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Working Paper, Nº 111 / 2015

Supply Agreement.

Pacto comisorio expreso, contrato a plazo indeterminado, fórmula indemnizatoria expresa.

El caso “Fiat Group v Lotus Lightweight Structures Limited”.

Court of Justice

Queen´s Bench Division Commercial Court

Por:

Pablo Augusto Van Thienen Director académico

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Supply Agreement. Pacto comisorio expreso, contrato a plazo indeterminado,

fórmula indemnizatoria expresa. El caso

“Fiat Group v Lotus Lightweight Structures Limited”. Por: Pablo Augusto VAN THIENEN

1. Los hechos del caso:

Fiat Auto S.p.a. a través de su subsidiaria Comau UK Ltd., (en adelante Comau) y Lotus Lightweight Structure Ltd (“Lotus”) firmaron un contrato de suministro de bienes y servicios para la nueva línea de chasis de un nuevo producto que se estaba ensamblando en la fábrica Lotus. Al tiempo de celebrarse el contrato de suministro Lotus dejó de abonarle a Comau facturas por suministro de bienes y servicios por un total de Libras 800.000, aproximadamente.

Frente al incumplimiento el pago de las facturas Comau notifica a Lotus mediante carta de fecha 14 de febrero de 2012 la suspensión del suministro, tal como la facultaba la cláusula 5.9 del contrato. O sea Comau aplica, según nuestro derecho, la “excepción de incumplimiento”. El principio de que nadie está obligado a cumplir una prestación si el co-contratante no cumple su parte.

Pasado un tiempo de negociaciones a fin de recuperar el saldo adeudado, con poco éxito por parte de Comau, ésta le envía el 24 de agosto de ese mismo año a Lotus una nota de rescisión de contrato a causa de grave incumplimiento (“Material Breach”) a las obligaciones bajo el contrato. Esa nota responde el mecanismo expresamente pactado en la cláusula comisoria (cláusula 12). Esta cláusula expresamente ordenaba la interpelación a la parte incumplidora por el plazo de 30 días para que ésta cumpla sus obligaciones.

Debido a que el grave incumplimiento era la falta de pago, Comau intimó a Lotus ponerse al día con las facturas adeudadas dentro del plazo de 30 días; caso contrario el contrato quedaría rescindido por culpa de Lotud, más daños y perjuicios. Esto último es el nudo gordiano del caso Lotus: cuáles eran los daños y perjuicios que el tribunal debía reconocerle a Comau? Correspondía reconocer lucro cesante (“Loss of Expected Profits”) o sólo la indemnización expresamente tarifada en el contrato?

Comau notificó a Lotus lo siguiente: If the above total sum is not provided within 30 days of the date of this notice, we shall terminate the contract pursuant to clause 12.3 and commence action against Lotus without further notice to recover all costs and losses incurred as a result of the breach and termination. …. Finally, we reserve

Comentario correspondiente a los encuentros de debate de jurisprudencia mercantil,

laboral y tributaria que mensualmente se llevan a cabo en el CEDEF Law & Finance.

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our right to recover those costs and losses incurred by us as a result of Lotus’s breach and the resulting suspension of services Más allá de que el caso analizado corresponde a la tierra de Shakespeare, cualquier abogado del foro advertirá una prosa y estilo gramatical idéntica a cualquier carta documento elaborada por un “boga criollo”.

Comau intima de pago a Lotus … bajo apercibimiento de: 1) rescindir el contrato por culpa de Lotus y 2) reclamar daños y perjuicios (“cost and losses incurred as a result of the breach and termination”). Hasta aquí no muy diferente a las prácticas vernáculas invocando artículo 216 del Cod. Com o 1204 del Código Civil.

Ante el silencio de Lotus y su falta de pago, Comau notificó a Lotus el 8 de octubre la decisión de rescindir de pleno derecho el contrato de suministro (with immediate effect).

2. El pacto comisorio expreso previsto en el contrato de suministro y la fórmula de indemnización pactada. Efectos sobre la rescisión contractual.

