A recent case SABIC UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 2916 (TCC) discusses some issues and risks that arise when terminating a contract. The case involved an EPC contract awarded to a subsidiary of the Defendant for the development of a polyethylene plant for SABIC (the Claimant) in the UK. Ultimately, after a number of delays in carrying out the works, the Claimant, after first sending a warning letter to the Defendant, terminated the contract and called in various payment and performance guarantees.
The key issue in the case was that the Defendant argued that the termination was invalid because the notice did not identify the termination clause by number, it did not identify the breach in sufficient detail and that the seven-day rectification period in the warning letter was too short.
The judge, in deciding for the Claimant, held that:
- such a termination notice, although required to refer to the actual termination clause in the contract, did not need to identify it by clause number;
- where a warning is given of a failure to exercise due diligence, the grounds for termination did not necessarily need to particularise the Defendant's failures; and
- even if the seven-day rectification period was too short, this would not take away from the fact it was a termination notice – it would merely allow for more time to be given to the recipient before termination. In actual fact, a month had been allowed before termination.
The case also discussed repudiatory breach – i.e. where a party by its conduct indicates an intention not to perform its obligations and how this might be relevant in the context of partial performance (as in this case) where determining a repudiatory breach may be difficult. On the facts, it was held that the Defendant's conduct came close to being repudiatory e.g. demobilising sub-contractors but it "didn't cross the line".
This demonstrates that establishing repudiatory breach in situations where there is not an absolute refusal to perform may be difficult and a termination notice which relies on an express ground for termination should be preferred.
For the case see the link (especially paragraphs 8, 10 and 11)
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