Terminating for repudiatory breach at common law

Introduction

In a recent Commercial Court case, Mr Justice Teare considered whether the party terminating for repudiatory breach at common law was required to follow the notice provision set out in the contract.

The case

In Vinergy International (PVT) Limited v Richmond Mercantile Limited FZC [2016] EWHC 525, the focus was on a termination clause contained in a long term agreement for Richmond to supply bitumen to Vinergy. The termination clause provided that:

"17.1 Either party may terminate this Agreement immediately upon:

17.1.1 failure of the other party to observe any of the terms herein and to remedy the same where it is capable of being remedied within the period specified in the notice given by the aggrieved party to the party in default, calling for remedy, being a period not less than twenty (20) days;…"

The dispute arose when Richmond terminated the agreement after four years, in July 2012, for repudiatory breach, without giving notice. The alleged repudiatory breaches were of an exclusivity clause which required Vinergy to buy its bitumen solely from Richmond, as well as failure to pay an outstanding invoice for almost a year and demurrage charges. 

Arbitration proceedings followed, and then the matter came before the Commercial Court in March 2016. Vinergy submitted that termination for repudiatory breach had to be in accordance with the termination provisions in the agreement requiring notice to be given and an opportunity to cure the default.

In view of the arbitration tribunal's findings, the Court dealt with the breach of the exclusivity clause as one which was incapable of remedy. Mr Justice Teare upheld the arbitrator's decision and dismissed Vinergy's appeal.  He found that "…(i) clause 17.1.1 does not apply to repudiatory breaches and (ii) even if it does the breach of the exclusivity provisions, being incapable of remedy, was not within the scope of clause 17.1.1."  

Analysis

The wording of the particular clause in question is always likely to be crucial in cases such as this. Indeed, it is unsurprising that Mr Justice Teare noted that "the authorities to which I was referred involved differently expressed terms and there is therefore an obvious limit to the assistance they can give in the present case". In this case, Mr Justice Teare did not consider that the clause in question applied to repudiatory breaches. He was unwilling to imply that the notice and remedy requirements should apply to a party accepting a repudiatory breach as terminating the contract at common law.  

Parties should therefore carefully consider the terms of any termination provisions they include in contracts, and use express wording if they wish for notice and remedy requirements to apply to repudiatory breaches.