El contrato contenía la siguiente cláusula comisoria:

12. TERM AND TERMINATION 12.1 This Contract shall commence on the Effective Date and shall (subject to the provisions of this Contract) continue in force unless and until terminated in accordance with this Clause 12. Contrato por tiempo indeterminado. 12.2 This Contract may be terminated by either Party giving the other not less than 12 months notice in writing. Derecho de cualquier de las partes de rescindir sin causa con un preaviso de 12 meses. Esta cláusula o derecho se la denomina: “Terminate for Convenience”. 12.3 Either Party may terminate this Contract forthwith by notice in writing to the other Party if: 12.3.1 the other Party commits any material breach of any condition of this Contract and fails to remedy the same (assuming that the breach is capable of remedy) within thirty (30) days of service of a written notice by the non-defaulting Party specifying the breach and requiring it to be remedied … Derecho a rescindir por grave incumplimiento (“Material Breach”) si la parte incumplidora no sanea el incumplimiento en 30 días. Más allá de la cláusula 12.2 que habilita a cualquiera de las Partes rescindir sin causa, pero con preaviso de 12 meses, el contrato preveía la siguiente cláusula que habilitaba a

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Lotus a rescindir sin causa fijando un esquema indemnizatorio preciso a favor de Comau. Veamos:

12.5 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: 12.5.1 the part of the Price attributable to all Goods or Services which have been completed in accordance with the Contract and not previously paid for provided that the property in such goods shall pass to Lotus upon such payment; and 12.5.2 the whole of the cost to [Comau] of work-in-progress and raw materials as at the date of termination together with [Comau’s] margin on the same and costs which [Comau] has committed itself to incur (before or after the date of termination) in furnishing the Goods or Services under this Contract and/or having out itself in a position to comply with the Detailed Timing Plan and 12.5.3 any and all additional costs reasonably incurred by [Comau] as a result of termination under clause 12.5 … which shall include but not limited to the termination of sub-contracts entered into by and between [Comau] and its sub-contractors, and material and equipment kept in stock, and 12.5.4 the cost to [Comau] of its on Site and/or project specific labour for a period of 30 days following termination but not longer, and

12.5.5 payment of any portion of the Price due and unpaid by Lotus to [Comau] under the Contract.

O sea, Comau reconoció a Lotus el derecho a desanudar el vínculo contractual en cualquier momento pero habiendo negociado por un lado un preaviso y por el otro, el costo de salida mediante la fórmula indemnizatoria “ad-hoc” (ver cláusulas 12.5.1 a 12.5.5.).

3. El reclamo de Conau. The Repudiatory Breach under Common Law. .

Sin duda el contrato de suministro que unía a Conau con Lotus fue rescindido por culpa de éste último, habiendo Lotus adoptado una actitud confirmatoria de su culpa contractual. No sólo no abonar las facturas adeudadas sino, además, omitir toda conducta reconstructiva del vínculo contractual.

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Recordemos que el contrato era por tiempo indeterminado (“Life Time Agreement”), que se podía rescindir sin causa a opción de cualquiera de las partes, que en caso de incumplimiento la parte cumplidora podía resolverlo y por último, una cláusula comisoria “had-hoc” que preveía expresamente la facultad de rescindir sin causa a favor de Lotus y con una fórmula indemnizatoria específica a favor de Conau.

Coanu reclamó ante el tribunal indemnización de lucro cesante (“Loss of Expected Profits”) como consecuencia de que Lotus incurrió en una conducta que calificaba como Repudiatory Breach under common law. Qué significa esta noción bajo el common law?

El Repudiatory Breach es un incumplimiento fundamental o esencial del contrato que otorga a la parte damnificada derecho a reclamar daños y perjuicio;, en este caso el lucro cesante como consecuencia de la frustración de la ganancia esperada. Comau entendió que esta situación se configuró el día 8 de octubre; o sea, el día que se envió la carta dando por terminado el vínculo contractual en forma definitiva.

Sin embargo, el contrato era por tiempo indeterminado. Cómo estimar el lucro cesante frente a un contrato sin plazo?

4. Lucro cesante e indemizacion tarifada en el contrato.

El tribunal dijo lo siguiente: “The damages that Comau now presses on to seek are what it says are its lost profits on the entire project as a result of the termination of the Agreement, profits that it alleges would have been earned but for termination of the Agreement.

En efecto, Conau reclama la indemnización correspondiente al cash flow futuro dejado de percibir por culpa de su co-contratante. Es esto viable bajo los términos del contrato y del common law? Las sumas ya percibidas por Conau con motivo de los bienes y servicios ya suministrados a Lotus le dejaron alguna ganancia? Cómo calculó el tribunal esa ganancia? Veamos:

Como venimos explicando Conau reclama lucro cesante bajo el argumento de que el contrato se resolvió por culpa de Lotus bajo la calificación de “Repudiatory Breach” y bajo el common law esto significa incumplir una obligación esencial o fundamental del contrato (“Material Breach”). Según Conau la actitud de Lotus de no pagar las facturas significa haber incurrido en Repudiatory Breach. Algo similar a nuestro dolo contractual. Recordemos que según nuestro derecho positivo la responsabilidad por dolo alcanza a las consecuencias mediatas y hasta remotas. La frustración de una expectativa de ganancia futura podría ingresar en ese terreno.

