Lancashire Insurance Company Ltd v MS Frontier Reinsurance Ltd (Bermuda)

Where an agreement requires completion on a specified date but permits termination if completion has not occurred by an earlier date, business efficacy may require an implied term preventing termination after the terminating party has itself breached its obligation to complete. No implication is needed to prevent termination on the specified date if that party has not yet breached. A party does not waive or elect away a contractual termination right merely by continuing discussions about completion. Abandonment requires conduct consistent only with affirming the agreement, or a clear and unequivocal communication of that choice.

The Tenant, its landlord and the intended Assignee agreed that the Tenant would take a new lease of commercial premises and assign it to the Assignee when alternative premises were ready. The Agreement required completion on the Condition Date and contained a termination provision if that date had not occurred by 31 December 2009. The Tenant served the relevant notice on 18 December 2009, making the Condition Date 13 January 2010. Before completion on that day, the Assignee served a termination notice.

The trial judge dismissed the Tenant’s claim for specific performance, and the Court of Appeal for Bermuda upheld that decision. The appeal concerned whether the termination right could be exercised on the Condition Date and whether the Assignee had lost that right by waiver or election.

The Board dismissed the appeal and advised Her Majesty accordingly. The principal findings were as follows.

1. Construction. Clauses 2.2, 6.2 and 6.3.2 imposed an obligation to complete the assignment on the Condition Date. Clause 6.6 contained no express temporal restriction, but the Agreement had to be construed to avoid depriving a party of a remedy for the other party’s prior breach. The Board therefore implied a term that a party could not serve a termination notice after it had itself breached its obligation to complete on the Condition Date. It was unnecessary to imply a term preventing service on the Condition Date itself. At the time the Assignee served its notice, it had not breached that obligation, so the termination right remained exercisable.
2. Notice to complete. The notice-to-complete machinery in clauses 6.4 and 6.5 did not displace the separate right under clause 6.6 to terminate for non-performance where the Condition Date fell after 31 December 2009. A notice to complete was therefore unnecessary in order to invoke clause 6.6.
3. Waiver and election. The Board applied the principles stated by Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391. The Assignee’s right arose on 1 January 2010, so it was only then required to decide whether to exercise it. Its conduct between 18 December 2009 and 13 January 2010 was not consistent only with an election to affirm the Agreement, and no clear and unequivocal communication of abandonment occurred. The trial judge and Court of Appeal were therefore correct to reject waiver, election and estoppel.
4. Order. The appeal was dismissed. Subject to written representations within 28 days, the appellant was ordered to pay the costs of the appeal.

1. Privy Council — In [2012] UKPC 42, the Board dismissed the appeal from the Court of Appeal for Bermuda.
2. Court of Appeal for Bermuda — Judgment dated 5 August 2011, upholding the trial judge’s dismissal of the claim for specific performance.
3. Trial court — Kawaley J dismissed the Tenant’s claim for specific performance.