Court of Appeal finds that a party did not have to give notice before terminating the contract for repudiatory breach

In this decision, again highlighting the benefit of precise drafting, the Court of Appeal decided that the respondent, Richmond Mercantile Ltd (a manufacturing company), was able to terminate an agreement for repudiatory breach without complying with the notice and remedy requirements in the contract's termination clauses.

The appellant, Vinergy International (PVT) Ltd (a chemical distribution company), had entered an agreement with Richmond for the supply of bitumen for an extendable term of 10 years. Clauses 17 and 18 concerned termination and provided that either party could terminate the agreement immediately upon failure to observe its terms and remedy them "where..capable of being remedied within the period specified in the notice given by the aggrieved party to the party in default" (clause 17.1.1)

Richmond terminated the agreement for breach without serving notice under that provision. An arbitral tribunal found that Richmond had lawfully terminated the agreement and found that Vinergy had committed three repudiatory breaches: breach of the agreement's exclusivity provisions, failure to pay an invoice for over a year and failure to pay demurrage for certain shipments.

The Court of Appeal explained that the key question was whether one could imply into clause 17.1.1 an agreement that before a party terminates the agreement, whether pursuant to clause 17.1.1 or pursuant to the common law, that party must follow the procedure set down in clause 17.1.1 of giving notice to remedy.

It decided that it was not possible to imply this into clause 17.1.1. Firstly, there was no mention in the clause of the common law right to terminate for repudiatory breach. Secondly, the express right to terminate in clause 17.1.1 depended on the failure "to observe any of the terms" and such a failure might be minor or major. Thirdly, clause 17 as a whole provides six contractual rights to terminate, of which clause 17.1.1 was only one. The notice requirement in clause 17.1.1 didn't apply to the other five e.g. to the right to terminate where one party suffers an insolvency event (17.2.2).

The Court concluded that the procedure in clause 17.1.1 was intended only to apply to the specific right to terminate found in clause 17.1 and not to any of the other express rights to terminate found in clause 17 or to the right at common law to accept a repudiatory breach as terminating the agreement. The Court further observed that even if clause 17.1.1 did apply to repudiatory breaches, "it cannot apply to [Vinergy's] breach of the exclusivity provisions because that breach, as held by the tribunal, was not capable of remedy."