Este fue el argumento de Conau: “… as a result of Lotus’ prolonged failure to pay or to make any proposals to pay the sums due under the Agreement, Lotus had clearly

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and unequivocally evinced an intention not to perform its obligations under the Agreement”

Sin embargo, el tribunal entendió que la carta enviada por Coanu a Lotus el 24 de agosto de 2012, Conau optó por someterse a los términos contractuales y, en especial a la cláusula 12 del contrato. El juez dijo: “the letter dated 24 August 2012 concerns one of the several routes available under the terms of the Agreement towards contractual termination, rather than termination following common law repudiation. When it referred to termination it was referring, alone, to contractual termination under Clause 12.3.

O sea, para el juez, el actor no tendría derecho a reclamar lucro cesante en virtud de incumplimiento doloso a una obligación esencial del contrato (“Repudiatory Breach”), pues la carta del 24 de agosto sellaría la suerte del reclamo. En opinión del juez la interpelación que Conau le formula a Lotus en esa fecha implicó optar por rescindir el contrato bajo el pacto comisorio expreso, sometiéndose por lo tanto Conau a ese pacto. Al momento de enviar Conau la carta de rescisión del 8 de octubre, el contrato ya se encontraba rescindido por efectos del pacto comisorio expresamente pactado en la cláusula 12.

5. Indemnización de daños. El quantum indemnizatorio. Impacto de la cláusula comisoria y contrato por plazo indeterminado.

Recordemos que la relación contractual entre Comau y Lotus fue por tiempo indeterminado (“Full Life Agreement”) y con la opción a favor de Lotus de rescindir sin causa en cualquier momento debiendo indemnizar a Comau los rubros específicamente pactados en el contrato (cl., 12.5). La contienda se centró en lo siguiente: asiste derecho a Comau para reclamar lucro cesante (“Lost of Expected Profits”)?

Lotus sostuvo que, más allá de su conducta culposa, siempre tuvo el derecho a rescindir el contrato en cualquier tiempo y por lo tanto, la expectativa de futuras utilidades no era un derecho cierto, sino eventual y contingente sujeto a la voluntad de Lotus de proseguir con la relación comercial. Por lo tanto Comau no puede reclamar la pérdida de un flujo de fondos futuro que era sólo una mera expectativa.

Lotus sostuvo lo siguiente: “… the quantum of any claim for damages is nil because Lotus would have been entitled to terminate the Agreement pursuant to Clause 12.5 if it had not been in breach of its obligations to pay the sums due under the Agreement and that damages should therefore be assessed on the basis that Lotus would have exercised this right”.

El juez confirmó esta línea argumental, más allá de que el contrato se terminó rescindiendo por culpa exclusiva de Lotus. O sea, debido a que la cláusula comisoria facultaba a Lotus a rescindir “sin culpa”, el juez le dio la razón a Lotus sobre la base de que el contrato por tiempo indeterminado no aseguraba un flujo de fondos futuro y por ende una expectativa seria de ganancia pues ese “cash

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flow” estuvo siempre sometido al “riesgo de frustración de expectativa” en virtud de la cláusula de salida pactada en la cláusula comisoria.

En este sentido el juez sostuvo lo siguiente: “By the time of termination, the sums Lotus had already paid under the Agreement exceeded the costs that Comau had incurred in its performance of the Agreement. According to Lotus … Comau has made a profit of approximately £500,000 under the Agreement” Y agregó “…. Leaving out of account its claim for additional lost profit on variations to the Specification which it believes would have been made if Lotus had complied with its payment obligations under the Agreement Comau says its expected profit on the entire project absent any changes (i.e. the Price less anticipated costs) was £1,147,332.62 (i.e. £4,884,353.00 less £3,737,020.38). (…) The total amount of the invoices which have been paid by Lotus is £732,652.95 and the costs incurred by Comau in relation to the project before the Agreement was terminated were £207,272.00. The difference between these amounts is £530,380.95. This must be deducted from Comau’s expected profit figure to give a lost profit figure of £616,951.67. In that context it seeks an interim payment of £500,000”.

En definitiva el juez entendió que si la expectativa de ganancia por todo el contrato era de 1.147.332, la ganancia obtenida hasta su rescisión fue de 530.380,95. O sea, el juez concluyó dos cosas: (i) Comau obtuvo una ganancia aun cuando el contrato fue rescindido antes de completarse la totalidad del proyecto y (ii) Camau no tenía un derecho firme a la ganancia total, sino que dicha ganancia era una mera expectativa dada la opción de salida pactada a favor de Lotus (cl.,12.5).

