Shell Egypt West Manzala GmbH & Anor v Dana Gas Egypt Ltd

Where a contract gives an innocent party alternative termination rights with different consequences, the party must communicate clearly and unequivocally which right it is exercising. A notice invoking a contractual termination clause may therefore prevent reliance on acceptance of a repudiatory breach where the contractual and common-law remedies are inconsistent. The notice is construed objectively, in its contractual and commercial context. An obvious mistake in the stated reason does not necessarily invalidate the notice if its essential message is a clear election to terminate under the contractual provision. The court may consider the surrounding circumstances, including the parties’ negotiations and the commercial consequences of the alternatives.

Shell appealed, with leave, against an arbitration award arising from a Farm-In and LNG Co-Operation Agreement with Centurion, now Dana Gas Egypt Ltd. The arbitrators found that Centurion had committed repudiatory breaches and breaches entitling Shell to rescind, but concluded that Shell had neither accepted the repudiation nor exercised the contractual right of rescission. Instead, Shell had terminated under a clause permitting termination on 30 days’ notice after Closing had not occurred within nine months.

Shell’s termination letter mistakenly asserted that the CTIP Acquisition had not been completed and claimed a refund under the associated contractual provision. The central issue was whether, despite that mistake, the letter objectively communicated acceptance of Centurion’s repudiatory breach, or whether it constituted an election to terminate under the contractual notice provision.

1. The appeal was dismissed. The termination letter was objectively an unequivocal election to terminate under clause 3.1.8 of the FIA. It was therefore ineffective to accept Centurion’s repudiatory breach or to exercise the contractual right of rescission under clause 5.2(b).
2. Acceptance of repudiation requires no particular form. The communication or conduct must clearly and unequivocally convey that the aggrieved party treats the contract as at an end. However, where the contract and the general law provide alternative rights with different consequences, the injured party must elect between them, and the precise terms of the notice are significant.
3. The invalid invocation of a contractual termination right may in some circumstances amount to acceptance of repudiation. That principle did not assist Shell because clause 3.1.8 was an alternative contractual regime whose consequences were inconsistent with acceptance of repudiation, including the absence of any obligation to repay sums paid under the FIA.
4. The notice did not expressly cite clause 3.1.8, but its reference to electing to terminate after nine months necessarily invoked that clause. Its express reliance on clause 3.1.9 likewise presupposed an election under clause 3.1.8.
5. The objective recipient would have understood the letter, read against the parties’ negotiations and the impending US$20 million payment, as an attempt to withdraw without further obligations. Shell’s mistake concerning the CTIP Acquisition and the refund provision did not alter that essential message. The surrounding circumstances made it commercially plausible that Shell preferred certainty and withdrawal to pursuing compensation for disputed breaches.
6. The arbitrators had correctly treated Shell’s election as termination under clause 3.1.8. Their conclusion that the letter did not amount to contractual rescission under clause 5.2(b) followed necessarily.

• Arbitration: The arbitrators found repudiatory and other breaches by Centurion, but held that Shell had terminated under the contractual 30-day notice provision and had neither accepted repudiation nor rescinded under the FIA.
• High Court (Commercial Court): The appeal against the award was dismissed. The arbitrators’ conclusion was upheld.