A Practical Approach 2nd March 2012 Handout Slides


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A Practical Approach 2nd March 2012 Handout Slides

  1. 1. a practical approach toterms and conditionsPresented byChris GreenwellClaire Herbert
  2. 2. what constitutes a contract?• An agreement between the parties.• In order for a contract to be binding there needs to be an intention to create legal relations, valuable consideration needs to pass and there should be certainty.• Generally speaking it is formed when one party accepts another party’s offer.
  3. 3. when is the contract formed?• Buyer and co email seller and co asking for a quote for 100 widgets. The email says any contract will be subject to buyer and co’s t’s and c’s (not attached but stated to be available on their website).• Seller and co email their quote which is subject to their t’s and c’s (copy not attached).• Buyer and co email seller and co and accept the quote subject to their t’s and c’s (copy attached).• Seller and co email an acknowledgement of the order to buyer and co subject to their t’s and c’s (not attached but stated to be available on their website).• Seller and co deliver the widgets.• Seller and co send an invoice with their t’s and c’s printed on the back of the invoice.
  4. 4. how will the court look atoffer and acceptance?• An offer is an expression of willingness to contract on specific terms made with the intention that it is to become binding as soon as it is accepted.• An acceptance is a final and unqualified expression of assent to the terms of an offer.• The court will analyse the pre contractual communications between the parties in order to ascertain the point at which agreement was reached.
  5. 5. is there a contract? Offeror invitation to treat?• A customer goes into a shop and picks up a bottle of wine and takes it to the check out. It is priced at £4.99. He passes it to the assistant and tenders the sum of £4.99 to buy it. He is told that the price is actually £10.99 as the bottle has been incorrectly labelled.• Is there a contract?• Does it matter?• If the ‘offer’ is the shop pricing the bottle and displaying it for sale and the ‘acceptance’ is the customer taking it to the check out and tendering money at the till then there is a binding contract to buy the bottle for £4.99.• If the ‘offer’ is the customer taking the bottle to the till, the shop can reject that ‘offer’ and they are not obliged to sell it for £4.99.
  6. 6. is there a contract? Acceptance• Acceptance has to be unqualified and generally speaking it has to match the offer made.• Company A offers to sell 400 telephones to Company B for £2,000. Company B replies by saying it will take 200 phones for £1,000. Is there a binding contract?
  7. 7. incorporation of t’s and c’s• In order for your t’s and c’s to be incorporated ideally they need to be sent to the other party prior to the formation of the contract and any offer must make it clear that your t’s and c’s apply.• It is possible to incorporate your t’s and c’s by reference. You need to do what is ‘reasonably sufficient’ to give the other party notice of the conditions.• What is reasonably sufficient will depend on the individual circumstances.
  8. 8. what is reasonably sufficient?• Contract sent through with no reference to t’s and c’s on the front but they were printed on the back. Reasonably sufficient?• Contract sent by fax stating t’s and c’s on the reverse apply but no t’s and c’s faxed through. Reasonably sufficient?• Contract stated by be subject to t’s and c’s and t’s and c’s sent but they are masked by a printed stamp. Reasonably sufficient?• Contract sent with t’s and c’s but person was blind and could not read them. Reasonably sufficient?• Car parking ticket stated that personal injury was excluded. Reasonably sufficient?
  9. 9. when is the contract formed?• Buyer and co email seller and co asking for a quote for 100 widgets the email says any contract will be subject to buyer and co’s t’s and c’s (not attached but stated to be available on their website).• Seller and co email their quote which are subject to their t’s and c’s (copy not attached).• Buyer and co email seller and co and accept the quote subject to their t’s and c’s (copy attached).• Seller and co email an acknowledgement of the Order to buyer and co subject to their t’s and c’s (not attached but stated to be available on their website).• Seller and co deliver the widgets.• Seller and co send an invoice with their t’s and c’s printed on the back of the invoice.
  10. 10. terms and conditions• It is critical to ensure your t’s and c’s are incorporated, they are in there for a reason!• Entire agreement clauses.• Limitation and exclusion clauses.• Set off clauses.• Liquidated damages clauses.
  11. 11. express and implied terms• Express terms – what was agreed (either orally or in writing).• Implied terms – what we didn’t expressly agree.• But what the court says we must have intended to agree.
  12. 12. • It’s necessary.• Because the term gives business efficacy.• Because “it’s obvious”.
