Ilkerler Otomotiv & Anor v Perkins Engines Company Ltd

Where a distributorship agreement permits termination on six months’ notice after an initial fixed period, that right is not displaced by a separate clause allowing termination for deficient performance after a remedial period. Both provisions may operate together. An implied variation of termination rights from conduct requires conduct inconsistent with the original right and consistent only with the proposed new term. Longer business plans, requested investments and other contractual changes may remain compatible with the original notice right. A signed-writing clause is not necessarily a bar to variation by conduct. Terms requiring advance warning, reasons, representations or appraisals before termination will not be implied where they contradict the express regime, introduce a vague or unnecessary obligation, or concern co-operation in termination rather than performance.

The claimants, Turkish distributor companies, challenged Perkins’s six-month notice terminating their distributorship agreement. They argued that termination for dissatisfaction with performance had to comply with the remedial procedure in Article 19.3, that the agreement had been varied by conduct through longer-term business plans and substantial investment, and that terms of good faith and fair dealing governed termination.

Knowles J granted summary judgment for Perkins. The claimants appealed, raising construction, implied variation and implied terms. The central issues were whether the general notice provision remained available after the initial term and whether the alleged conduct could vary the contractual termination arrangements.

The appeal was dismissed. Longmore LJ gave the substantive judgment, with Briggs LJ agreeing.

1. Construction. Article 2.3 gave Perkins a right to terminate after the initial three-year period on six months’ notice. Article 19.3 dealt specifically with deficient performance and gave the distributor an opportunity to remedy matters. It did not make Article 19.3 the exclusive route where Perkins was dissatisfied. The provisions operated together. Article 19.3 remained available after the initial period because Perkins might prefer remedial action to termination.
2. Variation by conduct. The court applied the principles stated in The Aramis [1989] 1 Lloyds Rep 274 and The Gudermes [1993] 1 Lloyds Rep 320. Conduct relied on for an implied variation must be inconsistent with the continued existence of the original term and consistent only with the alleged replacement. It is insufficient that the parties did more, or something different, from what their existing obligations required.
3. The alleged addition of the second claimant, the adoption of longer-term plans and the investment in the distributorship did not satisfy that test. The agreement had always allowed termination to cut across business plans. No discussion had occurred about changing the termination provisions. The proposed end date was only one possible term, while termination upon recoupment of investment was uncertain. It was also unclear whether the proposed longer term would be mutual. Article 13 was not itself an obstacle to variation by conduct, consistently with Globe Motors Inc v TRV Lucas [2016] EWCA Civ 396, but no variation was established.
4. Implied terms and good faith. The proposed warning and remedial-opportunity term contradicted the proper construction of the express termination provisions. The proposed appraisal term introduced a new concept, or imposed liability for a misleading impression in language that was vague or unnecessary. The dicta in Yam Seng Pte v International Trade Corporation [2013] 1 All E.R. (Comm) 1321 concerned communication and co-operation in the performance of relational contracts, not obligations governing termination. They did not support the proposed terms. Even a general good-faith term would not have been breached on the pleaded facts.

There was no prospect of a successful claim. The summary judgment for Perkins was upheld.

1. High Court (Queen’s Bench Division, Commercial Court): Knowles J granted summary judgment for Perkins on the claimants’ challenge to the termination notice.
2. Court of Appeal (Civil Division): Longmore LJ, with Briggs LJ agreeing, dismissed the appeal and upheld the summary judgment.