April 11, 2016

The High Court has held that a supplier’s common law right to accept the purchaser’s repudiatory breach of a supply agreement was not limited to the extent of the termination provisions in the agreement.

Vinergy was an Indian company that entered into an agreement with Richmond, a UAE company, in August 2008 for the supply of bitumen by Richmond to Vinergy for an extendable term of ten years.  39 shipments took place before disputes developed, leading to Richmond terminating the agreement on 20 July 2012.

Richmond commenced arbitration proceedings claiming damages.  Vinergy denied liability and said that Richmond had unlawfully terminated the agreement for which Vinergy was entitled to damages.

The tribunal held that there had been three repudiatory breaches by Vinergy including breach of exclusivity provisions of the agreement.  The tribunal further held that Richmond had lawfully terminated the agreement and awarded it just under $6 million damages.

On appeal, Vinergy claimed that the tribunal’s finding that Richmond’s termination was lawful was wrong in law.  In particular, Vinergy submitted that the parties’ common law rights to accept a repudiatory breach as terminating the agreement were limited to the extent of the relevant termination provisions in the contract.  While the agreement did not exclude the common law right to terminate for repudiatory breach altogether, Vinergy argued that such rights, if exercised, had to be exercised in the manner prescribed by clause 17 which provided, so far as relevant, as follows:

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; ….

17.1.2   the other party suffering an Insolvency Event …….

The judge said that the main question was whether there could be implied in clause 17.1.1 an agreement that before a party terminates the supply agreement, whether pursuant to that clause or pursuant to the common law, it must follow the procedure laid down in the clause of giving notice to remedy within a period of not less than 20 days.  In the judge’s view, such an agreement could not be implied.  First, there was no mention in clause 17.1.1 of the common law right to accept a repudiatory breach as terminating the agreement.  Clause 17 as a whole provided six contractual rights to terminate, of which clause 17.1.1 was only one.  The requirement to give notice to remedy did not apply to the other five.  Thus, the agreement that could be inferred from clause 17 was that the procedure in clause 17.1.1 was intended to apply only to the specific right to terminate found in that particular clause and not to any other right to terminate including the right at common law to accept repudiatory breach.

The judge said that even if he were wrong and clause 17.1.1 did apply to repudiatory breaches, it could not apply to the breach of the exclusivity provisions because that breach was not capable of remedy.  On any view as to the scope of clause 17.1.1, Richmond was therefore entitled to accept Vinergy’s repudiatory breach of the exclusivity provisions as terminating the contract without the need to require a remedy of the breach within a period of not less than 20 days (Vinergy International (PVT) Ltd v Richmond Mercantile Ltd FZC [2016] EWHC 525 (Comm) (15 March 2016) – to read the judgment click here).