Can A Contractual Term Exclude Common Law Rights?
The Court of Appeal has recently considered whether a
termination clause in a contract excluded the common law right to
treat the contract as discharged on the basis of a repudiatory
breach and to claim damages.
Gearbulk ordered three bulk carriers from Stocznia. Stocznia
agreed to build the container ships and deliver them to Gearbulk by
a specified date. The contract gave Gearbulk the right to cancel
the order and terminate the agreement if delivery was late, and
also permitted Gearbulk in these circumstances to recover pre-paid
instalments of the purchase price and interest (the contractual
remedies). The contract excluded Stocznia's liability for
'any other compensation for damages sustained by ...
delay'.
When Stocznia failed to deliver on time, Gearbulk cancelled the
order and sought the contractual remedies. In addition, Gearbulk
claimed damages for loss of bargain (which typically represent the
additional cost of sourcing replacement goods). However, Stocznia
argued that by exercising its contractual right to terminate,
Gearbulk had affirmed the contract and was only entitled to claim
the contractual remedies, and not common law damages for loss of
bargain.
The Court of Appeal disagreed with Stocznia, finding that
although the contract provided for the payment of damages as
compensation for delay, there came a point when 'the delay is
so serious that it should entitle Gearbulk to terminate the
contract' under the common law, thus enabling Gearbulk to claim
damages as well. The court consequently rejected Stocznia's
argument that the contractual provisions excluded the common law
right to treat the contract as repudiated and thus claim common law
remedies. The court was unwilling to accept that a party would give
up valuable common law rights, unless its intention to do so was
clear from the terms of the contract. As a result, Gearbulk was
entitled to repayment of the instalments of the price
plus damages for loss of bargain.
This case highlights the need for careful drafting of
termination clauses. Since a contractual termination clause does
not...
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