  13. 13. D was a director and shareholder in C. D was removedas a director which triggered share transfer andvaluation provisions in C’s Articles of Association,including the deemed service of a transfer noticeoffering his shares to C’s remaining members. D wasentitled to a fair value for his shareholding, to bedetermined by an accountant.D nominated three potential firms of accountants. Cselected one. However, D then refused to sign theaccountant’s letter of engagement and insteaddemanded C disclose various documents and takingissue with the terms of the letter of engagement.
  14. 14. D employed P, an estate agent, to sell someproperty. The contract expressly provided for Pto be paid commission ‘on completion of sale’.P found a buyer but D had managed to sell theproperty himself. Therefore D did not pay Pbecause the sale had not been completed by P.P argued that it was obvious that the partiesmust have intended that if P found a buyer hewould get paid.Do you think the courts were willing to implysuch a term into the contract?
  15. 15. • Course of dealing.
  16. 16. H, a United States resident, and L, a German ship building company,entered into a Commission Agreement.The parties had entered into two contracts previously for theconstruction of two motor yachts, each contract containing anarbitration clause and each providing that it would be construed inaccordance with, and governed by, English Law.The Commission Agreement was silent both as to the system of lawgoverning it and as to how any dispute was to be resolved.The court held that the two construction contracts represented acourse of dealing between the parties and the three contracts wereclosely related. The parties had silently chosen English Law to governthe Commission Agreement.
  17. 17. • Statutory implied terms.
  18. 18. Sale of Goods Actsection14 – implied terms aboutquality or fitness for purpose(1) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.(3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known …to the seller…any particular purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied.
  19. 19. B supplied piping, adaptors and valves to M, for theinstallation of a new plumbing system in a public house. Aparticular make of part ‘Uponor’ was used for the project.M then requested further materials from B, specificallyidentifying that they would be used in the same project.B supplied a different type of valve, which was incompatiblewith the adaptor supplied previously.A connection became insecure under pressure, resulting insubstantial flooding of the public house.
  20. 20. B argued it had no obligation to ensure that the valve it suppliedwas compatible with the adaptor it supplied previously.The Court of Appeal held that B had known that M was using aUponor system and had previously supplied these particularcomponents for the same project. It was an obvious inference fromM’s enquiry regarding further parts that M was making known to Bits intention to use the valves as a device intended to regulate orcontrol the flow of water in pipes used in the project. It was also anobvious inference that M was making known to B that it intended touse such valves in conjunction with the Uponor plastic piping that Bwas aware it was using.The court held that the valves were not fit for the requisite purposeand therefore B was liable.
  21. 21. Supply of Goods and Services Actsection.13 – implied term about care and skill‘In a contract for the supply of a service wherethe supplier is acting in the course of abusiness, there is an implied term that thesupplier will carry out the service withreasonable care and skill.’
  22. 22. A enters into a contract with B for the provision ofcertain specified IT services. They have not previouslydealt with one another before. A wants the servicescarried out within 28 days. However the contract issilent on the timescale in which the specified servicesmust be provided.QuestionWhen should B carry out the services by?
  23. 23. A enters into a contract with B for the provision of officecleaning services. They have not previously dealt withone another before. The contract is silent however onhow much B has to pay A for certain specified services.QuestionHow much will B have to pay A?
  24. 24. Late Payment of CommercialDebts (Interest) Act• The Act implies a term into contracts for the supply of goods and services, where both parties are acting in the course of business, that any qualifying debt under the Act will carry statutory interest at the rate of 8.5%.• In addition, the supplier is also entitled to a fixed sum of compensation.
  25. 25. (1) Express terms are best because they provide more certainty as to what has been agreed and understood.(2) Record the express terms in a written contract.(3) The ‘what if...’ test Carry out a review of your contracts. Think about the various issues that could arise in your business dealings. Do you have an express term in the contract that is sufficient to cover you or protect you in any given scenario that may arise? If not, consider whether you need to vary any existing agreements, or any existing standard form contract.
  26. 26. entire agreement clauses• The ‘Ronseal clause’. Correctly worded it does exactly what it says on the tin.• The only terms in operation between the parties are as set out in the terms and conditions. No terms can be implied.• NB some implied terms can not be excluded such as under the Sale of Goods Act it will be an implied term that the seller has good title to the goods being sold.
