Businesses need to be aware of contractual pitfalls upon termination of contract
Often business contracts contain provisions allowing a party in breach of the contract a period of time in which to remedy the breach upon notice been given by the innocent party to the breaching party of the breach. If the breaching party fails to remedy, the innocent party may be entitled to terminate the contract.
In a recent case involving Bespoke Couture Ltd (“Bespoke”), a company owned by Ozwald Boateng, a well-known men's fashion designer and Artpower Ltd (“Artpower”) the Court of Appeal considered whether wording of such a clause automatically terminated the contract after the expiry of the period to remedy the breach had expired and the breach remained unremedied.
Bespoke gave notice of breach to Artpower requesting it to remedy its breach within 30day as provided by the contract. Artpower failed to remedy and the matter came to court. Bespoke argued that the breach going unremedied, the contract automatically terminated. Artpower challenged it on the grounds that the word “may” meant that some positive step had to be taken by Bespoke to bring the contract to an end otherwise an automatic termination would be a practical and commercial nonsense.
The Judge ruled in favour of Bespoke and Artpower appealed.
The Court of Appeal disagreed with the Judges' decision and ruled that the contract remained in existence at the expiry of 30-day period and that a further positive step had to be taken by Bespoke to terminate the contract. It held that such a clause entitled Bespoke to terminate the contract for failure to remedy within the time period however it was not bound to take such a step. It said that if there were to be an automatic termination such a clause would need re-writing.
Following this decision, businesses are advised to look at their terms and conditions and their business contracts. To avoid falling in the same trap as Bespoke-to find you are still obligated under the contract, businesses may consider amending their terms/contractual documentation alternatively put in place systems to ensure that steps are taken so that a notice is sent to the breaching party that the contract is terminated.
This article gives a general overview only and the legal position at the time of writing this article. It cannot be relied upon in any particular case. Specific legal advice must always be considered to include consideration as to whether the legal position contained in this article has changed since going to print. For further information and advice, please contact Nita King or Marianne Johns on 01793 527141 or alternatively by email on Nita.King@lemon-co.co.uk or Marianne.Johns@lemon-co.co.uk.
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Businesses need to be aware of contractual pitfalls upon termination of contract
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