Can A Contractual Term Exclude Common Law Rights?

 
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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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