Autumn 2023 Editor: Melanie Willems IN THIS ISSUE A prophet on profits? When will attempts to evade the operation of exclusion clauses covering loss of profits be successful? by Jack Spence 03 09 12 ‘Better late than never’ – Saving defective termination notices by Ryan Deane THE ARBITER AUTUMN 2023 2 Unravelling the threads—When can judgments be set aside for fraud? by Markus Esly THE ARBITER AUTUMN 2023 3 Unravelling the threads—When can judgments be set aside for fraud? by Markus Esly In Finzi v Jamaican Redevelopment FoundaƟon Inc (Jamaica)  UKPC 29, the Judicial CommiƩee of the Privy Council recently reviewed the principles of English law that govern when a party can set aside a judgment (or arbitral award) as having been obtained by fraud, and to what extent ‘fresh evidence’ of fraud is required. In so doing, their Lordships took a different approach than the English Court of Appeal had advocated in another recent decision (Park v CNH Industrial Capital Europe Ltd (t/a CNH Capital)  EWCA Civ 1766). The Privy Council concluded that the Court of Appeal had read too much into statements made obiter by Lord SumpƟon in a Supreme Court decision on the same issue (Takhar v Gracefield Developments Ltd  UKSC 13), and imposed a more stringent test to determine whether a claimant could sƟll challenge a judgment as procured through fraud when the relevant evidence was already available at the Ɵme of the original trial. In addiƟon to providing a full and thoughƞul review of the authoriƟes, Finzi also offers a good reminder of the funcƟon that the Privy Council plays. Decisions by the Privy Council are binding on all Commonwealth states which conƟnue to allow an appeal to this English judicial body from their own, naƟonal, tribunal of final instance. Privy Council rulings are not, however, binding on the English Courts themselves, being only of ‘persuasive authority’. The importance of that ‘persuasive authority’ is not, however, to be underesƟmated. The members of the Privy Council’s Judicial CommiƩee tend to be the JusƟces of the Supreme Court, and they will not shy away from commenƟng frankly on decisions made by all levels of the English Courts – including the Supreme Court. Fraud unravels all? The suggesƟon that a party who suffers an adverse judgment or arbitral award which has been procured by fraud should have no recourse against the party misleading the court or tribunal offends, it is suggested, basic noƟons of morality and jusƟce. Lord Denning famously said in Lazarus Estates Ltd v Beasley  1 All ER 341 that: “fraud is a thing apart. This is not a mere slogan. It also reflects an old legal rule that fraud unravels all … once fraud is proved, ‘it viƟates judgments, contracts and all transacƟons whatsoever” But that is not the only principle at play. To use Lord Brigg’s analogy in Takhar, this situaƟon is a bareknuckle fight between ‘fraud unravels all’ and, in the other corner, ‘there should be an end to liƟgaƟon’. This second principle is derived from the decision in Henderson v Henderson (1843) 3 Hare 100, where the Court held that “… a liƟgant should bring forward his whole case” in any proceedings, rather than keeping some aspect of it to himself, only to then vex the defendant with a second acƟon and in effect seeking to have a second bite at the cherry. The Henderson principle also reflects the fact of life that any judicial determinaƟon of a dispute, or findings on contested facts, may well be imperfect. The aim of legal proceedings is to provide (per Lord Wilberforce in The Ampthill Peerage  AC 547): “… the best and safest soluƟon ... and having reached that soluƟon it closes the book ... in the interest of peace, certainty and security it prevents further inquiry ... there are cases where the certainty of jusƟce prevails over the possibility of truth ... and these are cases where the law insists on finality. For a policy of closure to be compaƟble with jusƟce, it must be aƩended with safeguards: so the law allows appeals: so the law, excepƟonally, allows appeals out of Ɵme: so the law sƟll more excepƟonally allows judgments to be aƩacked on the ground of fraud.” Takhar v Gracefield Developments A full panel of seven Supreme Court JusƟces considered this clash of maxims in Takhar v Gracefield Developments Ltd. The case arose out of a family dispute over ownership and the proceeds of sale of properƟes that were sold aŌer renovaƟons. Ms Takhar iniƟally owned the properƟes but then transferred them to Gracefield Developments Limited, a company in which her cousin had an interest. Ms Takhar argued that she nevertheless retained beneficial ownership of the properƟes, but she lost at trial and was ordered to pay monies to her cousin’s benefit. 4 THE ARBITER AUTUMN 2023 In finding against Ms Takhar, the judge heavily relied on a profit share agreement which supported the cousin’s case as to how the monies were to be distributed. The evidence before the judge was that only the last page of the agreement bearing Ms Takhar’s signature could be found. That single signed page had been located in the files of the solicitors acƟng for the other side in the transacƟon that lay at the heart of the dispute. Ms Takhar could not explain how her signature came to be on that page, and she did not (or could not) advance a case of forgery at trial. At the last minute before the trial was due to commence, Ms Takhar had applied for permission to adduce the evidence of a handwriƟng expert, but the judge refused this because the applicaƟon had been made too late. When Ms Takhar took the stand, she was unable to say that the signature was not hers, but her evidence was that she could not say how it had ended up on the relevant page. The judge, who preferred the evidence of Ms Takhar’s cousin in any event, concluded that Ms Takhar must have taken away a copy of the agreement to sign, returned it signed to the cousin’s solicitors, who then misfiled it or lost the other pages of the signed copy. He went on to hold that even though the properƟes were transferred by Ms Takhar into the name of the Gracefield company before Ms Takhar signed the agreement, that transfer had been made on the terms that were subsequently recorded in the agreement. AŌer the trial, Ms Takhar fired her solicitors. Her new legal team procured a report by a handwriƟng expert who concluded that the signature on the agreement had been transposed from and was idenƟcal to Ms Takhar’s signature on an earlier leƩer sent to the same firm of solicitors (a leƩer which the cousin presumably had a copy of). Armed with this new evidence, Ms Takhar commenced a fraud claim against her cousin, and sought to have the first judgment against her set aside. Her cousin applied to have that second claim struck out as an abuse of process, arguing that Ms Takhar had been in a posiƟon to make any such fraud claim at the original trial, but had just leŌ it too late. At first instance, Newey J disagreed and held that Ms Takhar’s claim was not an abuse of process. He found that a party who seeks to set aside a judgment on the basis that it was obtained by fraud did not have to demonstrate that she could not have discovered the fraud by the exercise of reasonable diligence. Ms Takhar’s cousin appealed. The Court of Appeal allowed that appeal, finding that there was in fact such a requirement of due diligence. The Court of Appeal held that the judge had erred as a maƩer of law, since the House of Lords had already determined the point in an earlier decision, Owens Bank Ltd v Bracco  2 AC 443. There, Lord Bridge had held that: “… the unsuccessful party who has been sued to judgment is not permiƩed to challenge that judgment on the ground that it was obtained by fraud unless he is able to prove that fraud by fresh evidence which was not available to him and could not have been discovered with reasonable diligence before the judgment was delivered.” Now it was Ms Takhar’s turn to appeal to the Supreme Court on a point of law of public importance. Seven JusƟces unanimously found that there was aŌer all no due diligence requirement, and that there were