McConomy & Anor v ASE Plc & Anor

A contractual variation cannot be inferred from occasional departures from contractual performance or relaxed enforcement. It requires a clear and consistent course of conduct objectively demonstrating an intention to create a binding variation. A party may waive or forbear enforcing strict rights temporarily, but reasonable notice is generally required before resuming enforcement.

Repudiatory breach of an intermediate term requires a fact-sensitive assessment of the cumulative effect of the breaches and their actual and reasonably foreseeable consequences. An express good-faith obligation is assessed objectively in its contractual context. Clear contractual language should not be rewritten by reference to commercial common sense.

The claim arose from a joint venture under which the claimants provided capital allowance services through a company jointly owned by the first claimant and ASE Plc. The parties were bound by a shareholders agreement and a service level agreement.

The claimants alleged that ASE agreed non-standard client terms without the required consent, delayed payment, and failed to pay sums due. They sought damages, termination-related relief and compensation from Michael Jones for alleged breaches of directors’ duties. ASE denied breach, relied on variation, waiver and affirmation, and counterclaimed that the claimants’ termination was ineffective.

The court determined whether the agreements had been varied or waived, whether the breaches were repudiatory or material, whether termination required ASE’s consent, and the sums recoverable.

1. The court rejected ASE’s case that the service level agreement had been varied. The evidence showed that consent was normally sought and that the alleged payment variation was vague and inconsistent with a permanent legally binding change. Occasional non-compliance and tolerance amounted, at most, to waiver or forbearance.

2. The court found breaches where ASE agreed non-standard terms without prior consent. However, in most cases the claimants failed to prove substantial loss because Mr McConomy would probably have consented had he been asked. A loss of £7,078.50 was established in relation to GGT Estates, together with £35,559.13 for four unpaid invoices.

3. The submission of revised invoices in October 2014 constituted temporary forbearance in respect of the balance, but did not create a binding compromise, permanent waiver or promissory estoppel. ASE had not provided consideration or acted detrimentally in reliance on a permanent release.

4. The breaches were intermediate terms. Applying the multi-factor approach in Valilas v Januzaj [2014] EWCA Civ 436, their cumulative effect did not deprive WLT of substantially the whole benefit of the agreement. WLT was therefore not entitled to terminate the SLA for repudiatory breach.

5. The express good-faith obligations were objective and context-dependent. ASE’s conduct did not amount to breach of those obligations. Nor was Mr Jones personally liable under sections 172(1) or 175(1) of the Companies Act 2006.

6. On the proper construction of the shareholders agreement, termination of the SLA fell within the broadly worded shareholder-reserved matters concerning cessation of a business operation or a material change in the business. The claimant was therefore not entitled to terminate without ASE’s consent. The alleged breaches of the shareholders agreement were not material and were remediable.

7. WLT’s claim succeeded for £42,637.63. Mr McConomy’s claim to invoke the compulsory buy-out provisions failed. ASE’s counterclaim to invoke those provisions succeeded, with the precise relief to be determined if necessary.