Gesner Investments Ltd v Bombardier Inc

Where a contract provides that a buyer may terminate after a specified delay “pursuant to” a termination article, the reference may incorporate the procedure in that article, not merely its consequences. The buyer must comply with the applicable notice and cure provisions unless the contract clearly provides for immediate termination. Commercial common sense cannot displace relatively clear contractual language. Where a reimbursement clause applies an interest rate specified elsewhere, a reference fixing the date from which interest runs does not necessarily fix the rate. On the wording considered here, the applicable rate was one-year LIBOR plus 2%, varied from time to time.

Gesner Investments Ltd sought summary judgment against Bombardier Inc under an aircraft purchase agreement. The aircraft was not ready for inspection within the contractual period, and a further 90-day period of non-excusable delay expired. Gesner purported to terminate immediately and claimed repayment of instalments, interest and a retained amount of the purchase price.

The principal issue was whether the reference in article 8.4 to termination “pursuant to Article 9” required compliance with the notice and cure procedure in article 9.2. A subsidiary issue concerned whether interest under article 9.3 was fixed by the LIBOR rate on a particular date or varied over time.

1. Summary judgment dismissed. The claimant was not entitled to terminate immediately on expiry of the 90-day period.
2. Article 8.4 provided that the buyer’s right to terminate arose “pursuant to Article 9”. Read with the agreement as a whole, that wording required the buyer to exercise the termination right in accordance with article 9.2. The buyer therefore had to give written notice specifying the default or breach and allow the contractual 10-day cure period to operate.
3. The court rejected the argument that the reference to article 9 merely imported the financial consequences in article 9.3. Article 9.3 itself applied only to termination “pursuant to and in accordance with” article 9. The reference to article 9 was also significant because the agreement used different wording for termination following excusable delay.
4. The construction adopted could leave a period during which liquidated damages were not payable, but it did not offend business common sense. Where the contractual language was relatively clear, the court should be cautious about allowing commerciality arguments to displace it.
5. Although unnecessary to the result, the court determined the alternative interest issue. Article 6.2 fixed the date from which interest ran, not the applicable rate. Article 9.3 therefore required one-year LIBOR plus 2%, with the LIBOR rate varying from time to time. The court declined to correct the reference to the first day of “Excusable Delay” as an obvious drafting error.