6. El pacto comisorio expreso y la indemnización tarifada a favor del suministrador.

El contrato contenía una fórmula indemnizatoria que bien vale la pena analizar y revisar para advertir y darnos cuenta que esta cláusula necesita ser redactada debiendo el abogado entender las necesidades de cada una de las partes. Esta cláusula nos invita a dejar de lado modelos y ser más creativos a la hora de redactar estos pactos. Veamos:

12.5. “… Upon termination … Lotus’ sole liability to Comau shall be (…) to pay to Comau the aggregate of the following amounts without duplication: 12.5.1 the part of the Price attributable to all Goods or Services which have been completed in accordance with the Contract and not previously paid for provided that the property in such goods shall pass to Lotus upon such payment; and 12.5.2 the whole of the cost to Comau of work-in-progress and raw materials as at the date of termination together with Comau’s margin on the same and costs which Comau has committed itself to incur (before or after the date of termination) in furnishing the Goods or Services under this Contract and/or having out itself in a position to comply with the Detailed Timing Plan and

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12.5.3 any and all additional costs reasonably incurred by Comau as a result of termination under clause 12.5 … which shall include but not limited to the termination of sub-contracts entered into by and between Comau and its sub-contractors, and material and equipment kept in stock, and 12.5.4 the cost to Comau of its on Site and/or project specific labour for a period of 30 days following termination but not longer, and 12.5.5 payment of any portion of the Price due and unpaid by Lotus to Comau under the Contract

provided that the margin to which Comau shall be entitled as referred to in clause 12.5.2 shall equate to the same percentage margin which Comau can show on an accountancy basis it had (on the date of this Contract) anticipated earning in the performance of its obligations under the Contract as reflected in the Price at such date.

7. Pacto comisorio y nuevo código civil y comercial.

Se advierte, con suma claridad, el diseño “ad-hoc” de la cláusula comisoria y la fórmula indemnizatoria. Comau habría negociado con Lotus el costo de salida y la forma de proteger sus intereses económicos frente a la rescinsión sin causa de la relación comercial. La pregunta que debemos formularnos es si frente al nuevo código civil y comercial – que expresamente dispone una fórmula indemnizatoria legal – deja abierta la puerta para diseñar una cláusula semejante a la del caso Comua-Lotus.

Nosotros entendemos que SI.

Y esta cláusula nos habilita a formularnos otra pregunta: podría un juez indemnizar a Conau bajo otra fórmula diferente a la expresamente pactada por las partes?

Nosotros entendemos que NO.

8. Enseñanzas del caso Comau.

El caso Fiat Group v Lotus Lightwight Structures Limited nos deja las siguientes enseñanzas:

i. El common law comparte en relación del derecho contractual principios muy similares a nuestro derecho codificado de raíz romano – francesa.

ii. El impacto económico de la “cláusula de salida” en un contrato de plazo indeterminado y la necesidad de redactar pactos comisorios comprendiendo las necesidades de cada una de las partes.

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iii. La posibilidad de redactar pactos “comisorios asimétricos”.

iv. Términos jurídicos tales como: “Expectation of Profit”, Lost of Profit”, “Repudiatory Breach”, y “Termination for Convenience”.

Esperamos que el caso haya resultado de tu interés.

Te recomendamos leer el caso adjunto

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Neutral Citation Number: [2014] EWHC 2122 (Comm)

Case No: 2011 Folio 782

IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

COMMERCIAL COURT

Date: 27 June 2014

Before:

MR. ROBIN KNOWLES CBE QC

(Sitting as a Deputy High Court Judge)

- - - - - - - - - - - - - - - - - - - - -

Between:

COMAU UK LIMITED Claimants

- and -

LOTUS LIGHTWEIGHT STRUCTURES

LIMITED

Defendants

- - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - -

MR. RUPERT ALLEN (instructed by Clyde & Co LLP) for the Claimant

MR. MATTHEW LAVY (instructed by Olswang LLP) for the Defendant

- - - - - - - - - - - - - - - - - - - - -

Judgment

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Introduction

1. The Claimant (“Comau”) is part of the Fiat group. It seeks summary judgment on liability

against the Defendant (“Lotus”), part of the Lotus group, with damages to be assessed,

and an interim payment.

2. The claim arises from a written contract between the parties dated 30 November 2011

(“the Agreement”). By the Agreement Comau (replacing Comau Estil) agreed to supply

to Lotus goods and services relating to the installation of a new production line for

the manufacture of the chassis for a new model of car at Lotus’ factory.

