When are remedies for breach of contract exclusive?
HARCAP v F K GENERATORS [2017]
Contracting parties are unlikely to intend to cut down the remedies which the law provides for breach of important contractual obligations and so make them exclusive remedies, without using very clear words having that effect. This was the Court’s conclusion in a case where a fee was payable for breach of contract and so this did not mean the injured party had no other remedies.
Facts:
- F K Generators (“F”) was engaged to design, finance and build a power plant and needed some additional finance.
- HarCap (“H”) was appointed to arrange the provision of a one-year bridge finance facility and the agreement entered into (“Agreement”) provided for an ‘Exclusivity Period’ of eight weeks.
- F agreed not to “enter into any agreement or arrangement with any other party relating to, [financing]” during the Exclusivity Period. If during a period of three months following the signing of the Agreement, F either:
- unilaterally cancelled or aborted the transaction, other than as a result of a failure to agree on finally legally binding terms for the transaction; or
- breached the exclusivity undertaking, an ‘Abort Fee’ of US$500,000 would be payable to H.
- In the event F entered into an agreement with V-Power under which it was to provide a loan. F then sent an e-mail terminating the arrangement with H.
- H consequently demanded the full Abort Fee and also claimed significant additional compensation.
- F argued that H was not entitled to do this as the Abort Fee was the exclusive remedy for any breach of the Agreement.
Decision:
- The Court said that there was no suggestion whatsoever in the drafting that the Abort Fee provision was intended to be exclusive so as to prevent H claiming any other remedy. The Abort Fee provisions themselves did not in any way purport to limit the right to compensation for breaches of the Agreement.
- It went on to say that if it had been the parties’ intention that H was to be limited to the Abort Fee, given the care with which the Agreement had been drafted, there should have been a very clear express provision to that effect.
- The Court then, somewhat strangely, commented that the exclusive remedy interpretation favoured by F would be inconsistent with the following wording in the Agreement:
“In enforcing their rights hereunder for any breach of this Agreement, the parties hereto acknowledge that damages are not an adequate remedy for the breach of their obligations and that the parties hereto will be entitled to any form of equitable relief, including, without limitation, specific performance and other injunctive relief, as well as the right to pursue any and all other rights and remedies (and recover any and all damages) available at law or in equity” (emphasis added by the Court).
- The Court said it did not consider this provision could have been any clearer. It felt on the ordinary and natural meaning of the words, the objective common intention of the words was to make clear that all rights to damages or compensation are maintained. This was considered to be simply inconsistent with any construction of the Abort Fee provision which would prevent recovery of damages for breaches of the Agreement.
Points to note:
- The Courts are very reluctant to find that a contracting party has waived its right to claim compensation under the general law. Purely based on the wording of the Abort Fee provision alone, it is difficult to see on what basis the Court could have come to any other conclusion. If you want to make a financial penalty the only remedy that the other party will have, it is best to say so expressly.
- Reference was made to the ‘care with which the Agreement had been drafted’. This is a reflection of the fact that the Agreement was negotiated by experienced and sizeable commercial parties who had presumably engaged lawyers to advise them. In such circumstances the Courts feel obliged to respect the express words used by the parties and consider that they have much less scope for ‘imaginative’ interpretations or to imply terms.
- We would, however, suggest that the Court’s reliance upon the ‘damages not an adequate remedy’ wording was entirely misplaced. Such a provision is purely and simply to make clear that a party is not limited to a damages claim but can also claim so-called ‘equitable’ remedies which are discretionary and do not involve an award of money; an example is an injunction. Quite why the Court thought this wording had any bearing on the exclusive nature of the Abort Fee is difficult to fathom.