7 February 2023
The recent case of Peregrine Aviation Bravo v Laudamotion GmbH [2023] EWHC 48 (Comm) (“Peregrine”) provides a salient reminder of the importance of a properly drafted termination notice.
It is pretty well settled law that a party terminating a contract can rely on any ground of termination available to them, even if not specified in its notice of termination. A very common example of this is where a party terminates on the express basis of a material breach of the relevant contract, but then subsequently seeks to assert that the contract was also terminated for repudiatory breach. The case of Peregrine suggests that this may no longer be an effective option for a party seeking to terminate a contract, because it may find itself precluded from claiming losses flowing from the originally unspecified ground of termination.
During the Covid-19 pandemic, a dispute arose as to whether Laudamotion, a subsidiary of Ryanair, was obliged to accept delivery of four Airbus A320 aircraft leased by the Claimants. The Claimants sought to terminate the aircraft leases for ‘Events of Default’ under the leases, and brought proceedings against Laudamotion to recover their losses. The Claimants’ termination notice referred to a right to terminate for non-acceptance of delivery and “certain additional Events of Default and breaches”.
The High Court provided obiter commentary on the impact of failing to expressly state the basis of a specific termination right in a termination notice. As a matter of interpretation of the leases, damages for termination were only due if the leases were terminated for a valid Event of Default, the relevant Event of Default here being a suspension of payment. However, the Court found that there was no evidence that it was a suspension of payment that prompted the Claimants to terminate the leases. The suspension of payments had been retrospectively identified as a ground for termination and it had not been expressly relied upon in the termination notice. Therefore, irrespective of whether it was a valid ground for termination, it could not be said that a suspension of payment, caused the losses that the Claimants sought to recover under the contract and as a result, compensation was not payable.
This case does not impact upon a party’s entitlement to defend a claim for wrongful termination of contract on the basis of a valid ground, not specified in a termination notice. However, it does cast doubt upon a party’s ability to recover losses ‘caused’ by that unspecified ground. As the comments are obiter, it is yet to be seen what impact this could have, but it seems to us an area that is ripe for further judicial input and will be, no doubt, the subject of future litigation.
In our experience, too often, termination notices are not given sufficient consideration and can be perceived to be nothing more than a simple administrative step. This case serves as a stark reminder of the importance of a properly drafted termination notice and the need to consider and, where appropriate, specify all possible avenues for termination.
If you require any further information or advice please get in touch with Nick Scott on nxs@blasermills.co.uk.