Artpower Ltd & Anr v Bespoke Couture Ltd

A contractual clause stating that an agreement may be terminated on specified grounds ordinarily confers an option, not automatic termination. The party entitled to terminate must take a positive step and communicate its election. A notice requiring a breach to be remedied is not itself a termination notice, and a statement of future intention does not exercise the right.

Where an interim injunction is avoided by undertakings, the cross-undertaking in damages ordinarily protects against loss caused by those undertakings. An undertaking accepting money as good payment and discharge may substantively affect contractual rights, preventing a later damages claim based on inability to terminate for the same non-payment.

Artpower and Marchpole appealed from an order of Etherton J dated 6 December 2005 concerning a licence agreement with Bespoke. Artpower had withheld a payment of £200,000 plus VAT. Bespoke served a notice requiring the breach to be remedied within 30 working days and later gave undertakings in interim proceedings, including an undertaking to accept payment as good payment and discharge.

Etherton J held that the agreement terminated automatically when the remedy period expired and directed an inquiry as to damages under Artpower’s cross-undertaking. The appeal concerned the construction of the interim order, the meaning and operation of the contractual termination clause, and whether Bespoke could claim loss arising from its inability to take further steps to terminate the agreement.

The Court of Appeal allowed the appeal. The respondent’s notice was dismissed. The post-judgment discussion clarified that an existing order for an inquiry under the cross-undertaking remained, but the proposed basis of loss considered on the appeal could not be pursued.

1. Construction of the interim order. The order and its undertakings had to be read as a whole. The second undertaking preserved Bespoke’s argument that the agreement had already terminated. Accordingly, the payment would not have been a good discharge if that argument succeeded, but otherwise it was to be treated as good payment and discharge.
2. Contractual termination. Clause 9.3 conferred a right to terminate if the specified conditions were met. The word may did not make termination automatic. The non-breaching party had to take a positive step and communicate its election to terminate. The court expressly left open whether the election had to comply with the contractual notice formalities or could be made before expiry of the remedy period.
3. Effect of the correspondence. The 28 October letter merely required remedy. The 30 November letter expressed only a future intention dependent on a later choice. The 3 December letter treated 10 December as the first possible termination date, and the 7 December letter used language of futurity and amounted only to a proposal. None communicated an effective election before 10 December.
4. Cross-undertaking in damages. Undertakings given to avoid an injunction formed part of the order. The cross-undertaking therefore extended to loss caused by those undertakings, consistently with the Chancery practice cited at paragraph 5.2.2. However, accepting payment as good payment and discharge gave those words substantive contractual effect. Bespoke consequently had no basis to serve a termination notice for non-payment and could not claim loss caused by being unable to do so. Longmore LJ added that the conclusion was consistent with Mardorf Peach & Co. Ltd v Attica Sea Carriers Corporation of Liberia [1977] AC 850 and Afovos Shipping Company v Panyan & Fratelli [1983] 1 WLR 195, which required communication of withdrawal or termination.

Costs of the appeal and below were remitted for assessment.

1. High Court, Chancery Division: Etherton J, by an order dated 6 December 2005, construed clause 9.3 as providing for automatic termination and directed an inquiry as to damages under the cross-undertaking.
2. Court of Appeal (Civil Division): Appeal allowed. The automatic-termination construction was rejected, the respondent’s notice was dismissed, and costs were ordered to be assessed.