Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd

A commercial contract must be construed as a whole and in its commercial context, even where particular words appear clear in isolation. Where language permits more than one construction, the court may prefer the meaning consistent with business common sense and the contract’s commercial purpose.

Clear words are required to displace remedies arising by operation of law. An exclusion clause should not ordinarily be read so widely that one party’s obligations lose contractual force. In this case, an exclusion of specified financial losses suffered “in relation to” the agreement applied to defective performance, but not to losses caused by a repudiatory refusal or disabling inability to perform.

The appellant catering company was appointed as the exclusive catering supplier at the respondent’s conference and exhibition venues under a five-year agreement requiring extensive continuing co-operation. After more than three years, the respondent purported to terminate the agreement. The appellant treated that conduct as a repudiatory breach and claimed, among other relief, £1.3 million for profits allegedly lost during the remaining term.

A preliminary issue asked whether clause 18.6 excluded liability for the claimed loss of profits, assuming that the respondent had repudiated the agreement. The High Court, in [2012] EWHC 1192 (QB), answered that question affirmatively. The appellant appealed, contending that the clause, read in its contractual context, did not extend to loss caused by a refusal to perform.

1. Appeal allowed unanimously. Clause 18.6 did not exclude liability for profits lost through the respondent’s assumed repudiatory refusal to perform. The Court substituted a declaration answering the preliminary issue “no” on that assumption.

2. Contractual construction is a unitary exercise. Apparently clear words must still be examined in the context of the clause and the agreement as a whole. If language permits more than one construction, the court may select the construction consistent with business common sense and the agreement’s commercial purpose. The judge had erred by treating the meaning of apparently clear words as arising before, and independently from, contextual construction.

3. The agreement required sustained and detailed co-operation between the parties. The suggestion that the caterer could preserve the contract through specific performance or an injunction was unrealistic. The judge’s construction would therefore leave the respondent’s non-performance without an effective contractual sanction and would substantially deprive the agreement of contractual content.

4. Clause 18.6 appeared within provisions concerned with indemnities and insurance. Its position, language and reference to losses suffered by third parties showed that it qualified the indemnity in clause 18.4 and also addressed losses arising from flawed contractual performance. It did not extend to losses caused by a refusal, or disabling inability, to perform. In context, “in relation to this Agreement” meant “in relation to the performance of this Agreement”.

5. This construction did not revive the doctrine of fundamental breach. It resulted from ordinary contextual construction, the need to preserve the contract’s commercial object, and the presumption that parties do not lightly abandon remedies supplied by the general law. Had the parties intended an asymmetric exclusion of all financial liability for refusal to perform, clear language in an appropriately framed clause would have been expected.

6. Tomlinson LJ gave the leading judgment. McCombe LJ particularly endorsed the business-common-sense reasoning and the construction limiting the clause to performance. Laws LJ agreed with both judgments and the construction adopted.

1. Court of Appeal (Civil Division): The court unanimously allowed the appeal from [2012] EWHC 1192 (QB) and substituted a declaration that clause 18.6 did not exclude the assumed liability for loss caused by a repudiatory refusal to perform.

2. High Court, Queen’s Bench Division: His Honour Judge Seymour QC determined the preliminary issue by holding that clause 18.6 excluded liability for the appellant’s claimed loss of profits: [2012] EWHC 1192 (QB).