Breach of Contract: Unforeseen Circumstances and Termination
In the case of Burntcopper Ltd (t/a Contemporary Design Unit) v International Travel Catering Association Ltd  EWHC 148 (Comm), the High Court has held that a clause that excused a party’s performance of a contract due to unforeseen circumstances did not apply where that party sold the subject matter of the contract and the sale was foreseen.
The Court also refused to imply a term that the contract could be terminated on reasonable notice.
Burntcopper Ltd (“BCL”) entered into a five-year fixed-term contract to provide International Travel Catering Association Ltd (“ITC”) with exhibition management services for ITC's annual trade show.
The contract contained, at the suggestion of ITC, a clause providing that it would not be enforced if, for some unforeseen circumstances, the trade show was cancelled or did not take place.
BCL was unaware that ITC had been in preliminary discussions about selling the trade show to a third party.
After the contract was signed, it emerged that ITC had sold the trade show. As a result, BCL brought a claim for breach of contract on the basis that ITC had prevented performance of the contract's five-year term.
ITC argued that the sale of the trade show was an unforeseen event. In addition, ITC argued that there should be an implied term in the contract that it would be entitled to terminate the contract on reasonable notice if the trade show was sold during the term of the contract.
The High Court was not persuaded by ITC’s arguments, and held that it had breached the contract. It was clear that the sale of the trade show was not unforeseen, by virtue of the fact that a series of decisions had to be made before a sale came about.
The Court also refused to imply a term that the contract could be terminated on reasonable notice; the parties had expressly provided for various termination rights, and the sale of the trade show was not a trigger for those termination rights.
The decision does not set out any new law, but it does highlight that the courts will be reluctant to imply a right to terminate on reasonable notice in a fixed-term contract. It is more and more common for parties who enter into fixed-term contracts to want flexibility, so consider an exit fee mechanism to allow a party to terminate a fixed-term contract early.
Suppliers are often willing to agree to an exit provision if there is a contractual remedy for the supplier to compensate for its loss of income due to the early termination; transparency at the beginning of a relationship will go a long way.
This article was written by Vanessa Barnett.
For more information contact Vanessa on +44 (0)20 7203 5228 or email@example.com