  27. 27. entire agreement clauses• They need to be carefully worded, lawyers try and get round them!• ‘This Agreement is the complete and entire agreement between the buyer and the seller. To the maximum extent permitted by law, no terms shall be implied by operation of law or otherwise. It supersedes all prior agreements or understandings between the parties. No modification, variation or waiver of this Agreement shall bind either party unless it is in writing and signed by an authorised representative from both parties.’• Contract is in writing with the entire agreement clause in it.• Before signing the contract the buyer mentions that he wants to purchase electrical cable to be used in a mine. It needs to be low smoke/flame retardant as a result.• Seller says cable is smoke retardant.• However this discussion does not enter the written contract which is subject to the entire agreement clause.
  28. 28. entire agreement clause• ‘This Agreement is the complete and entire agreement between the buyer and the seller. To the maximum extent permitted by the law, no terms shall be implied by operation of law. It supersedes all prior agreements or understanding between the parties. No modification, variation or waiver of this Agreement shall bind either party unless it is in writing and signed by an authorised representative from both parties.’• Is the discussion an express clause?• Can it be an implied term?• So the buyer has no remedy?
  29. 29. entire agreement clauses• Not quite here as the clause says nothing about representations.• A misrepresentation is a mis-statement as to fact or law which is made to the party misled which induced that party to enter into the contract.• Possible to exclude misrepresentations (although not fraudulent misrepresentations).
  30. 30. entire agreement clauses• Lessons for the seller, make sure they are well drafted and cover off misrepresentations.• Lessons for the buyer if the contract has such a clause make sure all of the important clauses are expressed within the contract itself!
  31. 31. liquidated damagesand penalty clauses• The general rule – damages for breach of contract committed by B are a compensation to A for the damage or loss A has suffered through B’s breach. A is, as far as money can do it, to be placed in the same position as if the contract had been performed.• Unliquidated damages – the court decides how much.• Liquidated damages – the contract provides for a particular sum to be payable upon the occurrence of one or more specified breaches of contract.• ‘If X breaches clause 7 then X shall pay to Y as liquidated damages, the amount of £500 for each day that the breach continues up to a maximum of £50,000. X and Y both acknowledge and confirm that such amount is a pre-estimate of the damage and loss likely to be suffered by Y as a result of such breach.’• Must be a genuine pre-estimate of loss.
  32. 32. • Penalty clause.• Designed to terrorise the other party into performing the contract.• Unenforceable.• A is only entitled to a sum which represents A’s actual loss.
  33. 33. • Some useful guidelines laid down by the court:- (1) The clause will be held to be a penalty if the sum stipulated is extravagant in amount in comparison with the greatest loss which could conceivably be proved to have flowed from the breach. (2) Where the promisor’s obligation is to pay a certain sum of money and the contract provides for a larger sum to be paid in the event of breach, this is a penalty. (3) If a single lump sum is payable on the occurrence of one or more or all of several events, some of which may occasion serious and others more trifling damage, there is a presumption that it is a penalty clause. (4) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage that the consequences of the breach are such as to make precise pre-estimation an impossibility.
  34. 34. • The court will try and ascertain the intention of the parties.• The fact that a clause is described as a penalty or liquidated damages clause is inconclusive.• The courts will ask if the parties intended the clause to be a genuine pre-estimate of loss. Or was the clause designed to force one party to perform the contract because of the terrible financial consequences that would arise from non-performance.
  35. 35. The defendant bought tyres from the claimant andagreed that he would not tamper with themanufacturer’s marks, sell below list price, or exporttyres without the claimant’s consent. The liquidateddamages clause provided that £50 was to paid for everytyre sold or offered in breach of the agreement.QuestionIs this a liquidated damages or a penalty clause?
  36. 36. The defendant bought cars from the claimant andagreed not to sell below list price, not to sell cars toother dealers and not to exhibit cars without permission.He also agreed that for every breach he would pay£50,000 as being ‘the agreed damage which themanufacturer will sustain.’QuestionIs this a liquidated damages or a penalty clause?
  37. 37. • Liquidated damages clause – prove the breach of contract and the fixed sum is automatically payable• Sounds good?• The defendant agreed to construct a special plant for the claimant within 18 weeks. The contract provided for £20 per week to be payable for each week taken beyond 18 weeks. The plant was completed some 30 weeks late, and the claimant claimed his actual loss of £5,850.• In this case, the clause was described as a penalty clause but it was actually considered by the Court to be a liquidated damages clause and therefore it was upheld that the claimant only recovered £600 i.e. 30 x £20.
