Termination For Convenience Clauses Revisited. Can They Limit Potential Claims?

The nature of termination for convenience clauses

As mentioned in our alert of last year, click here to read, it is increasingly the case that contracts provide one and, sometimes, both of the parties, with the ability to terminate the contract "for convenience" or "at will". More often than not, such a provision will permit termination without having to specify a reason.

In that alert, we looked particularly at whether, in the light of English court authorities, the right to terminate under such provisions was unqualified and unconditional or subject to an obligation of good faith.

Most recently, in Comau UK Limited v Lotus Lightweight Structures Limited (unreported) 27 June 2014, Mr. Robin Knowles CBE QC, sitting as Deputy High Court Judge in the Commercial Court, considered whether a party's losses following a termination for default could be affected by the availability of a termination for convenience provision.

The facts of the case The court had to consider an application for summary judgment on liability, with damages to be assessed, and for an interim payment in connection with a claim for repudiatory breach of contract.

The contract between Comau UK Limited (Comau) and Lotus Lightweight Structures Limited (Lotus) contained both a termination for breach provision, which could be operated by either party, and a termination for convenience provision, which could be operated by Lotus.

The termination for convenience provision at clause 12.5 was as follows:

"In addition to any other rights of Lotus to terminate the Contract Lotus may, at its option, and provided it is not then in breach of any payment obligation to [Comau] under the Contract immediately terminate the whole of the Contract but not only part at any time and for any reason, by giving written notice to [Comau]. Upon such termination...Lotus' sole liability to [Comau] shall be, subject to Clause 12.7, to pay to [Comau] the aggregate of the following amounts without duplication:..."

Lotus failed to pay certain invoices as they became due and performance of the contract was suspended. Comau wrote to Lotus on 24 August 2012 referring to the termination provisions for material breach. Lotus was asked to rectify its breach and make the required payments. Lotus neither responded nor paid the sums due. On 8 October 2012, Comau wrote to Lotus giving notice that it had decided to terminate the contract with immediate effect.

Comau alleged in the legal proceedings that Lotus's...