Clear drafting = no ambiguity (and meant duty of good faith did not apply to termination at will)

8 minute read
10 November 2022

The recent case of Optimares SpA (Optimares) v Qatar Airways Group QCSC (Qatar) has provided further illustration of the Court's willingness to give effect to contractual terms, where they are clearly drafted, particularly when parties have been assisted by skilled professionals in agreeing the bargain - even if that bargain is clearly a bad one for one side over the other.

The case also provides useful confirmation that express duties of good faith are unlikely to cut across express termination provisions. Clear drafting is required to allow such a provision to have effect - parties would need to expressly agree in writing that good faith should apply to a right to terminate.

In this article, we take a look at this case in detail.



Background

The dispute involved Purchase Agreements (the Agreements) entered into between Optimares and Qatar for Optimares to design, manufacture, sell and deliver economy and business class seats to Qatar for its aircraft.  

Under the Agreements, the parties agreed that Qatar would place orders for shipsets (groups of seats for installation) by issuing purchase orders, governed by the terms of the Standard Conditions and the Agreements.

The parties had agreed that the time for delivery was of the essence and that Optimares had to meet applicable "on-dock dates" - with any orders for shipsets being placed no later than five months prior to the relevant on-dock date. The first on-dock date was 31 January 2020, but this date and subsequent dates were missed.

By March 2020 the relationship between Optimares and Qatar had broken down. Optimares gave notice to Qatar of excusable delay under the Agreements, asserting that the consequences of COVID-19 (and measures imposed by the Italian Government as a result) had made "all manufacturing and related processes effectively impossible" and had "removed the Supplier's ability to perform the Purchase Agreement in any meaningful fashion". Furthermore, it was "unable to provide a meaningful estimate as to when the Supplier [would] be able to resume its operations under the Purchase Agreement…".

In response, Qatar was said to be "completely uncertain" as to when any seats would be delivered and chose to exercise its right to terminate the Agreements for convenience in accordance with Clause 12.2.3. Under that clause, Qatar incurred no liability to Optimares and required Optimares to repay all sums previously paid to it to date under the Agreements.

The termination for convenience clause provided:

"Notwithstanding anything to the contrary contained in these Standard Condition or applicable Purchase Agreement, Qatar Airways shall be entitled to terminate these Standard Conditions, the Purchase Agreement and / or any Purchase Order for its convenience and without incurring any liability by providing three (3) months prior written notice to the Supplier…"

Optimares argued that by giving notice to terminate under this clause Qatar had wrongfully terminated the Agreements. In particular:

  1. Qatar was unable to exercise its right to terminate for convenience once Optimares had given notice of excusable delay. The excusable delay termination provisions had to be followed, not the termination for convenience clause; and
  2. Any right to terminate for convenience was - in any event - subject to an obligation to exercise the right in good faith - pursuant to the general good faith provision elsewhere in the Agreements.

Qatar argued it had an absolute unfettered right to terminate for convenience at any time - to find otherwise would effectively rewrite the bargain they had reached when the Agreements were entered into. Optimares had no right to restrict Qatar's right to terminate at will.

Decision

The Court was asked to decide whether:

  1. the right to terminate for excusable delay prevented Qatar from terminating for convenience instead;
  2. the contractual right to terminate for convenience gave rise to an entitlement to common law damages; and
  3. the right to terminate for convenience was subject to an obligation to exercise the right in good faith.

Issue 1

The Court held that Qatar was entitled to choose whether to terminate for convenience, or for an excusable delay. The notice provisions and consequences of the two clauses were different and they were intended to operate independently. 

In its analysis the Court drew attention to the words "notwithstanding anything to the contrary…" in the termination for convenience clause. This wording was clear and unambiguous and meant Qatar was entitled to terminate for convenience if it wished to do so.

Issue 2

There was no entitlement to common law damages upon termination for convenience. Optimares sought damages for the wasted costs it had incurred by its performance until termination. The Court concluded again that the termination for convenience clause was clear - Qatar was entitled to terminate "without incurring any liability".

The Court acknowledged that the contractual arrangements weighed in Qatar's favour and imposed a significant risk on a supplier who devoted considerable time and expense to its performance under the Agreements. Nevertheless, both parties envisaged the imbalance at the time of contracting - the contractual arrangements were clear and it was not for the court to rewrite the bargain that had been made. Giving effect to the contractual terms Qatar was not required to pay Optimares for the work it had undertaken before termination.

Issue 3

Qatar's right to terminate for convenience was unfettered. The Agreements required the parties to "act in good faith in the performance of their respective responsibilities and obligations…". The Court did not accept Optimares' argument that this obliged Qatar to allow Optimares to perform under the Agreements.  Instead the Court found that the duty of good faith related to the performance of the parties of their "responsibilities and obligations" under the Agreements and the exercise of a right to terminate did not constitute "performance of any responsibility or obligation".  Previous authorities also supported the general reluctance of the Courts to qualify an express right of termination with a duty to exercise that right in good faith.

Comment

The position of the Court is settled - clear drafting is key to ensuring a bargain can be upheld. We can be in no doubt that where parties have negotiated and agreed a written contract, and have been assisted by skilled professionals in doing so, the Court will look at the ordinary and natural meaning of the words - even if that means the contract is weighted in favour of one party over another. Where the drafting is clear and unambiguous, but nonetheless a dispute does subsequently arise, the Court will look at what has been agreed between the parties, not what might have been fairer or what perhaps should have agreed instead.

The decision is also another reminder that good faith obligations in a contract will be construed strictly. If parties want a duty of good faith to apply in a termination scenario this will need to be expressly provided for in the contract in clear terms - leaving no doubt as to the parties' intentions. On the issue of good faith clauses generally, and their interpretation by the Courts, see our commentary on the recent case of Compound Photonics Group Ltd.

Please get in touch if you have any questions.


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