  38. 38. This is why a well drafted liquidated damagesclause should also expressly reserve the rightto recover additional damages if the company’sdamage and/or loss exceeds the amount of theliquidated damages.‘The payment of liquidated damages by X underclause 1 above shall be without prejudice to anyother right or remedy of Y including but notlimited to the right of Y to recover damagesfrom X if Y’s damage and/or loss exceeds theamount of the liquidated damages.’
  39. 39. (1) Any liquidated damages clause has to be bespoke and properly drafted. Liquidated damages Penalty clauses Genuine pre-estimate of loss Threat to compel performance Amount stated is amount which will Clause is unreasonable and be recovered without proof of actual therefore can only recover actual loss loss Court looks at the intentions of the parties at the time of the contract in deciding whether a penalty or not
  40. 40. (2) A liquidated damages clause is not going to be appropriate for every contract.
  41. 41. exclusion clauses• A clause that excludes or limits liability.• To rely on it, it must be incorporated into the contract and on its true construction it covers the breach and the resulting loss or damage.• Incorporation by notice is allowed as previously discussed, however what is ‘reasonably sufficient’ to bring the term to a person’s notice will depend on the severity of the clause. Lord Denning’s ‘red ink with a big red hand pointing to it’.
  42. 42. exclusion clauses• The court is not a big fan!• It will be construed strictly against the party seeking to rely upon it, the contra proferentem rule.• A car is designed to carry five passengers and is actually carrying six passengers when it crashes. There is a clause in the contract exempting them from liability for damage caused ‘whilst the car is carrying any load in excess of that for which it was constructed’.• Was the insurer able to rely on that clause to exempt him from liability?
  43. 43. exclusion clauses• Statutory Limitations Unfair Contract Terms Act 1977.• Applies to contracts where one party deals as a consumer or where businesses deal with each other on one party’s standard terms.
  44. 44. Unfair Contract TermsAct 1977• You can not exclude liability for death or personal injury.• Except in so far as the term satisfies the requirement of reasonableness you can not:(i) Render a contractual performance substantially different from that which was reasonably expected of you; or(iv) In respect of the whole or part of your contractual obligations, render no performance at all.
  45. 45. Unfair Contract TermsAct 1977 reasonableness• The time for determining whether a clause is reasonable is the date upon which the contract was made.• section.3 UCTA ‘The term shall have been a fair and reasonable one to be included having regard to the circumstances which were or ought reasonably to have been known to, or in the contemplation of, the parties when the contract was made’.
  46. 46. reasonableness• Five guidelines the court looks at on reasonableness:-(a) The strength of the bargaining positions of the parties relative to each other, taking account (among other things) alternative means by which the costumer’s requirements could have been met.(b) Whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term.(c) Whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any course of dealing between the parties).(d) Where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable.(e) Whether the goods were manufactured, processed or adapted.
  47. 47. what is reasonable?• It is very fact specific.• BT’s standard term that it could terminate a contract on one months notice?• Unreasonable as it was not limited to cases where there was good reason to do so.• Terms in a contract for the supply of computer hardware and software excluding liability for indirect, special and consequential loss and imposing a two-year contractual limit for claims.• Unreasonable because the supplier ‘had so misrepresented what it was selling that breaches of contract were not unlikely’ and because the customer had no choice but to accept them• Commercial contracts with equal bargaining power, and when risks are to be borne by insurance, the Act ‘leaves the parties free to apportion the risks as they think fit…and respects their decisions’.
  48. 48. exclusion clauses• Seller – can be a huge advantage in any dispute and to some extent give you comfort and security regarding liability for insurance purposes etc. Make sure you have taken advice on their enforceability.• Buyer – Have a look at them, if you are selling on can you pass on your losses? Even if they are in there are they enforceable?
  49. 49. set-off• Set-off is a defence to a claim.• Typically the defendant may admit that he owes you £x but says that he should not have to pay you because you owe him £x or he has suffered damages as a result of the same contract which equals or exceed the sum due to you.
  50. 50. set-off• If you are the seller this can be an annoyance. It can be used by the buyer to simply delay payment and seek spurious discounts.• It can be dealt with by way of a separate clause within your t’s and c’s which bars the right to claim any entitlement to set-off or sets limits on that entitlement, such as set-off will only be allowed where you agree that the sum is owed or a court has decided that it is owed.
  51. 51. set-off• ‘The Seller agrees that any Substantiated Claim which the Buyer has against it under this Agreement may be set off against any payment due to it.’• ‘Substantiated Claim’ – A claim in respect of which liability is admitted by the Seller or which has been decided upon by the court.• Can you set off where it is not admitted or decided upon by the court but simply claimed?