overwhelming policy consideraƟons in favour of allowing a challenge to a judgment where the issue of fraud had not already been canvassed and decided in the original proceedings - as it had not been in Ms Takhar’s case – her handwriƟng report was ‘new’ or ‘fresh’ evidence of fraud. Lord Kerr concluded that the judge had correctly idenƟfied the crux of the maƩer when he had described the consequences of leƫng a fraudulent judgment stand in stark terms: “Supposing that a party to a case in which judgment had been given against him could show that his opponent had obtained the judgment enƟrely on the strength of, say, concocted documentaƟon and perjured evidence, it would strike me as wrong if he could not challenge the judgment even if the fraud could reasonably have been discovered. Were it impossible to impugn the judgment, the winner could presumably have been sent to prison for his fraudulent conduct and yet able to enforce the judgment he had procured by means of it: the judgment could sƟll, in effect, be used to further the fraud.” Lord SumpƟon’s proviso One might think that a unanimous decision by the full Supreme Court ought to have seƩled the law. However, Lord SumpƟon in his judgment arrived at the same conclusion by somewhat different reasoning. He referred to the general basis on which transacƟons and judgments can be set aside, namely that a reasonable person is enƟtled to assume that their counterparty acts honestly and is “… not expected to conduct himself or his affairs on the fooƟng that other persons are dishonest unless he knows that they are.” Since the law does not expect reasonable people to be on the look- THE ARBITER AUTUMN 2023 5 out for fraud, contributory negligence is not a defence in a fraud claim, and the fraudster cannot say that the vicƟm was negligent or foolish to allow themselves to be taken in. Lord SumpƟon did, however, add a proviso (emphasis added): “If decisive new evidence is deployed to establish the fraud, an acƟon to set aside the judgment will lie irrespecƟve of whether it could reasonably have been deployed on the earlier occasion unless a deliberate decision was then taken not to invesƟgate or rely on the material” It was this suggesƟon that a claimant might nevertheless be prevented from seƫng aside a judgment where there had been a deliberate decision not to rely on fraud (as opposed to a failure to exercise reasonable diligence to discover a fraud) which conƟnued to trouble the courts. The general test Before looking at the next case in the line leading up to the Privy Council’s decision in Finzi, it should be recalled that a judgment cannot be set aside by just poinƟng to fraud generally. In Takhar, the Supreme Court confirmed that a claimant had to meet the following test before a judgment would be set aside: There must have been ‘conscious and deliberate dishonesty’ in relaƟon to evidence given, acƟons taken, statements made, or maƩers concealed which are relevant to the first judgment that is to be set aside. Such dishonesty must have been material. The claimant has to show with fresh evidence that the dishonest maƩers (e.g. the previous evidence) were an operaƟve cause of the first court giving judgment. The fresh evidence has to show that the first court would enƟrely have changed the way in which it approached and came to its decision. The focus is on the impact of the dishonest evidence on the actual judgment, rather than on speculaƟng what the court would have found if there had been honest evidence before it. To illustrate this, Ms Takhar would say that the court would not have found that she agreed to a profit-sharing arrangement set out in an agreement that she had in fact never signed. Park v CNH Industrial Capital Europe Ltd Next, it was the Court of Appeal’s turn to overturn a judgment procured by fraud. Mr Park was a director of a company which he used to run his farming business. That company was Park Organics Farms Limited (“POFL”), registered number 06048475. Mr Park’s farm was called Park Hall Farm, and it was located in Lancashire. In 2013 and 2014, Mr Park entered into four hire purchase agreements with CNH, a finance company, for equipment for his farm. CNH prepared the agreements on their pro forma terms. Each of the forms was sent to Mr Park already filled in by someone at CNH, staƟng that the “The Hirer” was a “Limited company – NAME ONLY - Park Hall Farms Limited - trading as Park Hall Farms Limited.” Mr Park then signed the contracts as presented to him “for and on behalf of The Hirer” with the word “Director” wriƩen next to his own name. Mr Park also gave a personal guarantee, by which he guaranteed all monies owed to CNH by “Park Hall Farms Limited”. The guarantee gave a Companies House number of 03616349 for that company. A case of mistaken idenƟty It turned out that CNH had got the idenƟty of the counterparty completely wrong. No company called “Park Hall Farms Limited” in fact existed. The company number on the guarantee was for a different company, called Park Hall Farms Enterprises Limited, which had no connecƟon with Mr Park at all. That other company ran a farming business from an enƟrely different Park Hall Farm in Shropshire - not Lancashire, where the ‘real’ Mr Park was conducƟng his business. It was not POFL, Mr Park’s company. The Court of Appeal noted that due to CNH’s error, Mr Park was not personally liable for sums due to CNH under hire purchase agreements with a company that did not exist, and he had only signed a personal guarantee for debts that might be owed to CNH by some other company altogether which had no relaƟon to him (he had not guaranteed the monies that CNH sought to recover). Neither could CNH enforce the hire purchase agreements against the non-existent company. CNH would need to recƟfy these agreements somehow in order to correct their mistake, otherwise they would go unpaid. Mr Park fell into arrears. and CNH terminated two of the hire purchase agreements. Five months later, CNH sent a Mr Smith to visit Mr Park at the (correct) Park Hall Farm in Lancashire. Mr Park’s evidence was that Mr Smith arrived aŌer 10pm, aŌer Mr Park and his wife had reƟred for the night. Mr Smith had no prior appointment and admiƩed that he climbed over a locked gate to gain entry to the grounds of Park Hall Farm. Mr Smith had with him a document called a Deed of RecƟficaƟon which he presented and asked Mr Park to sign. Mr Park later tesƟfied in court that 6 THE ARBITER AUTUMN 2023 Mr Smith only showed him the last page (where he was to sign) and told him that the document was a formal release of any claims that Mr Park might have over the hired equipment, so that CNH could then sell the equipment and discharge (at least in part) the money that CNH considered Mr Park owed to it. What the Deed of RecƟficaƟon actually said, however, was that all the hire purchase agreements would be recƟfied so that the hirer would be, and had always intended by both parƟes to be, “John Andrew Park trading as Park Hall Farms Limited” – so Mr Park in his personal capacity. RecƟficaƟon of a contract is available where both parƟes had a common intenƟon or understanding that their wriƩen agreement then failed to reflect, and CNH’s Deed of RecƟficaƟon was draŌed as if that had been the case. Mr Park signed on the last page, presumably went back to bed, and awoke the next day facing the risk of personal liability. CNH eventually took Mr Park to court, claiming under the recƟfied agreements. In the ParƟculars of Claim, which were supported by a statement of truth, CNH said that “... The mistake was recƟfied by Deed of RecƟficaƟon … by which it was agreed that all references to [the non-existent Park Hall Farms company] … ” meant Mr Park personally, trading under his own name. Mr Park represented himself in these first proceedings by CNH. He filed a handwriƩen Defence, in which he only said that he did not clearly remember signing any ’indemnity’, and that this document had certainly not been explained to him. He then failed to file a witness statement in accordance with an unless order. Mr Park’s Defence was struck