Termination Provisions: The English High Court Continues To Adopt A Strict Approach To Contractual Construction

• Published date: 02 November 2022
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Construction & Planning
• Law Firm: Mayer Brown
• Author: Mr Miles Robinson, Jonathan Cohen and Nina Rowe

In this update we discuss the English High Court's decision in Optimares S.p.A. v Qatar Airways Group Q.C.S.C. ¹ (which was handed down earlier this month), which addressed principles of contractual construction.

The dispute concerns the interpretation of termination provisions found within purchase agreements (that incorporated standard terms and conditions) relating to the design, manufacture, sale and delivery of seats for aircrafts. The Court was asked to determine the meaning of a termination for convenience clause, and the consequences which flowed from that termination right being exercised.

The judgment is a useful reminder of how the English Courts approach questions of contractual construction and the strict approach that is generally taken.

Background

In 2018 and 2019, Optimares S.p.A. (the "Claimant") and Qatar Airways Group Q.C.S.C. (the "Defendant") entered into purchase agreements for the Claimant to design, manufacture, sell and deliver seats for certain aircrafts. The purchase agreements expressly incorporated the Defendant's standard conditions (the "Standard Conditions") and provided that in the event of any inconsistency, the terms of the relevant purchase agreement would prevail. Pursuant to the purchase agreements, the Defendant agreed to pay the Claimant on delivery of the products and also pay for non-recurring costs in accordance with an agreed schedule; these being costs incurred by the Claimant in developing and producing the products.

On 22 March 2020, the Claimant served notices of excusable delay (pursuant to Clause 13.1.1 of the Standard Conditions), citing the COVID-19 outbreak in Italy and the Italian government's imposition of lockdown measures. Clause 13.1.7 provided that the Defendant was entitled to terminate the contract if the excusable delay lasted (or could reasonably be expected to last) for more than 30 days.

On 23 March 2020, the Defendant served termination notices in respect of all contracts and purchase orders placed under them. This termination was effected pursuant to Clause 12.2.3 of the Standard Conditions, namely the termination for convenience clause, which provided that:

"12.2.3 Notwithstanding anything to the contrary contained in these Standard Condition or the applicable Purchase Agreement, Qatar Airways shall be entitled to terminate these Standard Conditions, the Purchase Agreement and/or any Purchase Order for its convenience and without incurring any liability by providing three (3) months prior written notice to the Supplier for termination of these Standard Conditions and/or Purchase Agreement and fourteen (14) days prior written notice for termination of the Purchase Order." (emphasis added)

The Claimant did not...