Commercial Court considers Contractual Termination Triggers where there is a “Sole and Exclusive” Remedy Clause

25 October, 2022

With the decision in James Kemball Limited v “K” Line (Europe) Limited [2022] EWHC 2239 (Comm), HHJ Pelling KC (sitting as a High Court judge) brought to a conclusion four years of litigation between these and related parties.

The claims arose out of the restructuring of the “K” Line container shipping business conducted by the Japanese shipping line Kawasaki Kisen Kaisha (“Kawasaki”) which resulted in that business being transferred to a new joint venture vehicle, Ocean Network Express (ONE) from April 2018. James Kemball Limited (“JKL”) was a provider of UK road haulage services in respect of containers to “K” Line (Europe) Limited (“K-Euro”), an indirect subsidiary of Kawasaki, under a Service Agreement. Other than limited run off work, no containers were provided by Kawasaki to K-Euro after April 2018, and K-Euro was unable to perform the majority of the final year of the Service Agreement by placing containers with JKL as a result.

JKL initially brought claims against Kawasaki for £36 million based primarily in the tort of inducing breach of contract, and against K-Euro for breach of contract in the amount of some £6.8 million. The claims against Kawasaki were the subject of a jurisdiction challenge which failed in front of Teare J (albeit with an award of indemnity costs in favour of Kawaski as a result of failures of full and frank disclosure by JKL), but which was later upheld by the Court of Appeal in early 2021, and is now one of the leading authorities on inducing breach of contract. See here Court of Appeal decision on inducing breach of contract case.

The claim against K-Euro continued to trial in July 2022, focusing on the issues of whether the Service Agreement had been terminated in accordance with its terms (no common law termination argument having been invoked or advanced by JKL), whether a “sole and exclusive” remedy clause would apply to determine quantum notwithstanding termination, and, if damages were at large, what the quantum of those damages was.

HHJ Pelling KC considered the contractual termination triggers relied upon, namely that K-Euro was in “willful, persistent or material breach” of the Service Agreement. He rejected arguments that conduct which may amount to an anticipatory repudiatory breach came within that wording, concluding by reference to other aspects of the termination triggers that this was not intended to apply to prospective events. Further, he considered that the “sole and exclusive” remedy clause in relation to failure to supply to the relevant Jobs under the Service Agreement, the application of which was assessed and applied after the fact, was inconsistent with the parties contemplating that the Service Agreement could be terminated for such breaches. This way of dealing with this type of breach also markedly contrasted with other provisions within the Service Agreement which were expressly classed as material breaches. As the contract had not been terminated, and JKL had not run an alternative argument claiming an entitlement to a sum assessed by reference to the “sole and exclusive” remedy clause, JKL recovered nothing.

However, HHJ Pelling KC considered the quantum issues as they had been fully argued. He would have held that the “sole and exclusive” remedy clause did not apply to termination scenarios, but only when the contract remained on foot. That left the damages at large assessment. In this respect, HHJ Pelling KC noted the unsatisfactory nature of how matters had proceeded at paragraphs 3-4 (JKL’s case having been the subject of a Part 18 Request, a contested hearing which required it to re-plead, various criticisms in the expert reports and ultimately, abandoning reliance on its own expert after cross examination):

“The sum claimed by the claimant has varied substantially over the life of the claim, but by the time of the trial was valued by the claimant at a fraction of its originally pleaded value. Originally this claim was alleged to entitle the claimant to £6.8m in damages, based on an assertion as to the likely revenue that it would probably have earned over Period 3. By the time the case came to be opened, that sum had reduced to £857,000 odd and was based on the profit that it was alleged was probably lost over the same period. On the defendant’s case the claim is worth either £150,984, if the contractual machinery applies, or between £148,200 and £195,140 odd if damages are at large.

… Had the claimant’s claim been pleaded at what it now accepts it should have been valued at from the outset, it is highly likely that this case would either not have been started in, or would have been transferred out of, the Commercial Court.”

HHJ Pelling KC rejected the attempts to disturb the expert evidence given by K-Euro’s expert, accepting it in full, and would have awarded £195,140, had the issue been live.

As K-Euro had made a pre-action Part 36 offer in 2018 at the level of the calculation required by the “sole and exclusive” remedy clause which it had beaten, and based on JKL’s conduct of the proceedings, HHJ Pelling KC ordered that JKL pay K-Euro’s costs of the proceedings from the expiry of the relevant period under the Part 36 offer on the indemnity basis.

James Collins KC and Richard Hoyle appeared on behalf of K-Euro (and also Kawasaki), instructed by Edward Gray and Benjamin Middleton of MFB Solicitors.

A copy of the Judgment can be found here.