STOBART CAPITAL LIMITED v ESKEN LIMITED

A contractual termination clause permitting immediate termination for a material breach requires a breach that is substantial and serious, though not necessarily repudiatory. Materiality depends on the contractual context, including the consequences of termination and the parties’ conduct. Where breach is capable of remedy, the focus is generally on putting matters right for the future.

A party may terminate where the counterparty has ceased, or substantially ceased, to carry on its business, even if individual breaches are not established. A contractual reference to a “competitor” may extend beyond a trade rival to a person or entity that places itself in a position of competition with the contracting party.

Stobart Capital Limited provided investment, management and corporate finance services to Esken Limited under a management agreement dated 22 September 2017.

Esken served a notice on 12 March 2019 purporting to terminate the agreement under clauses 8.2 and 8.3. Esken alleged material and irremediable breaches, cessation of substantially the whole of Stobart Capital’s business, failures in managing an Airportr investment, and competitive conduct concerning Flybe.

Stobart Capital claimed unpaid retainer, management and transaction fees. Esken counterclaimed for repayment of fees and expenses. The central issues were whether termination was effective and what sums remained payable.

1. Termination. The termination notice validly and effectively terminated the management agreement on 12 March 2019. The court rejected the alleged Airportr breaches as insufficiently pleaded or established. Any possible breach concerning valuations was neither shown to be material nor incapable of remedy.
2. Material breach. A material breach is more than trivial and is likely to be substantial or serious, but need not be repudiatory. Materiality must be assessed in context, including the nature and duration of the agreement, the consequences of termination, the consequences of the breach and the parties’ conduct. The absence of contemporaneous complaint may count against materiality.
3. Remedy. Applying L Schuler AG v Wickman Machine Tool Sales, the natural emphasis of “remedy” is generally on curing the position for the future, rather than undoing all past consequences. The alleged continuing failures were therefore potentially remediable, even if material.
4. Cessation of business. Independently, Esken was entitled to terminate under clause 8.2.2. By March 2019, key personnel had left without replacement, Airportr management had ended, no transaction opportunity had been advanced, and there was no evidence of significant ongoing work or plans to resume it. Stobart Capital had in reality ceased, or substantially ceased, its business.
5. Competitor. The word “competitor” in clause 8.3.4 was not confined to a trade competitor. It extended to an individual or entity that placed itself in a position of competition with Esken. Mr Tinkler’s conduct concerning Flybe amounted to competitive conduct, and the fact that the competitive position might later have ceased did not remove the effect of the clause.
6. Fees and counterclaim. Stobart Capital recovered £300,000 in retainer fees and £172,603 in Airportr management fees. It recovered no Airportr follow-on transaction fee or Flybe transaction fee. Esken recovered £25,386.30 for helicopter costs, together with other agreed expenses.