Looney v Trafigura Beheer BV

A contractual break clause may confer an unfettered right to terminate if its language and commercial context support that construction. The court will not imply a requirement of proper or reasonable grounds merely because such a restriction might appear reasonable. Terms are implied only where necessary to give the contract its actual meaning, not merely because the proposed term would be reasonable. Express references to reasonableness elsewhere in the agreement may reinforce the conclusion that no such qualification was intended in the termination clause. A clause permitting termination at will is distinct from a clause permitting termination for breach.

Mr Kieran Looney claimed damages for breach of contract after Trafigura Beheer BV exercised a contractual early-termination provision. The agreement concerned the provision of a performance management programme for Trafigura’s senior managers. Trafigura gave notice before the contractual deadline and paid the specified £1 million termination fee.

Mr Looney argued that the clause could be exercised only on proper and reasonable grounds, particularly because Trafigura’s performance-management software allegedly reflected aspects of his programme. Trafigura contended that the clause was an unqualified break clause and that, in any event, it had reasonable grounds for termination. The central issue was the proper construction and effect of the early-termination provision.

1. The claim was dismissed. Trafigura was entitled to terminate the contract under clause 1.10 by giving written notice before the specified deadline and paying the £1 million early-termination fee.
2. The clause contained no requirement that Trafigura act on proper or reasonable grounds. Its language indicated an untrammelled entitlement to terminate, subject to payment of the specified fee. The agreement expressly used the concepts of reasonableness and acting within reason elsewhere, but did not do so in clause 1.10.
3. The clause made commercial sense without a reasonableness qualification. A transparent right to terminate was rational in relation to a contract for the provision of soft skills, where it could be difficult to apportion responsibility if the programme did not proceed as expected.
4. The fact that the contract was financially front-loaded did not prevent termination. The termination right was expressly limited to the first year, so it necessarily had to be exercised before most of the contractual fees became due. The clause could also be likened to a break clause in a lease.
5. If Trafigura considered Mr Looney to be in repudiatory breach, it could have accepted the repudiation. Having chosen to operate clause 1.10, however, it was required to pay the contractual termination fee.
6. Dominion Corporate Trustees Ltd v Debenhams Properties Ltd [2010] EWHC 1193 (Ch) was distinguishable. That case concerned termination for breach under a clause covering failures to perform contractual provisions. Clause 1.10 was not tied to breach and included compensation for termination.
7. In any event, Trafigura had reasonable and proper grounds for termination. The development of TrafiTalent pre-dated Trafigura’s dealings with Mr Looney, the two systems could co-exist, and TrafiTalent had no bearing on the decision to terminate.