The Agreement and events following

3. The Agreement provided for Lotus to pay the contract price in accordance with a staged

payment schedule. Lotus failed to pay sums due on two invoices rendered by Comau in

accordance with the schedule. The invoices were in the sums of £293,061.18 and

£586,122.36 and were due for payment by 30 December 2011.

4. On 14 February 2012, Comau sent a letter to Lotus stating that the invoices were overdue

for payment and giving 7 days’ notice of its intention to suspend the performance of

its own obligations as it was entitled to do under a clause of the Agreement. On or

about 12 March 2012, the first invoice for £293,061.18 was paid by Lotus. Lotus paid a

further £50,000 on 24 April 2012. Thus at that point £536,122.36 remained outstanding

from Lotus under the second invoice. Comau’s performance of its own obligations

remained suspended in accordance with the Agreement.

5. Clauses 12 of the Agreement includes these terms:

“12.TERM AND TERMINATION

12.1 This Contract shall commence on the Effective Date and shall (subject to the

provisions of this Contract) continue in force unless and until terminated in

accordance with this Clause 12.

12.2 This Contract may be terminated by either Party giving the other not less than

12 months notice in writing.

12.3 Either Party may terminate this Contract forthwith by notice in writing to the

other Party if:

12.3.1 the other Party commits any material breach of any condition of this

Contract and fails to remedy the same (assuming that the breach is

capable of remedy) within thirty (30) days of service of a written notice

by the non-defaulting Party specifying the breach and requiring it to be

remedied …

12.4 …

12.5 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,

___________________________________________________________________________________

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subject to Clause 12.7, to pay to [Comau] the aggregate of the following

amounts without duplication:

12.5.1 the part of the Price attributable to all Goods or Services which have

been completed in accordance with the Contract and not previously

paid for provided that the property in such goods shall pass to Lotus

upon such payment; and

12.5.2 the whole of the cost to [Comau] of work-in-progress and raw materials

as at the date of termination together with [Comau’s] margin on the

same and costs which [Comau] has committed itself to incur (before or

after the date of termination) in furnishing the Goods or Services under

this Contract and/or having out itself in a position to comply with the

Detailed Timing Plan and

12.5.3 any and all additional costs reasonably incurred by [Comau] as a result

of termination under clause 12.5 … which shall include but not limited

to the termination of sub-contracts entered into by and between

[Comau] and its sub-contractors, and material and equipment kept in

stock, and

12.5.4 the cost to [Comau] of its on Site and/or project specific labour for a

period of 30 days following termination but not longer, and

12.5.5 payment of any portion of the Price due and unpaid by Lotus to

[Comau] under the Contract

provided that the margin to which [Comau] shall be entitled as referred to in

clause 12.5.2 shall equate to the same percentage margin which [Comau] can

show on an accountancy basis it had (on the date of this Contract) anticipated

earning in the performance of its obligations under the Contract as reflected in

the Price at such date.

12.6 …

12.7 In respect of the sums which may become payable by Lotus to [Comau]

pursuant to Clause 12.5, [Comau] agrees to use reasonable endeavours to

mitigate the exposure of Lotus to pay such sums to [Comau] which mitigation

shall include but not be limited to

12.7.1 disposing of or redeploying surplus material acquired in relation to the

Goods or Services at such prices or values as may be reasonably

available on the UK market, and

12.7.2 promptly informing its subcontractors and suppliers to stop work and

cease to incur additional costs, and

12.7.3 negotiating such settlement with its suppliers as may result in any

material saving.”

6. By letter dated 24 August 2012 Comau wrote to Lotus. The full text of the letter is as

follows:

“Dear Sir

Lotus Lightweight Structures Limited (“Lotus”)

___________________________________________________________________________________

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Project Fuji – Contract number 025720 (“the Contract”)

Notice of Material Breach of Contract

We refer to our notice dated 14 February 2012, to our meeting in Hethel with

yourselves on 22 March 2012 and to the email from Andrew Lloyd to David Hewitt

dated 3 July 2012.

Performance of the Contract was suspended by notice dated 14 February 2012

pursuant to clause 5.9 of the Contract due to the non-payment by Lotus of invoices

E/11231 and E/11230.

Invoice E/11230 has since been paid.

Invoice E/11231 (copy attached) remains unpaid.

Pursuant to clause 5.2 of the Contract, the Specification and the Payment Schedule,

Invoice E/11231 was due for payment on 30 December 2011.

Lotus’s failure to pay invoice E/11231 amounts to a material breach of the Contract.

Please accept this letter as our written notice pursuant to clause 12.3.1, specifying

that Lotus is in material breach of the Contract and requiring this breach to be

remedied within 30 days.

