".
Teare J highlighted that nothing in clause 17.1.1 expressly referred to the right of a party to accept a repudiatory breach as terminating the Agreement and so, it was necessary to question "whether one can imply in clause 17.1.1 an agreement that before a party terminates…pursuant to the common law the party must follow the procedure laid down in clause 17.1.1 of giving notice to remedy within a period of time not less than 20 days."
Teare J concluded that such an agreement could not be implied for two reasons:
- clause 17.1.1 made no mention of the common law right to accept a repudiatory breach as terminating the Agreement; rather the express right to terminate provided by the clause was stated to be dependent upon the "failure to observe any of the terms herein"; and
- clause 17.1.1 was but one of six contractual rights to terminate contained in clause 17, with the requirement to give notice to remedy not applying to the other five. As such, it could be inferred from clause 17 "that the procedure in clause 17.1.1 was intended to apply only to the specific right to terminate found in clause 17.1.1…and not to any of the other express rights to terminate in clause 17 or to the right at common law to accept a repudiatory breach as terminating the contract."
Having set clause 17.1.1 in its context, the High Court held that the arbitration tribunal was correct in its decision and that Richmond had terminated the Agreement lawfully; they were not required to give Vinergy notice or an opportunity to cure the breach. Additionally, Teare J stated that if, contrary to his view, Lockwood did "express a principle which applies to this case…that a clause requiring notice to remedy applies to breaches within the scope of the clause…breaches within the scope of clause 17.1.1 are breaches which are capable of remedy" and whilst the second and third breaches were remediable (failure to pay an invoice and failure to pay demurrage) the first breach (acting outside of the exclusivity provisions) was not.
This case makes clear that parties wishing to override or restrict the common law right to terminate an agreement based on repudiatory breach should ensure that clear and careful drafting to this effect is included in their agreements. Failure to do so could result in parties being able to circumvent any notice/cure provisions contained in an agreement, the Vinergy case demonstrating the court's reluctance to restrict the common law right in the absence of clear and unequivocal wording.