Exclusion clauses and deliberate repudiatory breaches

2 September, 2011

In the 2009 Net TV case1 the High Court found, somewhat controversially, that there is a rebuttable presumption that an exclusion clause should not apply to a deliberate personal repudiatory breach of contract. The court stated that this presumption could only be rebutted where there is very clear and strong drafting showing that the parties to the contract intended the exclusion clause to cover such a breach.

This controversial decision has recently been reviewed by the High Court2 and the judge in the recent case indicated that he would decline to follow the precedent set in the Net TV case.

 

Facts of the case

The recent case concerned a supply agreement between Astra Zeneca UK Limited (AZ) and Albemarle International Corporation. Albemarle failed to fulfil two orders under the agreement and AZ alleged that this constituted a repudiatory breach of contract, which enabled them to terminate the agreement and claim damages. Albemarle denied that this was a repudiatory breach, and in any event its liability for damages was limited by an exclusion clause in the agreement. AZ used the finding from the Net TV case to argue that Albemarle could not rely on the exclusion clause as the failure to fulfil the orders had constituted a deliberate repudiatory breach.

 

Decision

The judge decided that Albemarle’s failure to fulfil the orders was not in any event a deliberate repudiatory breach. However, he went on to consider the issue of deliberate repudiatory breaches and exclusion clauses. The judge said that the Net TV case had sought to revive the doctrine of fundamental breach merely under a new guise of deliberate repudiatory breach. Such a doctrine is no longer seen as good law and the development of contract law over the last few decades has shown a rejection of any doctrine of a “fundamental breach”. The judge indicated that had there been a deliberate repudiatory breach in this scenario he would not have followed the findings of the Net TV case.

 

Practical Implications

Although there is no absolute obligation for a judge in a future case to follow this recent decision, it is likely to be highly influential. However, until further guidance is given by the courts, if a party to a contract wishes to ensure that the other party cannot rely on an exclusion clause where there has been a deliberate repudiatory breach, this should be expressly stated in the contract. 

 

1Link to judgment: Internet Broadcasting Corporation (trading as NetTV) v MAR LLC (trading as MARHedge) [2009] EWHC 844

2Link to judgment: AstraZeneca UK Limited v Albemarle International Corporation and Albemarle Corporation [2011] EWHC 1574 (Comm)

 

Reviewed in 2015