Parties to commercial agreements must ensure they continue to satisfy their contractual obligations up until the effective date of termination regardless of the date on which the termination notice was issued as reinforced by the decision in AMT Vehicle Rental Limited v Volkswagen Group United Kingdom Limited. The case also highlights key principles of contractual interpretation and the importance of clear contractual language when drafting commercial agreements.

Key takeaways:

  • A party should be careful not to behave as if the engagement has been terminated until the effective date of termination.
  • If parties intend that liability for loss of profits should be excluded, this should be specifically stated rather than assuming that these losses will be deemed to be indirect or consequential.
  • Parties should avoid using vague or undefined terms, especially in the context of liability where interpretation of such terms may result in unlimited liability.

The High Court has ruled in favour of AMT, a company that provided hire cars to VWG in a dispute arising from VWG’s failure to comply with its contractual obligations during the notice period. The court found that during the notice period, VWG was in breach of its contractual duty to engage AMT by ceasing to (i) inform AMT of VWG ’s need for hire cars; and (ii) give AMT an opportunity to offer its services. As a result of the breach, AMT claimed damages for lost profits, which the court held to be recoverable as a direct loss.

Obligation to engage the supplier

The contract required that “VWG engages the Provider to provide the Services to VWG” and that VWG would communicate reservation requests via its Customer Mobility Management Team using an online system or other means of communication, which in this case was a Google Form called the ‘Booking Master Sheet’. VWG notified AMT of its car hire requirements every morning through the Booking Master Sheet and then AMT provided the cars. VWG gave notice to terminate the Agreement on 5 September 2019 and the effective date of termination was agreed upon as 7 March 2020. However, from 10 October 2019 (five months before the effective date of termination), VWG ceased to allow AMT access to the Booking Master Sheet and provided no alternative means of communicating its need for hire cars. VWG argued that its obligation to “engage” did not mean that VWG was under an obligation to “employ” AMT. Rather, VWG asserted, if the parties agree on a particular supply, AMT would perform and VWG would pay but there is no obligation on VWG beyond that. The court rejected this and concluded that VWG was in breach of its contractual obligation to engage AMT while the contract was in force because VWG ceased to inform AMT of its car hire needs which deprived AMT of the opportunity to offer its services based on such information.

Loss of profits

The court rejected VWG’s argument that AMT’s loss of profit was an indirect loss and therefore excluded by the agreement. J Pierce said AMT’s loss of profit arising from VWG’s breach falls “squarely within the first rule in Hadley v Baxendale”. Accordingly, AMT could recover for its loss of profits as a direct loss calculated based on what AMT might reasonably have expected to receive but for VWG’s breach. This serves as a reminder that where parties intend to exclude liability for loss of profits, they should do so explicitly and not expect that the courts will deem these to be indirect or consequential.

Deliberate act

J Pierce also considered the position in the event that loss of profits was deemed to be an indirect loss:

VWG argued that the ‘exclusion of indirect loss’ clause applied, but the court rejected this because the clause was subject to the following exception: “nothing in the Agreement limits or excludes liability in respect of a deliberate or Wilful Act or Wilful Breach”. “Deliberate” was not qualified by a word such as “wilful” or “conscious” and J Pierce took the view that to be “deliberate”, it was sufficient that VWG made a decision to no longer be bound by the contract even though there was no Wilful Act (i.e. intending to cause harm) or Wilful Breach (i.e. conscious decision to materially breach its obligations).

Therefore, there was a deliberate act which means the exception to the exclusion of indirect loss would apply. This suggests that loss of profits, even if these were indirect, would likely be recoverable in these circumstances.