In order to remedy this material breach, Lotus must:

1. Pay invoice E/11231 in the amount of £488,435.30;

2. Pay interest (calculated at 4 per cent above the Bank of England Base Rate

pursuant to clause 5.8 of the Contract) in the amount of £14,231.85 as at

the date of this letter and increasing at the rate of £60.05 per day.

The total outstanding is therefore £502,667.15.

Payment of the total outstanding sum should be made to the following account:

If the above total sum is not provided within 30 days of the date of this notice, we shall

terminate the contract pursuant to clause 12.3 and commence action against Lotus

without further notice to recover all costs and losses incurred as a result of the breach

and termination.

In addition to the outstanding payment, we require the technical information and data

necessary to perform our contractual activities pursuant to clause 9.3 of the Contract

along with Lotus’s authority to proceed on the basis of the information provided.

Finally, we reserve our right to recover those costs and losses incurred by us as a

result of Lotus’s breach and the resulting suspension of services.

We look forward to receipt of the above payment within 30 days of this letter.

All our rights remain reserved.

Yours faithfully”

7. Lotus did not pay the sums still due, or otherwise respond to the letter. On 8 October

2012, Comau wrote again. It gave notice to Lotus that it had decided to terminate the

Agreement with immediate effect.

The Claim and the Application of Repudiatory Breach

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8. Although the Agreement contains a number of provisions dealing with contractual

termination, Comau alleges that Lotus’ conduct was also in common law repudiatory

breach of the Agreement and that Comau accepted that repudiatory breach on 8 October

2012, entitling it to damages. In due course it began these proceedings.

9. At an early stage in these proceedings Lotus consented to judgment being entered on a

claim in debt in the principal sum of £536,122.36 (the sum still outstanding on the second

of the two invoices). The damages that Comau now presses on to seek are what it says are

its lost profits on the entire project as a result of the termination of the Agreement, profits

that it alleges would have been earned but for termination of the Agreement.

10. The Court has the power under CPR r 24.2 to grant summary judgment in favour of a

claimant on a claim or issue if it considers that the defendant has no real prospect of

successfully defending the claim or issue and there is no other compelling reason why the

case or issue should be disposed of at a trial. The Court should not conduct a “mini-trial”

on an application for summary judgment. The relevant principles to be applied were

helpfully summarised by Lewison J (as he then was) in Easyair Ltd v Opal Telecom Ltd

[2009] EWHC 339 at paragraph [15].

11. Lotus accepts that if it was in repudiatory breach, then the letter of 8 October 2012

operated as an acceptance of such repudiation. Consequently, the question on liability is

whether Lotus has real prospects of successfully defending Comau’s allegation that it was

in repudiatory breach of the Agreement as at 8 October 2012.

Liability

12. In Dalkia Utilities Services plc v Celtech International Ltd [2006] 1 Lloyd’s Rep 599;

EWHC 63 (Comm) at [131] Christopher Clarke J (as he then was) derived the following

propositions from authority relating to the making of time of the essence:

“(a) Equity, before the Judicature Acts, insisted that prima facie time for payment was

not essential. But equity’s patience was exhaustible. It would allow the contract to be

treated as repudiated if the party in default had been given the opportunity to mend his

ways by the giving of a notice to comply within a reasonable time. Whilst this is

described as making time of the essence in reality the notice is the means of bringing

to an end equity’s interference with the contract: Behzadi v Shaftesbury Hotels Ltd

[1992] Ch 1;

(b) Such a notice, which may be given in respect of any species of term, may not be

served until the time for performance has expired; but it may be served as soon as that

time arrives;

(c) Such a notice must state clearly what the other party is required to do and the

consequence if he fails ie that the contract may be terminated; Afovos Shipping Co SA

v R Pagnan and Flli (The Afovos) [1982] I Lloyd’s Rep562, 565 col 2’ [1882] 1 WLR

848, 854C;

(d) If the defaulting party fails to perform after service of such a notice, the failure is

not automatically a repudiation of the contract, giving rise to a right to terminate. The

breach must go to the root of the contract;

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(e) The notice operates as evidence of the date by which the promisee considers it

reasonable to require the contract to be performed, failure to perform by which is

evidence of an intention not to perform: see Lord Simon of Glaisdale in United

Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, 946E-947A;

Astra (UK) Ltd v Time Group Ltd [2003] EWHC 725 (TCC) para 147.”

13. Comau accepts that Lotus’ obligation to pay in accordance with the schedule was not a

condition of the Agreement in the sense that not every failure to pay a sum on time would

amount to a repudiatory breach. In oral submissions Mr Rupert Allen, its Counsel, also

rightly conceded that inability to pay was not an automatic inference from a failure to pay.

