How to get termination right
Published on 19th Oct 2022
When things start to go wrong in a contractual relationship, either side might want to think about terminating early. Two recent cases have examined whether parties correctly exercised their contractual termination rights.
In the first case, Optimares SpA v Qatar Airways Group, the purchase contract entered into by the parties had clauses permitting termination by the purchaser both for "excusable delay" and also for "convenience". Which clause the purchaser relied on mattered because the consequences for relying on the different clauses were different.
The purchaser terminated for convenience following lockdown in Italy, which prevented the supplier from complying with its contractual duties. It has now been held that, on the terms of the contract, it was entitled to do so, notwithstanding that it could have also terminated for excusable delay as well. In other words, the purchaser was entitled to choose which termination clause it wished to rely on.
A further point raised was whether the purchaser had an unfettered right to terminate or whether that right was qualified by an express good faith requirement in the contract which provided that "Both Parties shall act in good faith in the performance of their respective responsibilities and obligations". The judge concluded that a right to terminate does not amount to the performance of any responsibility or obligation and so there was no duty of good faith when exercising the contractual termination right. In any event, the purchaser had not exercised its right to terminate in bad faith.
In a further case, Vitol SA v Genser Energy Ghana, the defendant claimed that the claimant had not terminated the contract properly because it had failed to comply with the default notice provision. The relevant clause in the contract said that a default would be deemed to have occurred if there was no payment "within 2 banking days' notice to the defaulting party to make payment".
The claimant's "notice" was an email advising that payment was late and asking for immediate payment. The judge held that that was a valid notice under the agreement. The defendant had complained that it failed to use the word "notice" or to refer to the relevant clause in the contract. But the judge said that all that was needed was a demand for payment: if the notice was intended to set out the consequence of default, the parties could have put that in the contract.
Furthermore, a clause in the contract stated that any notice or communication was to be sent by email to two individuals and a generic email address. The judge held that there was no requirement to send the notice to all three email addresses – again, if that was intended, the contract would have said that. So it was sufficient to serve only one address.
This judgment highlights the need to spell everything out in your contract and not to assume that provisions will be read in the way you intended them to be.