Background: What's a working definition of a contract nightmare? One answer is a long-term contract which permits a party to terminate for 'any breach'. Without any apparent test of seriousness, and without any period in which to rectify. Such 'any breach' termination clauses are surprisingly commonplace. While they sometimes reflect industry practice, it's hardly surprising that disputes about them sometimes go to court. And the High Court has recently decided that on particular facts the phrase could not be taken literally, but had to be given a 'commercially sensible construction'.
What happened? Debenhams agreed to lease premises in a shopping centre. Dominion, the landlords, agreed to pay Debenhams some substantial 'fit-out' sums. Dominion were late making a payment. The lease entitled the parties to terminate for 'any' breach of 'any' provision. Debenhams claimed that they could terminate due to the delay in payment. Indeed, they refused to accept Dominion's offer to pay later. The court held that Debenhams were not entitled to terminate. It held that Debenhams' approach 'stripped' the 'any' breach termination clause of its factual context. Why? The agreement contained many obligations of varying importance which could be breached in many different ways, including in some minor ways. Debenhams' literal interpretation of the contract "flouted business commonsense". In the context of the lease transaction, concluded the Court, 'any' breach had to be taken to mean any repudiatory breach. Furthermore, the failure of Dominion to pay on time was not repudiatory conduct, nor was time 'of the essence' for payment by Dominion. The outcome was that it was Debenhams which was held to have repudiated the agreement!
Key Messages: Two key lessons stand out. Firstly, and most obviously, the phrase 'any breach' can't always be taken literally. This latest analysis wasn't "out of the blue". It drew on precedent from the House of Lords in The Antaios case, and the Court of Appeal in Rice v Great Yarmouth Borough Council. Having said that, if a contract includes a 'material breach' termination right as well, it would be hard to interpret a separate clause referring to 'any' breach as meaning repudiatory breach only! Secondly, there's the question of dispute strategy. You might think that you can terminate the other party for 'any' breach. But these cases might protect them and give you reason to reconsider your strategy carefully. Looked at the other way round, you might be subject to 'hair trigger' termination clauses, but these cases may give you some protection. It may not be as easy for the other party to terminate as it thinks.
Source: Dominion Corporate Trustees v Debenhams Properties  EWHC 1193 (CH), High Court, Chancery Division, Mr Justice Kitchin, 27 May 2010