Comau contends however that as a result of Lotus’ prolonged failure to pay or to

make any proposals to pay the sums due under the Agreement, Lotus had clearly

and unequivocally evinced an intention not to perform its obligations under the

Agreement.

14. Comau argues it was reasonably entitled to conclude that Lotus did not intend or was

unable to perform its payment obligations under the Agreement and was deprived of

substantially the whole of the benefit of the obligations of Lotus under the Agreement

which remained unperformed. Mr Allen submits that on the facts this was the only

reasonable inference from the way Lotus was behaving, and he emphasises that Lotus has

not put in evidence to say what further facts would require exploration at trial. How long,

he asks rhetorically, was Comau expected to wait?

15. The points emphasised by Comau in written and oral submissions include these: the sums

fell due in respect of both invoices on 30 December 2011; together the invoices amounted

to just 15% of the Price; the payment of the first invoice was late; nothing followed a

meeting in March; only partial payment (less than 10%) of the second invoice was made

in the sum of £50,000 and that was later still; the terms used by Comau in writing to Lotus

on 24 August 2012; Lotus’ absence of response to that letter to make any proposals for

payment of the outstanding sums or to explain its previous failure to pay; and the fact that

by October Lotus had only paid 5.9% of the total contract price and Comau’s obligations

under the Agreement had been suspended for almost 8 months.

16. After due consideration I take the view that Lotus has real prospects of successfully

defending Comau’s allegation that it was in repudiatory breach of the Agreement as at 8

October 2012. I draw particular attention to these features:

(a) Read closely the letter dated 24 August 2012 concerns one of the several routes

available under the terms of the Agreement towards contractual termination, rather

than termination following common law repudiation. When it referred to termination

it was referring, alone, to contractual termination under Clause 12.3.

(b) Lotus’ silence in response does it no credit, but must be construed in the context of

what the letter dated 24 August said and the fact that the Agreement remained in the

interim condition of suspension.

(c) As circumstances, the previous late payment and additional part payment are

consistent with an intention to perform rather than evidence of intention not to do so.

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(d) The percentages invoiced or paid as a proportion of the total contract price paid leave

out of account the point that by reason of Clause 12.5 the total contract price might be

a great deal less; a subject to which I return below.

(e) The period of suspension since the letter dated 24 August 2012 was 7 weeks, and in

context that is a comparatively modest period of continuation of the suspension.

(f) It was open to Comau to send a further letter making quite clear that it was proposing

now to rely on its rights at common law, and to that end that it was making time of the

essence and that it would treat continued unexplained failure to pay as in repudiatory

breach. It did not do this.

17. Comau argues that it cannot be the case that it was required to wait indefinitely for Lotus

to pay the sums due without terminating the Agreement and claiming damages for its loss

of bargain. I agree. But as Mr Matthew Lavy, Counsel for Lotus, pointed out in oral

argument the question is not whether Comau would have to wait indefinitely but what the

position was at 8 October 2012.

Quantum

18. Comau submits that the purpose of requiring Lotus to pay the contract price in accordance

with the schedule was to fund the substantial work which Comau was required to carry

out under the Agreement. I interpose to note that, that may be right but equally it may not

be, or it may not be the whole picture; the schedule might at least, to some degree, be

there to manage credit risk or to deliver some profit early. Comau also submits that unless

and until Lotus paid the outstanding sums due, Comau could not reasonably be expected

to resume work and accordingly unless Lotus paid there was no prospect of Comau being

able to raise invoices for the balance of the contract price under the Agreement and

thereby to make the profit that it reasonably expected to make under the Agreement.

19. Contained within these submissions on behalf of Comau is the premise of an entitlement

to a “full life” contract. Although if I am right on the application for summary judgment

the application for an interim payment falls away, and if I am wrong it is in the nature of

an interim payment application that I would not rule finally on the final figure for

damages, in light of the full argument I have heard, it may be useful if I record that even

had I been persuaded on liability I would have declined to order an interim payment in the

sum of £500,000 sought, or in fact any sum.

20. The reason is that in my judgment the existence of Clause 12.5 shows that Comau

probably did not have the entitlement it suggests, and on which the thrust of its claim is

premised. Mr Allen submitted that one could not treat Clause 12.5 as defining the scope of

the parties’ reasonable expectations, and that it did not cut down what he described as

Comau’s “expectation interest”. In my judgment, the Clause probably does both these

things.