out and default judgment in CNH’s favour was entered. Mr Park ran out of remedies under the CPR to set aside this default judgment, and he eventually brought fresh proceedings on the basis that the default judgment had been obtained by fraud. That claim was struck out at first instance as an abuse of process. Careful when signing a Statement of Truth The Court of Appeal allowed Mr Park’s appeal against that decision. Andrews LJ agreed that even though this was a default judgment, given without hearing any argument or submission, CNH had deceived the Court. The decepƟon was found in the ParƟculars of Claim, which stated that the parƟes had agreed, as they had always intended, that CNH’s counterparty in the hire purchase agreements should be Mr Park. This had, the Court held, been untrue. Entering a default judgment is an administraƟve process, and “… necessarily involves the court trusƟng in the truth of representaƟons made in his ParƟculars of Claim which are material to his cause(s) of acƟon, which will not have been examined by a judge and tested at trial. Those representaƟons are forƟfied by the statement of truth indorsed on the ParƟculars of Claim.” The Court of Appeal did not accept CNH’s explanaƟon that they believed they had good grounds for recƟfying the agreements in the manner alleged, and then subsequently bringing a claim based on the Deed of RecƟficaƟon. CNH’s original mistake had been to insert the name of a non-existent limited company as counterparty in the hire purchase agreements. Mr Park had signed as a director on behalf of that enƟty – a legal nullity. CNH had also asked him for, and he had given, a personal guarantee for the liabiliƟes of a completely different company with which he had no connecƟon. It could not therefore have been CNH’s intenƟon that Mr Park was always meant to have been the counterparty, as a sole trader, and neither could it have been Mr Park’s intenƟon, because amidst all the confusion he signed only as a director and a guarantor. The Court of Appeal concluded that on CNH’s account, following terminaƟon of two contracts and at a Ɵme when Mr Park and CNH had already been in dispute, Mr Park would had to knowingly sign a document which quite wrongly said he was always going to be personally liable. CNH’s case assumed that Mr Park signed a document containing such a false statement, without raising any quesƟons or objecƟons, in circumstances where CNH also well knew that there had been no such ‘original intenƟon’. The Court of Appeal did not believe this, and noted that Mr Park had strong grounds for arguing that his signature on the Deed of RecƟficaƟon had been procured by fraud: “It is theoreƟcally possible for parƟes to enter into a contract on the basis that something which to their knowledge is untrue, is true, though one would expect there to be a very good reason why they would make such a bargain. In the unlikely event that they do enter into such an agreement, and do so with their eyes open, it will be valid and enforceable. In deciding whose evidence about this late-night encounter to accept, a judge would consider what possible moƟve Mr Park would have had in the circumstances for agreeing to take on a personal liability as the hirer, on the false basis that this was what the parƟes had always intended, even though he intended that POFL should have been the named hirer, and he knew that he never traded as a sole trader under THE ARBITER AUTUMN 2023 7 the name “Park Hall Farms” or any other name. No moƟve has yet been suggested by CNH.” Following in the footsteps of Lord SumpƟon Andrews LJ also found that the decepƟon relaƟng to the Deed of RecƟficaƟon was an operaƟve cause of the default judgment. The Deed of RecƟficaƟon was based on there being a common intenƟon that Mr Park should be liable personally, and there was not. Without this contract and the underlying common intenƟon, CNH had no claim against Mr Park (because the guarantee was never recƟfied). Turning to CNH’s allegaƟon that Mr Park’s case was an abuse of process, the Court of Appeal dismissed this, too. Andrews LJ relied on Lord SumpƟon’s statements in Takhar, noƟng that: “A person cannot take a deliberate decision not to rely on evidence of fraud, unless he is not only aware of that evidence, but knows that he can rely on it to plead fraud in answer to the case brought by his opponent.” She found that Lord SumpƟon’s proviso did not apply here. At the Ɵme Mr Park served his defence, he did not know the effect of the document he had signed late at night, and remained without legal representaƟon when he did so realise. Mr Park (represented by counsel) did try at the last minute to forestall the default judgment by an applicaƟon of relief from sancƟons, but this was dismissed and the default judgment was entered against him. The result was that the fraud allegaƟon was never adjudicated upon, and the evidence never tested. Finzi v Jamaican Redevelopment FoundaƟon Park v CNH was the latest decision at the English appellate level when the Privy Council came to decide Finzi v Jamaican Redevelopment FoundaƟon. Mr Finzi’s fight against the Jamaican Redevelopment FoundaƟon (“JRF”) began almost more than 20 years ago and led to numerous orders and judgments in the Jamaican Court – by and large all in JRF’s favour. The fight seemed to have come to an end with a seƩlement agreement signed in 2012. However, in 2017, Mr Finzi brough fresh proceedings alleging that a number of judgments against him, and the seƩlement agreement itself, had all been procured by fraud. Mr Finzi’s fraud case was seriously flawed in numerous ways which need not be set out in detail. It was duly thrown out as an abuse of process, but based on there being a ‘reasonable diligence’ requirement in Jamaican law, following the English Court of Appeal’s decision in Tahkar. As we have seen, the Supreme Court subsequently overturned that decision, holding that there was no such requirement in English law, save for Lord SumpƟon’s statements that a claimant who deliberately decided not to rely on evidence of fraud that was available to him would sƟll be precluded from raising it in the later proceedings. This change in English law gave Mr Finzi’s case a further lease of life, as it became necessary confirm precisely why it should be thrown out. Briefly, Mr Finzi’s original debt had been acquired by the Jamaican Financial Sector Adjustment Company (“FINSAC”). FINSAC was established in the 1990s when interest rates in the country were extremely high, and the financial market suffered from volaƟlity. FINSAC acquired a number of non-performing loans, including a loan that had been made to Mr Finzi personally. Later on, in 2002, FINSAC sold a loan porƞolio to JRF. At the heart of Mr Finzi’s fraud claim was an allegaƟon that when FINSAC sold his loans to JRF, he had already paid back one parƟcular secured loan by which Mr Finzi had purchased a property, but JRF dishonestly acted as if that debt was sƟll outstanding. He argued that JRF subsequently acted fraudulently when they enforced against that property, and he also accused them of deliberately charging interest that was not due, deliberately claiming US$ when the principal sums had been in Jamaican Dollars, and deliberately miscalculaƟng interest. Mr Finzi said that he received the informaƟon that now enabled him to advance that fraud claim as recently as 2011, when someone at FINSAC had wriƩen to him with a spreadsheet of all the various loans of Mr Finzi’s that FINSAC had sold to JRF. JRF argued that all Mr Finzi’s new claims amounted to an abuse of the process of the court. By the Ɵme the maƩer was heard before the Privy Council, counsel for JRF accepted that there was no requirement for Mr Finzi to have acted diligently in the original proceedings, but took the point that this was not fresh evidence. Mr Finzi’s counsel relied on Lord SumpƟon’s statements, claiming that the evidence was ‘fresh’, in the sense that it had not been deployed at any previous hearing, and the evidence was that Mr Finzi had not taken any ‘deliberate decision’ not to use the