Port of Tilbury (London) Ltd v Stora Enso Transport & Distribution Ltd & Ors

A contractual term should be implied only where the strict requirements for implication are satisfied. A contract’s commercial purpose and a party’s alleged breach do not, without more, justify implying a term which qualifies an express payment obligation. Where the parties have expressly created a mechanism for genuinely disputed sums, that mechanism may override a general exclusion of set-off. It may permit a party to withhold sums otherwise payable, including an unliquidated damages claim arising from breach of the same agreement, provided the contractual dispute and notice requirements are met.

Tilbury claimed a minimum tonnage payment under a long-term paper-handling agreement. Stora Enso accepted the calculation of the sum but alleged that Tilbury’s failure to provide the contracted services had caused the shortfall.

Master Fontaine granted summary judgment, holding that the alleged implied term was not part of the agreement and that Stora Enso could not set off its damages claim. On appeal, the issues were whether the term should be implied and whether the agreement permitted Stora Enso to withhold or set off the disputed payment.

1. Implied term. The alleged term, which would have prevented Tilbury claiming the minimum tonnage payment when it was unable to provide the services, was not to be implied. Applying the conditions stated in BP Refinery (Western Port) Pty Ltd v The President Counsellors and Ratepayers of the Shire of Hastings (1978) 52 ALJR 20, the term was not reasonable and equitable, necessary for business efficacy, obvious, capable of clear expression, or consistent with the express provisions.
2. The agreement operated without the implied term because damages could provide a remedy for any breach by Tilbury. The express adjustment for destruction or material damage to the facilities made it especially difficult to imply a further exception. The ordinary response to breach was damages, rather than an implied qualification of another contractual obligation.
3. Set-off and disputed sums. Clauses 8.10 and 8.11 operated as express exceptions to the general no-set-off provisions in Clause 15. A party could withhold a whole or part of a sum which it genuinely and bona fide disputed, provided it gave timely notice stating in reasonable detail the basis of the dispute.
4. The disputed-sum mechanism was wide enough to include a claim for unliquidated damages by way of set-off against sums otherwise payable under Clause 8.10.1, including the minimum tonnage payment under Clause 8.4. Stora Enso had a real prospect of establishing the required dispute and notice. The appeal was therefore allowed.

• High Court (Technology and Construction Court): Allowed the appeal from the summary judgment of Master Fontaine dated 1 October 2007. The matter was left for submissions on the appropriate order.