The High Court has stated that the finding in the NetTV case, that a deliberate repudiatory breach of contract creates a rebuttable presumption that an exclusion clause should not apply to limit liability associated with the breach, was “wrong on the modern authorities”.
Although the comments of Mr Justice Flaux J in AstraZeneca UK Limited v Albemarte International Corporation and Albemarte Corporation1 were obiter, it once again raises the question of whether businesses should re-evaluate their exclusion clauses.
In Internet Broadcasting Corporation Ltd (NetTV) v MAR LLC (MARHedge)2 (see our August 2009 Update here), Gabriel Moss QC held that an exclusion clause should not apply to a deliberate personal repudiatory breach of contract. The judge stated that such a presumption would only be rebutted by a clause with “clear” and “strong” language to this effect.
In AstraZeneca, the claimant (AstraZeneca) sued the defendant (Albemarte) for declining to fulfil two orders to supply a substance known as “DIP” (which would be distilled to produce propofol, an anaesthetic) in breach of contract. Albemarte’s basis for this refusal to supply was the alleged breach by AstraZeneca of a separate clause in the supply agreement giving Albemarte the right of first refusal should AstraZeneca decide to cease distilling DIP and instead purchase propofol directly from a supplier.
The supply contract also contained an exclusion clause, limiting liability to the purchase price of a particular order and excluding liability for “loss of profits or incidental or consequential damages”.
Flaux J held that:
- AstraZeneca had breached the requirement to give Albemarte the right of first refusal when reaching agreement to enter into a supply contract with a third party. The exclusion clause could be interpreted as not applicable to this breach, as on one construction of the wording, the clause did not apply to AstraZeneca. The alternative construction would class the “right of first refusal” clause as merely a “statement of intention” by the parties rather than a contractual obligation, an outcome which the court should endeavour to avoid.3
- Albemarte’s refusal to supply, although a repudiatory breach, had been taken on the basis of US legal advice that it was acting within its contractual rights and was therefore not “deliberate”.
- Most importantly, Flaux J went on to consider the position if there had been a deliberate personal repudiatory breach. Flaux J stated that NetTV was “wrong on the modern authorities and effectively seeks to revive the doctrine of fundamental breach, albeit under the guise of “deliberate repudiatory breach”. The doctrine of “fundamental breach” has previously been dismissed by the House of Lords4.
Exclusion clauses amended after the NetTV decision should be reconsidered, as references to “deliberate fundamental breach” may now be deemed inappropriate.