Shoulda, Woulda, Coulda: Rights Of Termination For Unknown Breaches Of Contract

The termination of contracts for breach is a notoriously complex area of the law. Parties seeking to terminate can easily find themselves subject to an allegation that their attempts were flawed, with the result that they themselves are in breach of contract and subject to rights of termination exercisable by the other party. The hunter becomes the hunted. In such cases, there is a longstanding rule that a party attempting to terminate is permitted to justify its termination on any grounds available to it at the time, even if those grounds were not yet known to it or mentioned in its notice of termination. A High Court decision last month has found that a party relying on this rule, whilst being able to justify its termination, may not be entitled to recover damages. This is a potentially controversial decision and should be carefully taken into account by parties considering rights of termination. Lonsdale Sports Limited ("Lonsdale") is the owner of the "Lonsdale" trademark used in connection with various clothing and leisure goods. Lonsdale granted Leofelis S.A. an exclusive licence to use the trademark within certain European countries. Subsequently, in September 2007, Leofelis claimed that Lonsdale had repudiated the licence agreement and purported to terminate and claim damages for loss of profit for the period remaining under the agreement. Lonsdale disputed the validity of Leofelis' termination and was successful in showing that Leofelis' original allegation of repudiation was unfounded. Leofelis then sought to rely on alternative grounds of termination not known to it at the time of its original notice in September 2007. In particular, evidence submitted by Lonsdale showed that it had granted a licence to use the trademark to a Latvian company. Leofelis alleged that the circumstances surrounding the granting of this licence amounted to a repudiation of its contract with Lonsdale and thereby provided a separate justification for its original notice in September 2007. The court accepted that the circumstances surrounding Lonsdale's agreement with the Latvian company were capable of justifying Leofelis' original notice of termination, but ruled out any claim for losses flowing from termination. As the agreement with the Latvian company was not known to Leofelis' at the time of its original notice, Roth J held that, "the alleged breach, although its nature met the test for a repudiatory breach, cannot be the cause of the termination and...