Wickman Machine Tool Sales Ltd v L Schuler AG (Schuler (L) AG v Wickman Machine Tool Sales Ltd)

A contractual term described as a condition does not invariably permit termination for every breach. The court must ascertain the parties’ intention from the agreement as a whole. Although the word strongly indicates a technical condition in a formal legal document, it is not conclusive.

A construction producing highly unreasonable consequences requires correspondingly clear language. A detailed obligation to make periodic visits was therefore subject to a separate clause permitting termination only for a material breach that remained unremedied after notice. Remedy, in relation to a continuing obligation, may mean curing performance for the future rather than reversing past consequences.

Subsequent conduct cannot generally be used to construe a written commercial contract, unless it establishes a later agreement or an estoppel.

Wickman Machine Tool Sales Ltd v L Schuler AG concerned a distributorship agreement under which Wickman held exclusive selling rights for Schuler’s products. Clause 7 required named representatives to visit six motor manufacturers every week and introduced that obligation as a condition. Clause 11 permitted termination for a material breach that was not remedied within 60 days after written notice.

Wickman failed to make some required visits. Schuler purported to terminate the agreement without completing the clause 11 procedure. An arbitrator held that Schuler was not entitled to terminate. Mocatta J reversed that conclusion on the remaining issue, but the Court of Appeal restored the arbitrator’s decision by a majority.

The central questions before the House were whether clause 7 created an independent right to terminate for any breach and whether the parties’ subsequent conduct could assist in construing the written agreement.

1. Appeal dismissed by a majority of four to one. Lord Reid, Lord Morris of Borth-y-Gest, Lord Simon of Glaisdale and Lord Kilbrandon held that Schuler had no independent right under clause 7 to terminate for every missed visit. Lord Wilberforce dissented.

2. Per Lord Reid, in the leading majority speech, the court must ascertain contractual intention from the agreement as a whole. The word condition is a strong indication that the parties intended a technical condition, but it is not conclusive. A construction producing a very unreasonable result is less likely to reflect the parties’ intention. If such a result is intended, it requires abundantly clear language. Lord Morris, Lord Simon and Lord Kilbrandon adopted materially similar approaches.

3. The majority construed clauses 7 and 11 together. Clause 7 gave the detailed visiting obligations special prominence but did not create a free-standing power to terminate for any breach, however slight or excusable. Termination depended upon the requirements of clause 11. The arbitrator had found that the unwaived failures were not material breaches, and no effective notice requiring remedy had been given under clause 11.

4. Per Lord Reid, Lord Simon agreeing, and consistently with Lord Kilbrandon’s reasoning, a breach of a continuing positive obligation may be remedied by curing performance for the future. The cure need not remove every past consequence. Arrangements preventing further missed visits could therefore constitute a remedy.

5. The House rejected reliance on the parties’ subsequent conduct as an aid to construction. Whitworth Street Estates (Manchester) Ltd v James Miller and Partners Ltd [1970] A.C. 583 was followed. Subsequent conduct may establish a later agreement or an estoppel, but otherwise cannot alter the meaning of a written commercial contract. Difficulty of construction is not equivalent to an ambiguity permitting such evidence. Watcham v Attorney-General of East Africa Protectorate [1919] AC 533, concerning an ambiguous title to land, did not establish a general rule applicable to commercial contracts.

6. Lord Wilberforce, dissenting, agreed that subsequent conduct was inadmissible. He nevertheless considered clause 7 to be a technical condition. In his view, the parties’ deliberate language carried the inherent consequence that breach permitted termination, and the court should not displace it by imposing its own standard of reasonableness. He would have allowed the appeal.

• House of Lords: By a majority of four to one, dismissed Schuler’s appeal and affirmed the Court of Appeal’s restoration of the arbitrator’s decision: Wickman Machine Tool Sales Ltd v L Schuler AG [1974] AC 235.

• Court of Appeal: By a majority, restored the arbitrator’s conclusion that Schuler was not entitled to terminate the agreement.

• High Court: Mocatta J reversed the arbitrator on the remaining issue and held that breach of clause 7 entitled Schuler to repudiate the agreement independently of clause 11.

• Arbitration: The arbitrator stated a special case and held that Schuler was not entitled to terminate or repudiate the agreement for Wickman’s breaches.