evidence. Mr Finzi’s counsel noted that the Court of Appeal in Park v CNH had approved Lord SumpƟon’s statements, so that this was now the law. 8 THE ARBITER AUTUMN 2023 Back to basics The Privy Council considered that while Park v CNH was correctly decided, their Lordships could not agree with the approach adopted by Andrews LJ – and Lord SumpƟon’s statements in Takhar could not bear the weight of authority that was being put on them. Lord LeggaƩ gave a useful reminder (which some readers might remember from their undergraduate law degree) of how one has to interpret common law decisions: “It is important not to lose sight of the basic tenets of common law reasoning that every judgment must be read in context, by reference to what was in issue in the case, and that it is only the raƟo of the decision which establishes a precedent and not obiter dicta. All too oŌen advocates treat the analysis of cases as if it were simply an exercise in looking at the language used by judges, forgeƫng that it is not parƟcular verbal formulaƟons that make the common law but the principles on which the actual decisions in cases are based.” When Takhar reached the Supreme Court, the only point of law to be decided was whether Ms Takhar was required to have acted with reasonable diligence in invesƟgaƟng and discovering the fraud. The quesƟon of whether a claimant could sƟll set aside a judgment based on evidence of fraud that he or she already had available to them had not been before the Supreme Court, and so Lord SumpƟon’s comments were a classic example of an obiter dictum. Lord SumpƟon’s statements scruƟnised Lord LeggaƩ however went to consider Lord SumpƟon’s reasons behind making those statements. He drew an analogy with the law of misrepresentaƟon. A claimant cannot set aside a contract for fraudulent misrepresentaƟon where he or she did not in fact rely on that statement. Lord SumpƟon’s test would be similar, because in his example the claimant had taken a deliberate decision not to invesƟgate or ‘rely on’ the fraud (in the sense of advancing the available evidence at trial). But if only a deliberate decision – which suggested a subjecƟve review of the would-be claimant’s reasons for not using available evidence of fraud – was enough to make the second claim an abuse of process, what then of the principle of finality of liƟgaƟon? Should there not be a more stringent limit on when a claimant could aƩack a judgment based on evidence he or she already had at the Ɵme of the trial? While fraud could not be excused, and fraudulent judgments could not be allowed to stand, because of a negligent failure to invesƟgate the fraud, due account also had to be taken of the burden and expense involved in liƟgaƟon and defending new or subsequent allegaƟons of fraud. Another consideraƟon that merited judicial noƟce was the fact that some disappointed liƟgants might be more inclined to bring a fresh acƟon for fraud than on any other basis: “The risk of a party being vexed by allegaƟons of fraud which amount to “wasteful and potenƟally oppressive duplicaƟve liƟgaƟon” is as at least as great as the risk as regards other types of new claim. In fact, it may be considered greater, as the jurisdicƟon to set aside a judgment or seƩlement agreement for fraud creates the potenƟal for using allegaƟons of fraud as a pretext for reliƟgaƟng the dispute supposed to have been finally determined. … The same applies with equal, if not greater force, in the familiar situaƟon where a party who has entered into a compromise agreement aŌerwards regrets having done so and aƩempts to re-open the liƟgaƟon.” An objecƟve test Lord LeggaƩ held that whatever the moƟvaƟons for a claimant not deploying available evidence of fraud might be, they ought to be considered on the basis of an objecƟve test, rather than asking whether, subjecƟvely, there had been a deliberate decision not to make use of the material. Whether such evidence ‘should’ have been advanced ought not in the eyes of the law depend on subjecƟve views or beliefs. In addiƟon, since the reasons behind any such decision might be veiled by legal professional privilege (as a party may well have acted on legal advice), the burden of proof to establish why previously-available evidence should nevertheless be allowed to support a challenge of a judgment should be on the claimant. The claimant will have to prove: “(1) that the evidence is new in the sense that it has been obtained since the judgment or seƩlement, or (2) if the evidence is not new in this sense, any maƩers relied on to explain why the evidence was not deployed in the original acƟon. Furthermore, where the evidence is not shown to be new in this sense, the claim is likely to be regarded as abusive unless the claimant is able to show a good reason which prevented or significantly impeded the use of the evidence in the original acƟon.” THE ARBITER AUTUMN 2023 9 Available evidence of fraud thus ought to be used straightaway, since that is what the law expects a reasonable person to do both in their own interest and in the interest of the efficient conduct of liƟgaƟon, absent good reasons for not doing so. On the facts of the case, Mr Finzi’s failure to lead evidence based on the allegedly new material was an abuse of process for numerous reasons, including the absence of any explanaƟon of why he made no menƟon of it, and the fact of him having adopted contradictory posiƟons in the earlier proceedings whilst being legally represented. Conclusion Fraud unravels all, except when it does not. It seems right to expect liƟgants to advance a properly arguable fraud claim as soon as they obtain the evidence that allows them to do so. If they choose not to do so for whatever reason and suffer an adverse outcome, then they will have to come up with a good explanaƟon of why they kept their cards close to their chest before being allowed to challenge the judgment. The Privy Council struck the right balance between the two compeƟng legal principles, as defending fraud claims tends to be costly. ParƟes oŌen wish to leave no stone unturned when their good name and reputaƟon is on the line. Claimants making baseless allegaƟons of fraud aŌer a liƟgaƟon loss or aŌer looking at a seƩlement agreement in the cold light of day may not always be good for the costs that they occasion by so doing, so a robust approach to striking out unmeritorious claims is to be welcomed. As a postscript, Lord LeggaƩ also noted that one can have regard to the apparent strength of an allegaƟon of fraud, without conducƟng a minitrial. A prophet on profits? When will attempts to evade the operation of exclusion clauses covering loss of profits be successful? by Jack Spence In EE Limited v Virgin Mobile Telecoms Limited  EWHC 1989 (TCC), the Technology and ConstrucƟon Court considered the recoverability of lost revenues in the face of an exclusion clause. The case provides a useful reminder of the principles that apply to the construcƟon of such clauses. Mobile data transfer in the United Kingdom In the United Kingdom, there are only four mobile network operators (i.e. mobile network companies who actually own and manage their own physical data cables and radio antennae – EE, Vodafone, Three and O2) but around 25 ‘virtual mobile network operators’ or “VMNOs” (such as GiffGaff, Tesco Mobile and Smarty), which essenƟally purchase wholesale phone services from a mobile network company, and then sell these services on to their own customers. Virgin Mobile is one such VMNO, who on 28 August 2013 entered into a TelecommunicaƟons Supply Agreement (the “TSA”) with EE (a mobile network operator, with its own physical infrastructure) to allow Virgin Mobile customers to access data and other phone services using EE’s equipment, in exchange for Virgin Mobile paying EE for the services that its customers used. Among the terms in the TSA was an exclusivity clause, under which Virgin Mobile agreed to only use EE’s equipment for the provision of services to its customers, thereby ensuring a steady stream of revenue for EE. However, following the execuƟon of the agreement in 2013, new