The recent case of Comau UK Limited v Lotus Lightweight Structures Limited  EWHC 2122 (Comm) is an interesting decision from the Commercial Court in which the Court found against Comau UK Limited (“C“) which was seeking summary judgment of its claim for an award for loss of profit from a repudiatory breach of contract by Lotus Lightweight Structures Limited (“L“). The Court instead found that L had a real prospect of successfully defending the claim. The Court held that while C was entitled to seek damages for amounts due under a contract, where that contract permitted L to perform its obligations in different ways, the least onerous way would be applied and C would not therefore be able to get a better deal than it had bargained for.
C is part of the Fiat group, and had entered into a contract with L whereby C agreed to supply goods to L relating to the installation of a new product line. The agreement provided for L to pay by instalments over a period of time, which it failed to do in the amounts or on the dates specified. In February 2012, C served notice on L of the unpaid amounts and threatened to suspend service, pursuant to the terms of the agreement. L paid some of the amounts in March 2012 but further sums remained due and performance was suspended.
By August 2012, C had run out of patience and wrote to L giving notice of material breach of contract and requiring rectification within 30 days, failing which C would terminate. When L ignored this letter, C terminated the agreement on 8 October 2012. In the proceedings that ensued, L readily accepted liability for the unpaid invoices which led to termination of the agreement. However, the issue which came before the Court was whether L, by repeatedly failing to pay, had also committed a common law repudiatory breach of the agreement and whether C had a right to expected profits over the intended full length of the agreement.
While this was only a summary application, and therefore will be tried in detail in the coming months, the judgment outlined some useful practical applications of the law. The Court found that C had contractually terminated but had not proven a repudiatory breach and, as the agreement allowed L to terminate at will, this limited C’s proper expectation of profits under that agreement.
The Court noted that it was open to C to make it clear in its correspondence with L that it considered L’s failure to pay to be a repudiatory breach. C had failed to do so and its notices had merely dealt with contractual termination. The correspondence from C had gone as far to say “we reserve our right to recover these costs and losses incurred by us as a result of Lotus’s breach…” and “all our rights remain reserved” but this was deemed to be insufficient. This should sharpen the focus of any party intending to terminate a contract as to what its heads of claim should be as this case makes it clear that a claim for repudiatory breach must be expressly made.
C also claimed that it had an “expectation interest” to profits over the life of the agreement. However, the agreement contained a “termination for convenience” clause in favour of L which, in essence, provided that L could terminate the contract at any time during which it was not itself in breach. The Court held that this meant that, whatever C’s expectation, L had a contractual right to end that expectation.
As the circumstances were such that L could perform its contractual obligations in a number of ways, the Court followed the approach in Abrahams v Herbert Reiach Ltd  1 KB 477, that it is the least onerous way in which a party could perform its obligations which must be used as the measure of damages to be awarded. Accordingly, C would only be entitled to the amount it could have made until L terminated the agreement. This approach was applied even though L was not at the time of termination by C in a position to terminate the agreement itself, as it was in breach of its payment obligations.
This is a useful case that looks both at how a party should approach terminating an agreement and what damages a party may expect to be able to claim on termination in a situation where an agreement allows performance in differing ways. The final judgment should make interesting reading.
The recent case of Emirates Trading Agency LLC v Prime Mineral Exports Private Limited  EWHC 2104 (Comm) demonstrates the approach of the Court to dispute resolution clauses which require the parties to enter into good faith discussions to resolve their disputes.
Emirates Trading Agency LLC (“E”) had agreed to purchase iron ore from Prime Mineral Exports Private Limited (“P”) under the terms of a Long Term Contract dated 20 October 2007 (“LTC”). In the event, E failed to lift all of the iron ore expected to be taken up and P sought liquidated damages from E pursuant to the terms of the LTC. The next year E failed to lift any iron ore and, on 1 December 2009, P served notice of termination of the LTC and claimed $45,472,800 in respect of liquidated damages. P stated that if the claim was not paid within 14 days they reserved the right to refer the claim to arbitration in accordance with clause 11.2 of the LTC.
Meetings between the parties took place in Goa on 1 December 2009, 2 December 2009, 25 February 2010 and 9 March 2010. The claim was referred to arbitration by P in June 2010. E made an application to the Commercial Court in London, pursuant to section 67 of the Arbitration Act 1996, for an order that the arbitral tribunal lacked jurisdiction to hear and determine the claim brought P.
Clause 11.1 of the LTC provided that “In the case of any dispute or claim arising out of or in connection with or under this LTC… the Parties shall first seek to resolve the dispute or claim by friendly discussion. Any party may notify the other Party of its desire to enter into consuLTCtion [sic] to resolve a dispute or claim. If no solution can be arrived at in between the Parties for a continuous period of 4 (four) weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration”.
E submitted that clause 11.1 required a condition precedent to be satisfied before the arbitrators would have jurisdiction to hear and determine the claim and that this condition was not satisfied. E argued that the condition precedent was “a requirement to engage in time limited negotiations” and that this had not been satisfied because there had not been a continuous period of 4 weeks of consultations to resolve the claims. P submitted that the “condition precedent” suggested by E was unenforceable as it constituted an agreement to negotiate but that, if it were enforceable, it had been satisfied and the arbitrators did therefore have jurisdiction.
The Court held that on a proper construction of clause 11.1 of the LTC, there was a requirement to resolve a claim by friendly discussion and the use of the word “shall” demonstrated that this was intended to be mandatory. The friendly discussions were a condition precedent to the right to refer a claim to arbitration. However, the clause did not provide that the friendly discussions must last four continuous weeks but that if no solution could be found for a continuous period of four weeks then the arbitration could be invoked.
The issue for the Court then to decide was whether clause 11.1 was enforceable. The Court held that a dispute resolution clause in an existing and enforceable agreement, which required the parties to seek to resolve a dispute by friendly discussions in good faith and within a limited period of time before a dispute could be referred to arbitration, was enforceable. The reason for this was that such an agreement was neither incomplete nor uncertain and provided an identifiable standard, namely, fair, honest and genuine discussions aimed at resolving a dispute. The Court further stated that enforcement of such an agreement was in the public interest, first, because commercial people expect the Court to enforce obligations which they have freely undertaken and, secondly, because the object of such an agreement is to avoid expensive and time consuming arbitration.
The Court held that in this instance friendly discussions had taken place between E and P in good faith and with a view to resolving P’s claim and the arbitral tribunal did have jurisdiction to decide the dispute between the parties.