Gamit Ltd v Saudi Arabian Airlines Corp & Anor

Termination for repudiatory breach ordinarily discharges future contractual obligations, while accrued rights and ancillary obligations survive. A purchase order issued under a framework agreement does not create a separate continuing contract where it merely triggers performance under the principal agreement. Clear language is required to preserve performance obligations after termination.

Where refurbished aircraft parts are to be replaced, contractual title to unusable, unused or replaced parts passes only according to the natural meaning of those categories at the conclusion of the overhaul. A declaration concerning identified surplus parts does not establish title to every part listed if the schedule distinguishes reused or otherwise non-surplus parts.

Gamit engaged MTU to repair and overhaul four aircraft engines for the Saudi Royal Flight. The contracts required replacement of specified parts with new parts and provided for removed components to be returned to Gamit. After Gamit failed to pay MTU’s interim invoices, MTU terminated the subcontract and later completed materially similar work for Jet.

Gamit claimed damages for MTU’s alleged failure to replace disputed parts and damages for conversion, relying on the contractual title provision and a previous declaration concerning surplus engine parts. The principal issues were whether obligations survived termination, whether MTU breached any continuing obligation, and whether Gamit acquired title to the disputed parts.

1. The claim was dismissed. The purchase orders did not constitute four separate contracts. They were issued under, and merely triggered performance of, the Engine Sub-Contract. The clause providing that the agreement remained valid for purchase orders placed before termination preserved accrued rights and ancillary obligations, but did not require MTU to continue spending approximately $20 million on performance after valid termination for non-payment. Clear language would have been required to produce that result.
2. Even if MTU had remained obliged to complete the overhaul, breach was not established. The parties recognised that replacement parts might be unavailable by the planned redelivery date. Temporary reuse was contemplated where necessary, with later replacement if available and subject to approval before the aircraft returned to service. The evidence did not establish that the disputed parts should have been replaced before the relevant date.
3. The contractual title clause operated at the conclusion of the overhaul. Unusable parts were those incapable of reuse because of their condition; unused parts were those not in fact used at completion; and replaced parts were those for which a replacement had been obtained and installed. The disputed parts, having been reused, did not fall within those categories.
4. The earlier declaration concerning identified surplus engine parts did not confer title to all parts listed in its schedule. It did not determine that parts expressly marked as reused were surplus parts, and Gamit therefore had no title to those parts for conversion purposes.
5. The alternative issues of remoteness and loss did not need to determine the result. The court nevertheless observed that MTU had not been shown to know that Gamit would suffer the claimed loss and that any loss connected with non-payment by SRF would ordinarily arise from SRF’s breach.