Contract law always provides a remedy to a party in a contract affected by repudiation to be compensated for damages it will suffer for the early termination. However, drafters of contracts seem to have found a way, which is also accepted by courts, as they now include clauses which provide rights to parties to terminate contracts at any time for convenience disregarding the contractual period and its benefit to the other party.

In Redbourn Group Limited v Fairgate Development Limited,[1] the court accepted that a party could terminate a contract if it is convenient for it and if it is a right expressed in the contract. In this case Redbourn (“RGL”) concluded an agreement with Fairgate Development Limited (“Fairgate”) to act as development manager of Fairgate’s land to negotiate lease agreements with Network Rail.

RGL failed to secure the lease from Network Rail who gave the project to another investor. Due to this Fairgate, relying on clause 7 of the contract, terminated the contract for material breach. Clause 7 of the contract provides that;

“7.1 If a . . .  liquidator . . . is appointed over any part of RGL’s or FDL’s assets and undertaking, or if RGL or FDL fails to remedy a material breach of the terms of this agreement within 14 days of the other party’s notice specifying the breach, the other party may terminate RGL’s appointment by giving notice in writing.

7.2 Any termination of RGL’s appointment, howsoever arising, will be without prejudice to the rights and remedies of either party in relation to any omission or default of the other prior to such termination.” [2]

RGL claimed damages for Fairgate’s repudiation for the loss of work provided in the contract inclusive to that was the amount of works it had already done and the works it was about to do and the bonus for completing on time it was expecting to receive after the project.

The court took an economic approach in favour of Fairgate and accepted that its repudiation was justified because RGL’s employment to the project became insignificant because they had failed to deliver part of the project which was a crucial milestone of completing the said project. The court considered viability of the project more than the fairness of contractual clauses especially clause 7.2 which acted as a waiver to RGL’s right to claim for damages.

This judgment defeats the purpose of a long standing principle of repudiation. It provides the Employer with better bargaining powers over the Contractor. Termination for convenience clauses have the risk of leaving Contractors in a worse financial position if they have already purchased or placed orders of equipment in advance which is against most of the construction contracts suites which provide for clauses that the actions of the Employer should not put the Contractor in a worse financial position.

Authors:

Nikita Lalla, Chief Executive, LNP Attorneys Inc.

Ricardo Pillay, Director, LNP Attorneys Inc

Bongani Memani, Candidate Attorney, LNP Attorneys Inc.

[1] [2018] EWHC 658 (TCC)

[2] Para 18