Associated British Ports v Ferryways NV & Anor

A contractual minimum-throughput obligation may be a primary obligation to provide a revenue stream, rather than a secondary obligation triggered by breach. Its enforceability as a penalty depends on its true construction and function.

Where a contract defines the units attracting the obligation, the court must construe that definition against the factual matrix and the contract as a whole. A surety is discharged by an unauthorised variation of the principal contract which could prejudice the surety, including the giving of time to pay, even where no actual prejudice results.

Associated British Ports claimed sums from Ferryways NV under a long-term port services agreement, including handling charges, minimum-throughput payments and damages following Ferryways’ cessation of trading. It also claimed against MSC Belgium NV under a written letter concerning Ferryways’ performance.

The court was asked to determine issues of principle concerning the meaning of “Unit”, the penalty rule, the calculation of damages for the remaining contractual term, the character of MSC Belgium’s obligations, and whether later arrangements between Associated British Ports and Ferryways discharged those obligations.

1. Meaning of “Unit”. The agreement was construed against its factual background, including the earlier agreement, the services to be performed, the different functions of customer trailers and slave trailers, and the cost of the new linkspan. Empty slave trailers were outside the definition of “Unit”. The words “accompanied or unaccompanied” referred to customer trailers, which might be either accompanied or unaccompanied. Cars and tractors were also outside the definition because agreeing a handling charge did not itself amount to agreeing that they fell within “Unit”. [2008] EWHC 1265 (Comm), paras 46–52.
2. Minimum-throughput obligation. Clause 4.3 was a primary obligation to provide an annual revenue stream calculated by reference to a fixed number of Units and the applicable contract rate. It was therefore not a secondary obligation imposed in terrorem for breach and was not a penalty. The shortfall was calculated using the uniform trailer rate, so no averaging exercise arose.
3. Damages. The claim for the first half of 2007 was a damages claim because, at the time of repudiation, it was not yet known whether the annual minimum would be achieved. For the remaining term, damages were subject to credit for saved expenses, substitute business or business which should reasonably have been obtained in mitigation, the treatment of any residual or resale value in the linkspan, and discounting for early receipt. [2008] EWHC 1265 (Comm), paras 53–56.
4. Guarantee. The letter agreement imposed secondary liabilities. Its substance was an obligation to ensure that Ferryways performed its contractual obligations, rather than a primary undertaking or indemnity. The analysis turned on substance and construction, not the form of the document: Moschi v Lep Air Services Ltd and Harburg India Rubber Comb Company v Martin.
5. Effect of variations. The August 2004 arrangement did not discharge the guarantees because it caused no actual or potential detriment. It confirmed the true meaning of the agreement as to empty slave trailers and gave Ferryways a benefit concerning later price increases.
6. The February 2006 memorandum was a binding variation giving Ferryways time to pay. The giving of time, without the surety’s assent, discharged the guarantees notwithstanding the absence of actual prejudice: Polak v Everett. MSC Belgium had not consented. Its claim was therefore dismissed. If the sums due from Ferryways could not be agreed, quantum required a further hearing.