technology enabled the implementaƟon of 5G services, which allow for the far faster transfer of data but which were not envisaged or catered for within the original TSA. Virgin Mobile and EE therefore entered into an amendment to the TSA, to provide for a mechanism for the provision of 5G services to Virgin Mobile’s customers. This amendment provided that, if Virgin Mobile and EE could not agree how 5G services would be provided then Virgin Mobile was enƟtled to source such services from a different mobile network operator. Clause 5B.2 provided that where “a customer of VM is provided with such 5G services sourced from an alternaƟve supplier then VM shall also be enƟtled to provide such customer of VM with 2G, 3G services and 4G/LTE services sourced from such alternaƟve supplier”. EssenƟally, if Virgin Mobile ended up securing 5G services from another mobile network then, those of its customers who were using 5G services could also receive other phone services from that alternaƟve mobile network (likely a technical necessity, given the challenges in using different suppliers for different generaƟon of data services). This would not, however, allow Virgin Mobile to provide services from other operators to those of its customers who were not using 5G services, who would sƟll be covered by the original exclusivity provision. However this is what EE claimed that Virgin Mobile had 10 THE ARBITER AUTUMN 2023 done, moving large numbers of non-5G customers to using services from the Vodafone network rather than those of EE (presumably because Virgin Mobile had secured more commercially advantageous terms with Vodafone). EE’s claim EE therefore brought a claim against Virgin Mobile for breach of contract, seeking to recover the revenue that EE would have received from Virgin Mobile under the TSA for the provision of services to those customers. Virgin Mobile, in turn, denied that it was in breach of the exclusivity provision within the TSA but that, in any event, the proper measure of damages to be claimed by EE was not lost revenue but rather lost profit (being the lost revenue, subtracƟng the costs of providing the services) which was, it argued, excluded by Clause 34.5(a) of the TSA. It was the construcƟon of this clause of the TSA which was the subject of the applicaƟon for summary determinaƟon, which fell to be determined by Mrs JusƟce Smith, siƫng in the Technology and ConstrucƟon Court. The clause at the heart of the dispute The secƟons of clause 34 which were considered relevant to the applicaƟon read as follows (emphasis added): “34. LimitaƟons of Liability 34.2 … (c) any liability for damage or loss arising from reckless or wilful misconduct or gross negligence of either Party, its employees, agents or permiƩed sub-contractors (or any other person for which it is responsible for performance or conduct). 34.3 For the purposes of Clause 34.2(c); and in the case of acts or omissions of EE, “wilful misconduct” will include any intenƟonal act by EE resulƟng in any disconƟnuance, withdrawal or refusal to supply any Service to VM contrary to EE’s obligaƟons under this Agreement… … 34.5 Except for any damages claims by VM pursuant to Clause 34.2(c), to which Clause 34.3 applies (which EE acknowledges may include claims of damages for loss of profits), and for no other damage claims whatsoever, neither Party shall have liability to the other in respect of: (a) anƟcipated profits; or (b) anƟcipated savings…” A claim for the expectaƟon loss The first way in which EE sought to evade the strictures of the exclusion provided for in clause 34 was by aƩempƟng to reframe its claim as one not for lost profits, but rather simply for the lost revenue which it would have otherwise received. This argument received rather short shriŌ from the court, which strongly rejected the argument that EE’s claim was for anything other than expectaƟon loss. Firstly, EE aƩempted to argue that it was enƟtled to recover the “lost charges” under Clause 18.1 of the TSA. It was this clause that required, and provided the mechanics for, Virgin Mobile to pay the charges incurred for services provided to its customers. However this would not be available to EE for the “lost charges” as it was found that this clause created a debt in respect of the charges incurred for services actually provided. It would not be engaged for “lost charges” which never accrued because services were, by reason of a breach of contract, never provided. Secondly, the court would not allow for the recovery of pure lost revenue from Virgin Mobile, as this would run against fundamental principles of English law. The basic principle governing the recoverability of damages under English law is familiar to all law students – the compensatory principle arƟculated in Robinson v Harman1 , that the innocent party is enƟtled “to be placed in the same situaƟon, with respect to damages, as if the contract had been performed” (i.e. to recover its expectaƟon loss). Permiƫng EE to recover lost revenue as damages, without giving credit for the costs that it would have incurred in providing services to Virgin Mobile customers, would have run contrary to this principle by puƫng EE in a beƩer posiƟon than it would have been in but for Virgin Mobile’s breach. As the court put it at paragraph 42 of its judgment “the compensatory principle does not permit the recovery of the full consideraƟon for the provision of the Services, but only the profit that would have been made once those costs are neƩed off”. For these reasons the court held that it could not “see that this is anything other than a claim for loss of profits. I fail to see how EE’s claim ... Can somehow fall within a different category of loss which would enable EE to escape the strictures of [the compensatory principle]”. _______________________________________________________ 1 Robinson v Harman (1848) 1 Ex 850 THE ARBITER AUTUMN 2023 11 Was the expectaƟon loss properly caught by the exclusion in Clause 34? Even though the court found that the sums claimed by EE were properly characterised as losses of profit, it sƟll fell to be determined whether such profits were properly excluded by Clause 34’s preclusion of liability for “anƟcipated profits”. EE sought to argue that its claim was, properly construed, a claim for a reduced price which it had received for its services. In support of this it drew on The Herdentor2 and The Ease Faith3 . In The Herdentor the Claimant brought a claim against the defendant tug provider in respect of the lower price it received under a head contract due to the Defendant’s abandoning of the salvage, which the Court found was not excluded by a clause precluding liability for “loss of profit” finding that it was “as if [the claimant] … suffered a diminuƟon of price”. The same logic was also applied by Andrew Smith J in The Ease Faith in respect of the reduced sum received by the Claimant for a vessel delivered in China because of the Defendant’s breach of contract. These cases, the Court found, however would not assist EE for the same reason that Clause 18 was not engaged – the services simply had not been provided by EE and so there was no “price” which could be capable of diminuƟon. That being the case, the court conƟnued to consider whether the ordinary principles of contractual construcƟon supported the posiƟon that EE’s expectaƟon loss was covered by Clause 34, ulƟmately concluding that it clearly was. Firstly, and most importantly, it was found that the language of the clause was “on its face clear and unambiguous. With one express excepƟon, liability for anƟcipated profits in claims for damage is excluded”. The Court’s analysis could, most likely, have stopped here – in accordance with the decision of the Supreme Court in Arnold v BriƩon4 , which found that the court should only look behind the wording of a clause at commercial consideraƟons where the relevant wording was ambiguous and capable of more than one meaning. _______________________________________________________ 2 Alexander G. Tsavliris & Sons MariƟme Company v OSA Marine Limited (T/A O.I.L Marine