  52. 52. set-off• Valuable to the seller if it is validly excluded as in the event of non payment of sums due it would be relatively easy to secure summary judgment.• To exclude set off fully it must be worded to include all types of set off, including equitable set off.• Depending on the drafting, if you are the buyer, even if there is a set-off clause it may not be fully binding. There could be ways round it.• Set off provisions, depending on how they are being used and the circumstances may come under UCTA and be the subject of reasonableness.
  53. 53. the issues that can arise on termination andhow contracts can be properly terminated• Termination clauses are common place in commercial agreements• A well drafted termination provision should clarify each party’s obligations and liabilities;-(3) Is there a right to terminate?(4) What notice must be given?(5) How should notice be given?
  54. 54. ‘This Agreement takes effect from the commencementdate and shall continue in force unless terminated inaccordance with the terms of this Agreement or byeither party serving at least three calendar monthsnotice on the other party.’‘Any notice under this Agreement shall be in writing andshall be deemed to have been duly given if delivered tothe party concerned at the address set out on the firstpage of this Agreement or such other address as thatparty may from time to time notify in writing and shall bedeemed to have been served if sent by registered post48 hours after posting.’
  55. 55. Where the contract is silent on termination therewill generally be an implied right for either partyto terminate the agreement by givingreasonable notice.What is reasonable depends on the nature ofthe contract.
  56. 56. unlawful terminationWhere a contract has been terminatedunlawfully, the innocent party may be entitled toany of the following remedies, depending on thecircumstances;-(2) Damages(3) Specific performance(4) Injunction
  57. 57. Damages - generally ordered to compensatethe innocent party for the loss it has suffered.
  58. 58. Specific performance• An order of the court compelling the party in breach to perform its contractual obligations.• Not usually granted where an award of damages would be an adequate remedy. So not normally available for breach of a contract for the sale of goods because the innocent party can normally obtain the same or similar goods elsewhere and claim damages if he has to pay more than the contract price.• But it may be granted if the goods are unique. It is most frequent in property transactions, for example an order that the seller is to transfer the title of a property to the purchaser.• Or in exceptional circumstances?
  59. 59. The defendants had agreed to supply the claimants withpetrol for their petrol stations. The defendants refusedto maintain supplies. The claimants sought specificperformance to prevent the defendants from withholdingsupplies.Do you think the order was granted?
  60. 60. Injunction• A court order to prevent wrong doing under the contract for example an unlawful termination in breach of contract.• You would need to show the other side had acted unlawfully.• You would also need to show serious irreparable harm would be done to the business if the other party was allowed to continue acting in breach of contract and that damages will not be an adequate remedy.
  61. 61. QuestionCan you ever terminate a contract lawfullywithout giving proper notice and without beingin breach?
  62. 62. • If the other party is in breach of contract and their breach is ‘material’ in nature, you may be able to elect to terminate the contract and treat yourself as discharged from your obligations under the contract.• Can be risky. You must get it right. Not every breach of contract has this effect.• If the court does not consider the breach you relied on to be material, your own actions in either withdrawing from the contract or refusing to perform your obligations under the contract could themselves constitute a material breach, exposing you to a claim for losses suffered by the other party.• So what sort of breaches do the courts consider to be material?
  63. 63. • P operated an interactive gaming business over mobile phones and the internet. G hosted several websites including the official website of the Professional Footballer’s Association (PFA).• P and G then entered into a Sponsorship Agreement. G was to provide targeted marketing opportunities consisting of sending 12 email programmes to the email addresses of at least one million opted-in recipients and six text message programmes to the mobile devices of at least 250,000 opted-in recipients.• G used ‘bought in data’.• The essential purpose of the agreement was access to commercial opportunities associated with the PFA fan awards.• The use of ‘bought in data’ constituted a material breach.
  64. 64. • E and F entered into a sponsorship contract.• E were to be the most prominent brands associated with F and were entitled to have its naming and livery rights. One particular sponsor within E was to be the sole and official airline associated with F.• F rebranded, changed its name and created a stronger affiliation with another country with its own airline.• At first instance, the court found there had been no material breach of the contract. Furthermore, as E had been aware of events and had neither complained about them nor invoked a contractual right to give notice requiring the breaches to be remedied, E was deemed to have waived the breaches.• The Court of Appeal found there had been an accumulation of repeated or continuing breaches which had ultimately become repudiatory.
