New Century Media Ltd v Makhlay

A default judgment on liability is conclusive as to the liability pleaded and established by the judgment. At a later assessment of damages, the defendant may raise issues concerning quantification, causation of particular losses and mitigation only so far as they are consistent with the liability judgment. The defendant cannot use the assessment as a back-door challenge to findings on breach, contractual term or entitlement to terminate.

A contract for a fixed period is generally not terminable before expiry unless the contract provides for termination or an implied term is necessary or obvious. A repudiatory breach must go to the root of the contract. Where continued performance depends on the other party’s cooperation, sums accruing after cooperation has ceased may be recoverable as damages rather than debt.

New Century Media Ltd sued Mr Vladimir Makhlay under a one-year services contract. Liability was determined by default judgment on 18 April 2013, with quantum reserved for assessment.

At the assessment hearing, Mr Makhlay sought to argue that NCM had repudiated the contract and that he had an implied right to terminate on reasonable notice. NCM contended that those issues had been conclusively determined by the default judgment. The remaining issues concerned whether sums were debt or damages, savings and mitigation.

1. Scope of the default judgment. The default judgment was final and conclusive on liability. The Particulars of Claim operated as a proxy for the judgment. They established that the contract was for one year without early termination, that NCM had performed its obligations, that Mr Makhlay was in repudiatory breach, and that NCM was entitled to accept that breach. Those matters could not be reopened at the damages hearing.
2. The principle in Lunnun v Singh (Hajar) [1999] WL 477360, approved in Pugh v Cantor Fitzgerald International [2001] CP Rep 74, applied. Issues relating to quantification remained open only to the extent that they were not inconsistent with the liability judgment. Mr Makhlay therefore could not advance the repudiation or early-termination issues.
3. Alternative findings. In any event, NCM was not in repudiatory breach. The evidence showed active work, and the services were substantially intangible. Limited documentary output, incomplete objectives after four months and dissatisfaction with value did not amount to a breach going to the root of the contract.
4. No term permitting termination on reasonable notice was implied. The one-year term was clear, and implication was not necessary or obvious. The six-month strategic review was consistent with, and supported, the existence of a fixed one-year contract. The approach in Jani King (GB) Ltd v Pula Enterprises Ltd [1998] 1 All ER (Comm) 451 supported that conclusion.
5. The October invoice was recoverable as a debt. From November 2012 onwards, because effective performance required Mr Makhlay’s cooperation and he remained wholly uncooperative, NCM’s claim was properly one for damages. The court assessed damages after allowing for agreed or reasonable savings, staff costs and additional work.
6. Judgment was entered for NCM for £560 for IT services, £75,000 on the October invoice and £420,376 damages, producing a total award of £495,936 before interest. The parties were directed to verify the arithmetic and seek agreement on interest and costs.