Comau UK Ltd v Lotus Lightweight Structures Ltd

Failure to pay contractual instalments is not automatically repudiatory. The court must assess whether the breach, viewed in context, clearly evinces an intention not to perform or deprives the innocent party of substantially the whole contractual benefit. A notice relying only on contractual termination provisions does not necessarily make time of the essence at common law. Where a contract gives the defendant an option to terminate for convenience, damages for anticipatory breach may be assessed on the assumption that the option would have been exercised, limiting the claimant’s expectation interest.

Comau agreed to supply goods and services for a vehicle production line. Lotus failed to pay contractual instalments. Comau suspended performance, served a notice under the contractual termination provisions, and later purported to accept repudiatory breach at common law.

Lotus consented to judgment for the unpaid principal debt. Comau sought summary judgment on liability for lost profits and an interim payment. The central issues were whether Lotus had a real prospect of defending the allegation of repudiatory breach and, if liability were established, whether the contractual right to terminate for convenience limited the recoverable loss.

1. Summary judgment. Under CPR r 24.2, summary judgment requires that the defendant have no real prospect of successfully defending the claim or issue and that there be no other compelling reason for trial. The court must not conduct a mini-trial. The principles summarised in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 were applicable.
2. Repudiatory breach. Lotus’s obligation to pay in accordance with the schedule was not a condition. A failure to pay on time did not automatically amount to repudiation, and inability to pay could not automatically be inferred. The question was whether Lotus had clearly and unequivocally evinced an intention not to perform, or whether the breach deprived Comau of substantially the whole benefit of the remaining obligations.
3. The principles concerning notices to make time of the essence, identified in Dalkia Utilities Services plc v Celtech International Ltd [2006] 1 Lloyd’s Rep 599, required a clear statement of what was required and the consequence of non-compliance. Failure after notice was not automatically repudiatory; the breach still had to go to the root of the contract.
4. Comau had real prospects of failing to establish repudiatory breach at 8 October 2012. The August letter, read closely, relied on contractual termination under clause 12.3 rather than common-law repudiation. Lotus’s silence, although unattractive, had to be viewed in the context of the continuing contractual suspension. The earlier late payment and part payment were consistent with an intention to perform. Comau could have served a further notice making clear that it relied on common-law rights and was making time of the essence, but did not do so.
5. Quantum. Even if liability had been established, clause 12.5 probably limited Comau’s expectation interest to profit obtainable before Lotus exercised its contractual right to terminate for convenience. Applying the approach in Abrahams v Herbert Reiach Ltd [1922] 1 KB 477 and the reasoning referred to in The Mihalis Angelos [1971] 1 QB 164, damages would be assessed on the assumption that Lotus would have selected the contractual course most beneficial to it. Comau would therefore probably recover no more than nominal damages.
6. The application for summary judgment and the application for an interim payment were refused.