Ltd) 1992 Folio No.2557 3 Ease Faith Ltd v Leonis Marine Management Ltd (The Ease Faith )  EWHC 232 4 Arnold v BriƩon & Ors  UKSC 36 Nevertheless, in any event, the court found that this construcƟon was supported by the wider contractual regime. A specific carve out from the general exclusion was provided for in Clause 34.5 for “damages claims by VM pursuant to Clause 34.2(c)”5 , suggesƟng that the parƟes had considered whether there should be any exempƟons to the general exclusion, and provided for this where they had intended this. General background consideraƟons also supported this construcƟon, including the fact that the TSA was a “bespoke, lengthy and detailed contract negoƟated by two sophisƟcated parƟes … [on] a level playing field” meaning that it could be more likely successfully interpreted “principally by a textual analysis”6 , and that it was clear “detailed consideraƟon [had] gone into the risks and rewards for each party [and that the clause ] … contains … detailed provisions governing the parƟes’ right to remedies as between each other” which was “tailor-made, standalone ... apparently intended to have a wide reach … plainly part of the risk allocaƟon exercise between the parƟes”. As such, the Court would be slow to disturb the allocaƟon of risks and commercial arrangement reflected by the wording of the TSA itself. While Gilbert Ash7 , approved of by the Supreme Court in Triple Point8 stated that “clear express words” must be used to rebut the presumpƟon that neither party intends to “abandon any remedies arising by operaƟon of law” (such as a claim for damages for breach of contract), the words used by the parƟes in the TSA were found to be sufficiently clear to rebut this presumpƟon, for the reasons given above. Finally, the court rejected that the effect of Clause 34 was to exclude the enƟrety of Virgin Mobile’s potenƟal liability, such that the TSA would be rendered a mere declaraƟon of intent. While EE would not be able to recover any lost profits as a result of Virgin Mobile’s breach of contract, it would be enƟtled to recover “reliance losses” (i.e. addiƟonal expenses which it had incurred in performing the contract), remained enƟtled to a minimum revenue commitment under the TSA (regardless of the volume of services actually provided) and would, perhaps most significantly, be enƟtled to seek equitable relief in the form of an injuncƟon, prohibiƟng Virgin Mobile from moving customers in breach of contract which could alleviate much of the loss potenƟally suffered by EE if secured promptly. _______________________________________________________ 5 Which concerned situaƟons where EE had a long term failure in service which resulted in Virgin Mobile suffering losses, including losses of profit 6 Wood v Capita Insurance Services Ltd  UKSC 24 7 Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd  AC 689 8 Triple Point Technology, Inc v PTT Public Company Ltd  UKSC 29 12 THE ARBITER AUTUMN 2023 Conclusion The Court’s judgment seems intuiƟvely correct - given the meaning that the clause conveys on first glance it would seem challenging to find that lost profits were not excluded by a clause prevenƟng recovery of “anƟcipated profits”. Nevertheless, the ruling provides a useful and digesƟble overview of the legal principles on which claims for breach of contract are determined and the law regarding the construcƟon of exclusion clauses, reflecƟng the ordinary principles of contractual interpretaƟon and the importance of ensuring fidelity with the ordinary meaning of the words of the contract wherever possible. The biggest, pracƟcal, takeaway from this case is to ensure that contracts are properly reviewed before execuƟon, in order to make sure that you are happy with what the words of the contract provide for. As the court has made clear in EE v Virgin Mobile, it will not come running to your rescue if you have inadvertently entered into a commercial arrangement which ulƟmately transpires to not be in your best interests. ‘Better late than never’ – Saving defective termination notices by Ryan Deane IntroducƟon In the recent case of Topalsson v RollsRoyce Motor Cars Ltd  EWHC 1765 (TCC), the Technology and ConstrucƟon Court provided useful guidance on the circumstances in which a failure to complete by contractual deadlines enƟtles the innocent party to terminate a contract. It also illustrates the dangers of terminaƟng a contract for the wrong reasons, and shows how the negaƟve consequences of such a mistake can sƟll be avoided in the nick of Ɵme. TerminaƟon of a contract Before looking at what happened in Topalsson v Rolls -Royce, a general reminder of the law surrounding terminaƟon of a contract will help to put the issues in dispute in context. StaƟng the obvious, a breach of contract always gives the innocent party the right to claim damages. However, the innocent party may in certain circumstances also have the opƟon of bringing the contract to an end because of the other party’s breach. Under English common law, terminaƟon of a contract can occur in two main sorts of cases. First, due to a breach of a term of the contract. In parƟcular, any breach of a ‘condiƟon’ or a serious breach of an ‘innominate term’ allows the innocent party to terminate. This begs the quesƟon of what a condiƟon and innominate term are. Historically, the meaning of a ‘condiƟon’ was an obligaƟon that you must perform fully before I have to perform at all, such that performance of my obligaƟon was condiƟonal on performance of yours. This approach is exemplified by the observaƟon by Sir George Jessel in the 1878 case of Re Hall v Barker: “If a shoemaker agrees to make a pair of shoes, he cannot offer you one shoe and ask you to pay half the price” The modern meaning has become divorced from this sense of the order of performance. Instead, the courts will simply ask: did the parƟes intend that any breach of the term in quesƟon would allow the innocent party to terminate? Unsurprisingly, the Courts are reluctant to find that the parƟes’ intenƟon is for even the most minor of breaches to bring a contract to an end unless it is obvious from the words used. Just using the word ‘condiƟon’ to label a term is not sufficient. The most common true contractual condiƟons are those implied by statutes, such as the condiƟons for quality and ownership implied by statute in contracts for the supply of goods. Time is of the essence The other main example, which is of parƟcular relevance to Topalsson v Rolls-Royce, are ‘Ɵme of the essence’ provisions. If a clause makes ‘Ɵme of the essence’ for performing a duty by a clear deadline, then even a small delay gives the aggrieved party the right to terminate. The most famous case in which a Ɵme of the essence provision allowed the innocent party to terminate is Union Eagle Ltd v Golden Achievement Ltd  UKPC 5. It involved a contract to buy a flat in Hong Kong, compleƟng by 5.00 pm on 30 September. The contract expressly made Ɵme of the essence for this deadline, and stated that any breach by the buyer of any contract term would lead to forfeiture of the deposit and allow the seller to end the contract. The buyer tendered the purchase price ten minutes late. The seller declared the deposit forfeit and the contract at an end. The court confirmed the seller’s right to do so. THE ARBITER AUTUMN 2023 13 Repudiatory breaches leading to terminaƟon If a clause in a contract is not a condiƟon then it is an ‘innominate term’. In Hong Kong Fir Shipping  2 QB 26, Lord JusƟce Diplock held that only breaches of such terms that “will deprive the party not in default of substanƟally the whole benefit which it was intended that he should obtain from the contract” allow the innocent party to terminate. Other judges have asked whether the breach “goes to the root of the contract” or whether it is “fundamental”. In addiƟon to terminaƟon due to any breach of a true condiƟon (such as ‘Ɵme being of the essence’ clauses), such serious breaches of innominate terms are the second way a contract can be terminated at common law - through repudiaƟon. A contract can be repudiated where