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Claimants for Breach of Contract Cannot Expect to Win More than they Bargained For

Thursday, 16 October 2014

The recent summary judgement decision in Comau UK Ltd v Lotus [2014] shows that the courts are keen to ensure that a claimant cannot receive the benefit of a greater level of compensation than that which is specifically provided for in a contract.

Background to Comau UK Ltd v Lotus [2014]

The case of Comau UK Ltd v Lotus [2014] involved a dispute between Comau UK Ltd, a subsidiary of Fiat, and Lotus in relation to an agreement to supply goods and services for the manufacture of chassis for a new car. Under the agreement, Lotus was obliged to make periodic payments to Comau, but it fell into arrears. As of April 2012, the claimants were owed over £500,000.

As a result Fiat suspended the agreement, in accordance with the contract, and commenced proceedings against Lotus on two grounds. The first simply related to the contractual debt claim i.e. the £500,000 owed. However the claimants also alleged that Lotus was liable for loss of profits arising out of its alleged common law repudiatory breach of the contract.

Lotus allowed the first claim to proceed to judgment but disputed the allegation based on loss of profits.

The High Court’s Decision on Loss of Profits

The applicants sought summary judgment in respect of the profits claim and the question before the court was whether Lotus had any real prospect of successfully defending the claim for repudiatory breach.

Comau UK Ltd argued that as Lotus had only paid 5.9% of the total contract price, they were deprived of the opportunity of fulfilling the contract and that it was not feasible to wait any longer for the sums to be paid.

However the judge disagreed. He suggested that the late payment of the first invoice and the part payment of the second illustrated Lotus’s intention to fulfil the contract. He also noted that as Lotus had the right to terminate the contract at will, the amount claimed for loss of profits was unrealistic as the contract specifically allowed for the possibility that the contract might not be fulfilled.

Therefore the action for summary judgment was dismissed

Implications of Comau UK Ltd v Lotus [2014]

This case is important for two reasons.

Firstly, it illustrates the principle that a claimant cannot receive a greater level of damages than that which is envisaged by the contract. As Lotus could choose to terminate the contract at any time, it is likely that it would have availed of this right so as to reduce its liability. This means that the claim for loss of profits was unrealistic.

Also the classification of the case is instructive. Mr Justice Knowles expressed the view that the defendant’s contractual obligations could be performed in a number of different ways. In cases such as this, it was the view of the court that the law only requires obligations to be performed by the defendant in the least onerous way.

This is a positive sign for defendants involved in similar proceedings.

For specialist advice regarding breach of contract or other forms of commercial litigation contact Peter Gourri today by email or telephone 0207 611 4848.

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