  65. 65. • G and T entered into a distribution agreement.• All brands sold by G to T were intended for final sale via distributors to consumers in territories defined in the agreement. T was subject to a number of obligations designed to ensure that products were not smuggled into the UK.• T was obliged to conduct its business in accordance with G’s policy on international trade and to procure that any sub distributors also conducted business in accordance with that policy.• T was required to keep full, proper and accurate accounts.• A substantial proportion of goods supplied by G to T were seized by customs.• G gave notice to terminate the agreement. Do you think in the circumstances G’s termination was lawful or unlawful?
  66. 66. • The court held T was in serious and continued breach of its obligation to conduct its business in accordance with G’s policy on international trade and to procure that any distributors within the territories did likewise. The breaches were highly material and irremediable. G had been entitled to terminate the agreement.
  67. 67. • Where you believe the other party to a contract is in breach, be careful not to prejudice any right you may have to terminate the contract.• Be careful not to act in any way which could be regarded as ‘affirming’ the contract (thereby waiving the breach) as this may result in you losing your right to terminate.• Oil giant Shell lost the right to recover $15 million when Centurion breached a contract because Shell made a mistake when following the contract’s termination procedure.
  68. 68. • Centurion secured concessions to engage in petroleum exploration and exploitation in Egypt.• Shell entered into a joint venture with Centurion to explore for gas in the concession areas and develop the gas for export.• Shell paid Centurion US $15 million.• The intention of the parties was that Shell should acquire a 50% interest in each of the concession areas. However ‘Closing’ under the agreement never occurred and Shell’s anticipated 50% interest in the concessions never vested.
  69. 69. 3.1.8 ‘…if the Closing Date has not occurredwithin nine (9) months following the AgreementDate, then Shell may elect, by giving thirty (30)days notice in writing to Centurion, to terminatethis Agreement.’Centurion committed a serious material breachunder the Agreement.
  70. 70. ‘We note that the Closing Date has not occurred within9 months of the Agreement Date and Shell now issuesnotice of its election to terminate the FIA. Terminationwill become effective 30 days after the date of thisletter.We also note that we have not received informationfrom Centurion that Centurion has received formalnotification from the Government of its consent to theCTIP Acquisition and we therefore understand that theCTIP Acquisition has not been completed.In the circumstances, in accordance with the terms ofClause 3.1.9, Centurion shall refund any and allpayments made by Shell.’
  71. 71. Shell was mistaken. The CTIP acquisition hadhappened. As a result, Shell was not entitled to invokeclause 3.1.9. However, the act of termination pursuantto the contract affirmed the continuing existence of thecontract, which the CA said had the effect of deprivingShell of the chance to rescind the contract and claim forthe return of its $15 million investment.Mr Justice Tomlinson‘When Shell sent the Termination Letter a mistake wasmade. Indeed, it is obvious that Shell had made amistake, it must have been obvious to Centurionhowever surprising they may have found it.’
  72. 72. Mr Justice Tomlinson‘I can see no reason why Shell could not haveserved a notice which accepted the repudiatorybreach as terminating the contract but, in thealternative, in case they were wrong inasserting that Centurion were in repudiatorybreach, exercise the contractual right toterminate afforded by clause 3.1.8’.Quite an expensive mistake to make!
  73. 73. • G and B entered into a contract for the construction and purchase of an aircraft.• B did not tender the aircraft for inspection on the contractual ‘readiness date’.• After a period of 90 days of ‘non-excusable’ delay G served notice of termination and sought reimbursement of the instalments of the purchase price it had paid.• B argued G’s notice of termination was ineffective and claimed payment of the final instalment of the purchase price. Do you think the CA was willing to find in the circumstances that the breach was material and therefore the notice of termination was valid?
  74. 74. • The court held G was only entitled to terminate the contract if G had first served a written notice under the contract giving the seller the opportunity to remedy the breach.• The difference in this case is that the contract expressly said that the buyer was not entitled to terminate the contract forthwith but could only do so by first serving a written notice specifying the default or breach and granting the seller the opportunity to remedy it.
  75. 75. (1) Deciding whether or not, and if so, how to terminate a contract requires careful consideration. Do you have the right to terminate?(2) You must carefully consider whether the other parties’ breach of the agreement justifies termination, otherwise you could find yourself to be in breach.(3) Act quickly.(4) Do not do anything to prejudice your position such as affirming the contract or waiving any breach.(5) Carry out a review of all your contractual arrangements. Are there any opportunities to terminate an agreement that has become commercially unattractive or unviable?(6) Document everything, just in case!(7) Seek our advice.
  76. 76. Questions