Bristows' SnippITs – Supplier's flight of fancy grounded by the Court when interpreting the customer's right to terminate

This post is part of the Bristows’ SnippITs series, which pulls together the key practical takeaways from recent court decisions for the tech sector and beyond.

In the recent case of Optimares S.p.A v Qatar Airways Group Q.C.S.C., the Court considered whether an obligation to act in good faith and the supplier's instigation of an excusable delay mechanism overrode a customer's right to terminate for convenience.

Key takeaways:

Be specific about the extent to which obligations of good faith and rights to terminate should apply and any limitations on them. The decision is another example of the Courts looking at what the parties have actually agreed, rather than what the Courts think they should have agreed.

In particular:

• Contractual obligations to act in good faith are unlikely to fetter contractual rights, such as a right to terminate for convenience, unless they are expressly stated to do so (e.g. refer to the "exercise of rights").
• "Notwithstanding anything to the contrary contained in this agreement" is a clear and unambiguous way to dis-apply other (potentially limiting) provisions of an agreement.

Background:

Optimares and Qatar Airways entered into an agreement for Optimares to design, manufacture and deliver aircraft seats. However, Optimares' manufacturing operations were severely delayed and it was not able to perform its obligations under the agreement in accordance with the agreed timetable.

Optimares informed Qatar Airways of the delay and claimed this to be an "Excusable Delay" – essentially a force majeure event – under the agreement. Qatar Airways had the right to terminate the agreement for an Excusable Delay reasonably expected to last longer than 30 days. If it did, it would be liable for the "properly substantiated costs incurred by [Optimares] for labour already performed."

However, Qatar Airways also had the right to terminate the agreement for convenience at any time "without incurring any liability".

Unsurprisingly, Qatar Airways terminated the agreement for convenience. Optimares then brought a claim against Qatar Airways that the agreement had been terminated unlawfully. It claimed that Qatar Airways' right to terminate for convenience:

• was subject to an obligation of good faith, so Qatar Airways had to allow Optimares to perform its work or, at least, not frustrate Optimares from performing its work by terminating the agreement; and
• ceased to be operable because Optimares had notified Qatar Airways of the Excusable Delay, so Qatar Airways could only terminate under the Excusable Delay provisions.

The Court's conclusions:

Application of the good faith obligation

The Court agreed with Qatar Airways that the good faith provision did not apply to its right to terminate for convenience. The obligation to act in good faith applied to the "performance of [the parties'] respective responsibilities and obligations", and the exercise of a right to terminate for convenience constituted neither a responsibility nor an obligation. Further, had the parties wished termination (or any other) rights (as opposed to responsibilities or obligations) to be subject to the obligation of good faith, they should have explicitly specified it in the agreement.

Qatar Airways only being entitled to terminate for Excusable Delay

The Court found the "notwithstanding anything to the contrary contained in [this agreement]" wording at the start of the right to terminate provision to be unambiguous. Qatar Airways was free to terminate for convenience, regardless of whether or not there had been an Excusable Delay.

Effect

Qatar Airways was able to exercise its right to terminate for convenience "without incurring any liability" and was not liable for "properly substantiated costs incurred by the Supplier for labour already performed". In addition, as there had not been a breach of contract by Qatar Airways, common law damages were not available to Optimares either.