21. Leaving out of account its claim for additional lost profit on variations to the Specification

which it believes would have been made if Lotus had complied with its payment

obligations under the Agreement Comau says its expected profit on the entire project

absent any changes (i.e. the Price less anticipated costs) was £1,147,332.62 (i.e.

£4,884,353.00 less £3,737,020.38). Comau accepts however that it must give credit

against this sum for the sums received from Lotus in payment of the invoices less the

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amount of any costs already incurred. The total amount of the invoices which have been

paid by Lotus or in relation to which judgment has already been obtained against Lotus is

£732,652.95. The costs incurred by Comau in relation to the project before the Agreement

was terminated were £207,272.00. The difference between these amounts is £530,380.95.

This must be deducted from Comau’s expected profit figure to give a lost profit figure of

£616,951.67. In that context it seeks an interim payment of £500,000.

22. Lotus argues that the quantum of any claim for damages is nil because Lotus would have

been entitled to terminate the Agreement pursuant to Clause 12.5 if it had not been in

breach of its obligations to pay the sums due under the Agreement and that damages

should therefore be assessed on the basis that LLS would have exercised this right. The

payment schedule was structured so that sums were payable at the start of each phase of

the project. By the time of termination, the sums Lotus had already paid under the

Agreement exceeded the costs that Comau had incurred in its performance of the

Agreement. According to Lotus the position once (as I understand has happened) the

whole of invoice E/11231 has been paid is that Comau has made a profit of approximately

£500,000 under the Agreement.

23. In my judgment, viewing things at this interim stage in the proceedings:

(a) The present appears to be in the class of case in which the defendant’s contractual

obligations might have been lawfully performed in different ways.

(b) Accordingly the approach considered by the Court of Appeal in Durham Tees Valley

Airport Ltd v BMI Baby Ltd. [2011] 1 All ER (Comm) 731 at [79], cited by Comau, is

probably not in point. Patten LJ was there concerned with the question of what level of

performance is to be assumed in the assessment of damages in the context of a

contract which imposed a single obligation that did not specify any particular level of

performance (e.g. number of aircraft movements).

(c) Rather, the present case appears to fall for analysis in accordance with the reasoning of

Atkin LJ in Abrahams v Herbert Reiach Ltd [1922] 1 KB 477 at 483:

“if a merchant makes a contract to deliver goods to a shipowner to be carried

by him for reward, and the merchant fails to provide the goods, the Court must

first find what is the contract which has been broken; and if it was to carry the

goods to one of two alternative ports at different distances from the port of

loading at rates of freight differing according to the distance, the only contract

on which the shipowner can sue is a contract for carriage to the nearer port.

The plaintiff cannot prove a contract for performance of the more onerous

obligation. This explains why in cases of this kind the Court regards only the

lesser of two alternative obligations.”

(d) Comau’s contractual expectation interest accordingly appears to be limited to such

profit as it might have made until such time as Lotus chose to “terminate for

convenience” under Clause 12.5.

(e) It appears that Comau’s loss is be assessed on the basis that but for its breach Lotus

would have availed itself of clause 12.5 to reduce its liability to Comau. In point is this

passage from Chitty on Contracts 31st edition Vol 1 at 26-074:

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“If the defendant fails to perform, when he had an option to perform the

contract in one of several ways, damages are assessed on the basis that he

would have performed in the way which would have benefited him most, e.g.

at the least cost to himself… A similar situation arises where the contract-

breaker had an option to terminate the contract: if the claimant accepts the

anticipatory breach of the defendant as a ground for terminating the contract,

but the defendant could have exercised his option to terminate the contract so

as to extinguish or reduce the loss caused by the anticipatory breach, the court

will assess the damages for breach on the assumption that the defendant would

have exercised the option”

See also Lord Denning MR in The Mihalis Angelos [1971] 1 QB 164 at 196G-197A.

(f) The fact, to which Mr Allen draws attention, that Lotus was only entitled to invoke

clause 12.5 if it was not in breach, does not appear to be relevant because the

assessment looks at what Lotus would do if there had not been a breach.

(g) It appears that any assessment of damages would proceed on the assumption that

Lotus would have exercised its rights under clause 12.5, because any other assumption

ignores the limited nature of Comau’s “expectation interest” – that Comau was never

entitled to profits on the whole of the goods and services to be supplied pursuant to the

Agreement but was only ever entitled to such profit as it might have gained prior to

any “termination for convenience”. If the effect of clause 12.5 is ignored when

assessing damages, the effect would be to give Comau the benefit of a better bargain

than it actually made.

(h) In light of what has happened it appears that Comau will not be awarded more than

nominal damages even if it does establish liability.

Conclusion

24. In all the circumstances I refuse the application for summary judgment and for an interim

payment.