one party expressly or by implicaƟon states that he will not perform his outstanding obligaƟons. This is called an ‘anƟcipatory’ breach (the breaching party is saying that they will not perform their future obligaƟon) or a renunciaƟon. SomeƟmes, a contracƟng party will rely on the other party’s acƟons as jusƟficaƟon for adopƟng that stance. A party may purport to terminate the contract because they erroneously think they are enƟtled to do so because of the other party’s serious breach. This acƟon might very well amount to a repudiaƟon itself, as that party is now indicaƟng that he will not perform his outstanding obligaƟons. The same is true if a contracƟng party purports to cancel pursuant to an express cancellaƟon clause in the contract, but for some reason is not enƟtled to do so. Care must therefore be taken before pulling the terminaƟon trigger, because if you get it wrong, the other party can accept a wrongful terminaƟon as a repudiaƟon of the contract and terminate the contract themselves to claim damages. The facts of the case Turning to the facts of the case with these principles in mind, Topalsson is a company that provides specialist digital twin engine and configurator soŌware for the automoƟve industry. Their soŌware allows prospecƟve customers to configure the car they are interested in and see what it will look like. Rolls-Royce is of course the famous manufacturer of luxury cars, now a subsidiary of BMV. In October 2019, Rolls-Royce contracted Topalsson to create a digital visualisaƟon soŌware for its new Rolls-Royce Ghost model launch in Spring 2020. Engineers were to create a computer model of the car, expressed both in geometrical and mathemaƟcal terminology. The model was to be converted into a visual representaƟon of the car by a process known as rendering. Under the agreement, Topalsson was obliged to meet milestone dates contained in an agreed implementaƟon plan, which gave a high-level breakdown of the original project programme. As is not uncommon in soŌware development projects, it soon became evident that the original programme dates could not be achieved. A revised plan was agreed, with later delivery dates for the key milestone ‘Technical Go-Live’, the term used for compleƟon of the project. Topalsson missed the deadlines in the revised programme and blamed Rolls-Royce for impeding the work. Rolls-Royce on the other hand, accused Topalsson of misrepresenƟng its experƟse and inadequately resourcing the project, leading to significant delays and poor performance. In April 2020, Rolls-Royce purported to terminate the Agreement at common law on the basis that Topalsson had failed to achieve set milestone dates. Topalsson rejected that first terminaƟon noƟce, claiming, amongst other points, that the milestones at issue had never been agreed, and affirmed the agreement as conƟnuing in force rather than purporƟng to accept Rolls-Royce’s wrongful terminaƟon. Later in April 2020, Rolls-Royce sent a second terminaƟon noƟce, without prejudice to their first terminaƟon noƟce, purporƟng to terminate at common law or alternaƟvely under the Agreement on the grounds that the milestone dates had not been met. Topalsson again claimed that the second terminaƟon noƟce was not effecƟve and so Rolls-Royce’s wrongful terminaƟon meant that it was in repudiatory breach of the Agreement. This Ɵme Topalsson elected to accept the alleged repudiatory breach and stopped work in May 2020. The key issues before the court AŌer that second volley of terminaƟon noƟces, Topalsson issued proceedings, claiming damages for unlawful terminaƟon and lost profits, alternaƟvely payment for work carried out and/or invoiced as at the terminaƟon date. Rolls-Royce counterclaimed for damages flowing from the alleged repudiatory breach, claiming substanƟal losses of €20 million for soŌware replacement costs, lost profits, and other related damages. Both parƟes agreed, however, that under the agreement the contractual claims were capped at €5 million. 14 THE ARBITER AUTUMN 2023 Mrs JusƟce O’Farrell, giving the judgment of the court, summarised the key issues to be considered as follows: whether Topalsson were under any obligaƟon to deliver and install the soŌware in line with an agreed programme or within a reasonable Ɵme; whether Topalsson achieved any of the agreed milestone dates or carried out its obligaƟons in a reasonable Ɵme; whether Topalsson was impeded in its performance, or prevented from performing its obligaƟons by Rolls -Royce; and whether Rolls-Royce was enƟtled to terminate under the Agreement or at common law on the ground of Topalsson’s repudiatory or anƟcipatory breach, or whether Rolls-Royce was itself in repudiatory breach by giving the noƟces of terminaƟon. The importance of clear and express deadlines The relevant terms of the agreement that governed Topalsson’s obligaƟons included the following: “5.3.7 In performing this Agreement [Topalsson] shall … complete the Services and deliver the Deliverables on Ɵme and in full and by any applicable milestone date or delivery date, if delivery dates or milestones are not specified, within or by any reasonable delivery date or Ɵme period that is specified by [Rolls-Royce]. 5.8 Time shall be of the essence regarding any date for delivery by the Supplier of any good or service specified in this agreement and the CompleƟon Date.” The only document that formed part of the contract which could be said to contain any “milestones” was the original programme. This had acƟvity bars for each mandatory stage with symbols indicaƟng the end of each Ɵme period. However, O’Farrell J held that this original programme did not contain any true contractual “milestones” or “delivery dates”. It was simply too “high-level” in nature and not sufficiently detailed to impose contractual deadlines that would be of crucial importance (especially since ‘Ɵme was of the essence’). The document contained no specific dates. Instead, as the judge found, the acƟvity bars shown on the programme were only indicaƟve of when an acƟvity would finish relaƟve to other acƟviƟes. Further, the agreement itself defined it as an “AnƟcipated Timeline” and not a fixed programme, further undermining the suggesƟon that a failure to perform in accordance with it would be the guilloƟne that could immediately bring the contract to an end. Pausing here, this is a useful reminder that simply inserƟng technical or programming documents as part of the contract documents, without reflecƟng their (intended) content in clear, properly draŌed terminology in the main body of the agreement, can backfire. As the contract stood, Topalsson could therefore not have been ‘in breach of’ the original programme because it was not detailed enough to contain contractual milestones and Clauses 5.3.7 and 5.8, set out above, did not apply to it. A different conclusion was reached for the revised programme, which was produced a few months aŌer the agreement, when it had become clear that the project was in delay. It was more detailed and had been prepared by Topalsson themselves and was approved by a Rolls-Royce Steering CommiƩee. Both parƟes had in fact used the revised programme as the agreed Ɵmeline against which subsequent discussions regarding progress and delay had taken place. In the Technology and ConstrucƟon Court, Rolls-Royce argued that Clause 5.8 of the agreement operated to make Ɵme of the essence in relaƟon to the revised programme dates, such that they were enƟtled to terminate the contract for any breach, no maƩer how insignificant. Topalsson countered that Clause 5.8 did not apply to the revised programme because it was not “specified in this agreement” as required by the clause but was instead agreed between the parƟes aŌer the Agreement was made. The judge agreed with Rolls-Royce, finding that the words “specified in this agreement” only applied to the words “goods and services” menƟoned immediately prior, and not any “date for delivery”. In addiƟon, the agreement required development work to be carried out to finalise the scope, Ɵming and sequencing of the deliverables and so the parƟes