Gul Bottlers (PVT) Ltd v Nichols Plc

In assessing damages for breach of a commercial agreement, the court must determine on the balance of probabilities what would have happened if the contract had been performed. Commercial parties are not assumed to act uncommercially merely to reduce liability. A claimant’s refusal of a fresh arrangement may be reasonable where the defendant’s prior repudiatory conduct has destroyed the trust and co-operation required for future performance. Where the defendant’s wrongdoing creates uncertainty about the loss, reasonable assumptions may properly favour the claimant. Acceptance of an anticipatory repudiation brings the contract to an end, but the claimant may recover all loss flowing from the refusal to perform, including loss arising before acceptance.

Gul Bottlers (PVT) Ltd claimed damages from Nichols Plc for repudiatory breach of a licence agreement covering the manufacture and distribution of Vimto products in Pakistan. Nichols had withdrawn permission to produce double-strength cordial and sought to impose a substantially higher concentrate price. It later offered a new agreement on terms broadly reflecting Gul’s case, but maintained that its earlier position had been correct.

The principal issues were whether Gul had unreasonably failed to mitigate by rejecting that offer, whether the agreement would have been renewed for a further five years, and the proper quantification of lost profits.

1. Claim and liability. Nichols’ refusal to permit production of double-strength cordial and its attempt to impose a new concentrate price were repudiatory breaches. Nichols conceded liability. The agreement was rectified to reflect the parties’ actual agreement.
2. Mitigation. The reasonableness of rejecting an offer in mitigation is a question of fact in the circumstances of the particular case, consistently with the approach in Payzu v Saunders [1919] 2 KB 581 (CA). Gul acted reasonably in rejecting the January 2013 proposal. Nichols had maintained an untenable position, had not admitted wrongdoing, and had destroyed the trust needed for a five- or ten-year co-operative relationship. There was therefore no failure to mitigate.
3. Renewal and assessment of hypothetical performance. The case did not fall within the principle in Lavarack v Woods of Colchester [1967] 1 QB 278. The court must consider commercial reality and determine how the contract would probably have been performed, as explained in Durham Tees Valley Airport Ltd v bmibaby Ltd [2011] 1 AER (Comm) 731. The evidence showed that, if the venture had been profitable, Nichols would have accepted Gul’s renewal option. No relevant breach by Gul prevented renewal.
4. Loss. Applying the fair-wind approach in Yam Seng Pte Ltd v International Trade Corp Ltd [2013] 1 CLC 662, the court adopted reasonable and conservative assumptions because Nichols’ breach had prevented any actual sales from being observed. The projected sales, expenses and discount rate were accepted substantially as calculated by Gul’s expert.
5. Anticipatory breach. Following Johnstone v Milling (1886) 16 QBD 460, acceptance of the renunciation entitled Gul to damages for all loss resulting from Nichols’ refusal to perform, not merely loss accruing after acceptance.
6. Judgment was entered for Gul for PKR 1,359,978,570, with interest from judgment and costs following the event.

First-instance decision. No appellate history was stated in the judgment.