JAMES KEMBALL LIMITED v "K" LINE (EUROPE) LIMITED

The claimant sued for damages after it purported to terminate a three-year service agreement (the SA) when the defendant informed it that the defendant would not be able to meet the agreed minimum volume of "Jobs" for Period 3 (1 April 2018 to 31 March 2019). The central legal issue was contractual construction: whether the claimant was entitled to terminate under clause 11.3(a) for an alleged anticipatory repudiatory breach of clause 2.2(a), or whether clause 3.3 provided the claimant's "sole and exclusive remedy" for the defendant's failure to supply minimum volumes.

The court applied established rules of interpretation (textual meaning in context, commercial common sense, and the relevance of professional drafting) and concluded that clause 3.3, which prescribes a surcharge for any K-Line Shortfall Month and states that it is the claimant's "sole and exclusive remedy" for failure to meet minimum volumes, precludes termination under clause 11.3(a) for that kind of breach. Clause 11.3(a) was construed to apply to wilful, persistent or material breaches that had been committed at the time the notice was given; it did not extend to prospective anticipatory breaches of the kind alleged. The defendant had also explicitly stated it intended to apply clause 3.3. As a result, the claimant's purported termination was ineffective and the claim was dismissed.

This was a first-instance trial concerning a claim by James Kemball Limited (JKL) against "K" Line (Europe) Limited (K-Line) for damages for alleged wrongful termination of a Service Agreement (SA). The SA had fixed daily minimum, target and maximum numbers of road haulage "Jobs" for three successive yearly periods; Period 3 ran from 1 April 2018 to 31 March 2019. JKL alleged anticipatory repudiation by K-Line after K-Line's liner business was to be integrated into a new joint venture (ONE), and purported to terminate the SA under clause 11.3(a) after serving notice in April 2018. K-Line maintained that clause 3.3 provided the claimant's sole and exclusive remedy for any shortfall in minimum Jobs and that clause 11.3(a) could not be relied upon to terminate the SA in the circumstances.

Facts and procedure

• JKL had been the defendant's subsidiary until sold on 22 April 2016, at which time the parties entered into the SA. Period 3 was the final contractual year.
• From 31 October 2016 it was known that several liner businesses, including KKK (the defendant's parent group's liner business), would be merged into ONE effective 1 April 2018; discussions between ONE and JKL about guaranteed volumes failed.
• K-Line informed JKL on 12 March 2018 that, to the extent it could not offer sufficient Jobs, it intended to apply clause 3.3. JKL served a notice on 16 April 2018 asserting anticipatory repudiation and gave 30 days to remedy; on 22 May 2018 JKL purported to terminate under clause 11.3(a) and sued for damages.
• The trial occurred 18–20 July 2022 with lay and expert evidence; quantum was argued on the counterfactual assumption the claimant could validly terminate and damages were at large.

Issues framed by the court

1. How the SA should be construed, in particular the interaction between clause 2.2(a) (K-Line's obligation to offer minimum daily Jobs), clause 3.3 (surcharge and the claimant's "sole and exclusive remedy" for K-Line Shortfall Months), clause 4 (remedies for Rejected Jobs and JKL Shortfall Months), and clause 11.3(a) (termination for wilful, persistent or material breach).
2. Whether clause 11.3(a) could be invoked for an anticipatory repudiatory breach (i.e., whether the claimant could validly terminate the SA on the basis of future non-performance by K-Line).
3. If termination had been valid, whether damages would be limited to the clause 3.3 surcharge or would be "at large", and if at large, quantum.

Court's reasoning

• The SA was a professionally drafted agreement between represented parties; interpretation should chiefly follow textual construction and context. Where parties used language to address prospective events they did so expressly (comparison between clause 11.3(d) referencing a party that "threatens to cease to carry on business" and other sub-paragraphs).
• Clause 11.3(a) is triggered by the other party "committing" a wilful, persistent or material breach. The natural meaning of "commits" confines the provision to present/past breaches at the date notice is given; it does not extend to anticipatory breaches unless the contract so provides.
• Clause 3.3 expressly provides that for each month that K-Line fails to comply with clause 2.2 the claimant's "sole and exclusive remedy" is to levy a surcharge calculated by the formula set out. That exclusive remedial scheme is inconsistent with a right to terminate under clause 11.3(a) for failure to provide the minimum Jobs; the parties chose different remedial mechanisms for different risks (compare clause 4.4 which creates termination rights for repeated JKL Shortfall Months).
• K-Line had informed JKL it intended to apply clause 3.3 (letter of 12 March 2018) and had not failed or threatened to fail to pay the surcharge; therefore on the correct construction JKL could not rely on clause 11.3(a) as of 16 April 2018 to terminate for the alleged anticipatory breach.
• The claimant therefore failed; its purported termination was ineffective. The court did consider quantum on the counterfactual assumption the claimant had validly terminated and concluded that damages would have been at large (because clause 3.3 was not preserved by express survival, while clause 12.3 preserved the terminating party's right to damages), and would have been assessed at £195,140 on the expert evidence; however, this was strictly academic given the dismissal.

Relief sought: damages for wrongful termination. The court dismissed the claim because termination under clause 11.3(a) was not available for the sort of breach alleged and the claimant's notice did not identify a qualifying breach committed at the relevant date.

The claim is dismissed. The court held that clause 3.3 of the Service Agreement provided the claimant's "sole and exclusive remedy" for any failure by the defendant to provide the minimum number of Jobs and that clause 11.3(a), properly construed, applies only to a wilful, persistent or material breach committed at the time notice is given; it does not extend to the anticipatory repudiation alleged. The defendant had indicated it would apply clause 3.3 and had not committed or threatened the requisite breach by the time of the claimant's notice, so the purported termination was ineffective. In the alternative (counterfactual) the court would have found damages at large and assessed them at £195,140, but that finding was unnecessary to dispose of the claim.