anƟcipated that further programmes would be made. The relevant clauses in the Agreement therefore applied to the Revised programme and Ɵme was of the essence in relaƟon to those dates. Neither was Topalsson able to demonstrate that Rolls-Royce was responsible for the delay to the project in any significant way. The court accepted Topalsson’s case that some iniƟal delay was caused by the late start of the project, but (i) that did not exonerate Topalsson from its obligaƟon to meet the agreed milestones, and (ii) the Revised programme took that delay into account. The judge concluded: “The most likely reason for the delay to progress was the lack of appropriately skilled resources, THE ARBITER AUTUMN 2023 15 either because Topalsson took on a project that simply was beyond its capabiliƟes, or because it struggled to recruit and retain the necessary staffing levels.” It followed that Topalsson was in breach of its obligaƟon to meet the dates for delivery set out in the revised programme and that, because Ɵme was of the essence, and Rolls-Royce was enƟtled to terminate the agreement for even the smallest breach of that programme. Saving a defecƟve terminaƟon noƟce? That would have been the end of the maƩer, except that Rolls-Royce had made a mistake when issuing the first terminaƟon noƟce. In the noƟce, Rolls-Royce had relied on Topalsson’s repudiatory breach by reference to its failure to meet the original programme dates. That was erroneous because Rolls-Royce had by that point agreed to the revised programme and in any event, as the judge had found, no contractual milestones were contained in the original programme. Rolls-Royce, as a result, was not enƟtled to rely on breaches of the original programme as a repudiaƟon of the contract by Topalsson. As menƟoned above, terminaƟng a contract on the wrong grounds gives the opportunity for the other party to claim that this was a repudiaƟon in and of itself, and claim damages against the party purporƟng to terminate. However, in order for that to happen, the other party must accept the repudiaƟon and treat the contract as at an end. Here, Topalsson had failed to do that. AŌer the first terminaƟon noƟce was issued, it simply rejected the effect of the noƟce and affirmed the agreement, treaƟng the parƟes as sƟll being bound by their obligaƟons. As the well-known statement from Howard v Pickford Tool Co Ltd  1 KB 417 goes “An unaccepted repudiaƟon is a thing writ in water”, and Rolls-Royce’s wrongful terminaƟon disappeared like ripples in a pond. Upon Topalsson affirming the contract, the potenƟal repudiaƟon of the first terminaƟon noƟce disappeared, as if it had never occurred at all. This allowed the second terminaƟon noƟce issued by Rolls-Royce to be considered on a clean slate. That noƟce correctly referred to Topalsson’s failure to meet the milestones contained in the revised programme. O’Farrell J held that, in her judgment, the second terminaƟon noƟce validly terminated the agreement. The revised programme was binding on the parƟes. The express terms of the agreement made Ɵme of the essence. Topalsson failed to meet the delivery dates set out in the revised programme. That failure amounted to a breach of condiƟon, enƟtling Rolls-Royce to terminate the agreement at common law for repudiatory breach. In the alternaƟve, Rolls-Royce was also enƟtled to terminate under the express terminaƟon provisions in the agreement, which stated: “If in the reasonable opinion of [Rolls-Royce] [Topalsson] fails to perform the Services in accordance with this Agreement or to deliver Deliverables by the applicable delivery dates or milestone dates or if [Rolls-Royce] rejects the Deliverables, without limitaƟon to any other of its rights or remedies, [Rolls-Royce] shall have the following rights: … 13.11.3 to terminate this Agreement in whole or part with immediate effect by giving wriƩen noƟce to [Topalsson].” This was not a condiƟon and so would not enƟtle Rolls-Royce to terminate for any breach, no maƩer how trivial or inconsequenƟal, but only for a significant or substanƟal one. On the facts, before Topalsson stopped working it had delivered an important milestone 11 days late, which the court found to be a material breach which went to the root of the contract. Rolls-Royce had therefore validly terminated the Agreement under both the express terms of the contract and at common law. Topalsson was therefore liable for the resulƟng damages. Comment While the court’s decision does not break any new ground, such cases of ‘terminaƟon tennis’ demonstrate the applicaƟon of the well-established principles relaƟng to terminaƟon of contracts. There are also pracƟcal lessons to be learned. Crucially, parƟes should ensure that any key requirements or deadlines are clearly recorded in the contract (or that it provides clear mechanisms for agreeing them later) in order to avoid subsequent disputes arising as to whether deadlines are binding and when they have been achieved. ParƟes seeking to terminate for repudiatory breach or based on a contractual right should, in the noƟce of terminaƟon, take care to rely on valid legal and factual bases to do so, or else risk being in repudiatory breach themselves. For example, if contractual Ɵmelines or scope have been varied by agreement, failure to meet the original requirements may no longer jusƟfy terminaƟon. ParƟes should also take care when receiving terminaƟon noƟces and take legal advice from the outset. 16 THE ARBITER AUTUMN 2023 Carefully consider any terminaƟon noƟce you receive with your legal team. Choosing whether to accept a repudiatory breach is an important, potenƟally costly, decision that has a fundamental impact on the operaƟon of the contract, and usually has to be taken very quickly. Similarly, involve legal advisers when you draŌ a terminaƟon noƟce. Serving an invalid terminaƟon noƟce and wrongly treaƟng the contract as repudiated can leave you vulnerable to repudiaƟng the contract yourself. A party alleged to have repudiated a contract by purporƟng to terminate at common law, but relying on an improper ground, can subsequently rely on another ground to defend what would otherwise be an unlawful terminaƟon (per Lord Denning in The Mihalis Angelos  1 QB 164), but it is much safer to get it right the first Ɵme. While a minor breach of a condiƟon may be enough for terminaƟon, breaches of other contractual terms giving rise to an express right to terminate sƟll need to be sufficiently serious in the circumstances to warrant terminaƟon. Consider, therefore, which terms in your contracts should be condiƟons, and ask your lawyers to ensure that the contractual language achieves this aim. In parƟcular, consider whether Ɵme is expressed to be of the essence in the contract. Making Ɵme of the essence for performance is sufficient to render any delay (even if only by a few hours) repudiatory. If Ɵme is to be of the essence, include a clearly draŌed provision in the agreement and make sure that it is consistent with your terminaƟon clause (do not, for example, include a grace period to recƟfy). For complimentary copies or changes of address, please contact Leanne Power at [email protected]. For more informaƟon about our pracƟce, visit us at haynesboone.com. Haynes and Boone CDG, LLP is a Limited Liability Partnership registered in England & Wales under Partnership No. OC317056 with its registered office and principal place of business at 2nd Floor, One New FeƩer Lane, London EC4A 1AN, UK. Haynes and Boone CDG is authorised and regulated by the Solicitors RegulaƟon Authority (SRA) with VAT RegistraƟon No. GB882645686. Copyright © Melanie Willems. All rights reserved. This brochure has been prepared for informaƟonal purposes only and does not consƟtute legal counsel. This informaƟon is not intended to create (and receipt of it does not consƟtute) a lawyer-client relaƟonship. Readers should not act on this informaƟon without seeking professional counsel. A past performance or prior result is no guarantee of a similar future result in another case or maƩer.
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