Electro Hydraulic Technology Limited v Husco International Inc & Anor

A contractual termination mechanism does not necessarily exclude the common-law right to accept a repudiatory breach. However, a party relying on that right must make clear that it is treating the contract as discharged at common law. A notice invoking contractual termination machinery, especially one allowing the contract to continue during a notice period, will not ordinarily operate as acceptance of a repudiation. Later expiry of the notice cannot retrospectively convert it into such acceptance.

On construction, a capitalised expression used in an agreement concerned with defined technology may be shorthand for that technology rather than a free-standing generic description. The words must be considered with the agreement’s structure, surrounding circumstances and commercial purpose.

Electro Hydraulic Technology Ltd appealed from a decision of His Honour Judge Maddocks in the Queen’s Bench Division. The judge held that Husco had repudiated the Services Agreement despite EHT’s failure to comply with the contractual termination machinery. He also construed “Linear Motor Valves” broadly and granted relief concerning Husco’s independently designed valve.

The appeal concerned EHT’s alleged breach, termination by contractual notice or acceptance of repudiation, the meaning of clause 10(b), estoppel, restraint of trade and equitable relief. The central questions were whether EHT’s notice was effective and whether clause 10(b) extended beyond valves produced from EHT’s defined technology.

1. Appeal allowed. EHT’s notice under the contractual non-payment machinery was invalid because the required preliminary notice did not comply with the agreement. The Services Agreement therefore remained in force.
2. Per Lord Justice Potter, the Services Agreement did not require EHT to provide continuing sales or marketing services. Clauses 4 and 6 concerned consulting, engineering and product-development services relating to the defined technical technology. Clause 6 required personal performance of those services. EHT was not therefore in breach on the case relied upon by Husco.
3. The contractual machinery did not exclude the common-law right to accept a clearly expressed anticipatory repudiation. The party relying on that right had to make its position clear. EHT’s 30 January notice invoked the contractual machinery, provided for termination after one month and contemplated continuation of the contract. It did not accept Husco’s repudiation. EHT also elected to affirm the agreement by relying on the contractual termination provisions, and no later communication validly accepted the alleged repudiation. Leave to amend was refused.
4. The words “Linear Motor Valves” in clause 10(b) referred to valves which were a product or development of EHT’s defined “Linear Motor Valve Technology”. The expression was construed by reference to the wording, capitalisation, definitions, agreement structure, parties’ negotiations and commercial context. It did not extend to an independently designed valve which did not use EHT’s technology.
5. Because the Services Agreement had not been terminated, clause 10(b) had not become operative. EHT had no right to an injunction or damages in lieu. Its pleaded damages claim failed. Husco was entitled to judgment and to a declaration construing clause 10(b), while EHT’s entitlement to continuing monthly payments remained in principle.

• Court of Appeal (Civil Division) [1997] EWCA Civ 2409: allowed the appeal, refused leave to amend, gave judgment against EHT on its pleaded claims, and granted a declaration as to the meaning of clause 10(b).
• Queen’s Bench Division: His Honour Judge Maddocks held that EHT had not complied with the contractual termination machinery but that Husco’s conduct amounted to repudiation, and construed clause 10(b) broadly. The citation of the lower-court decision was not stated in the judgment.