They say that partings are seldom sweet. This is especially true where an ambiguous termination clause is concerned.
This was the issue in a case that recently came before the Court of Appeal. It involved a firm called Artpower, which contracted to produce and sell clothes from the range of another company, named Bespoke Couture.
The relevant contract contained a term which allowed its termination if the other side committed a material breach which was not rectified within 30 days. A later clause in the contract also provided that it could be terminated immediately 'on notice' in certain circumstances. The clause relating to material breaches did not include the 'on notice' wording.
Bespoke Couture claimed that Artpower had been in material breach of the contract and gave 30 days notice requiring rectification of the breach. At the end of 30 days, the breach having not been rectified, Bespoke Couture regarded the contract as terminated. They claimed that the termination was, in effect, automatic, since the relevant clause did not specify that it would be 'on notice'.
The key point at issue was the wording of the relevant clause, which said that the contract 'may' be terminated in the event of a breach, not that it 'would' be terminated. In the view of the Court of Appeal, this meant that the contract could be terminated, but not that it would be terminated automatically. Bespoke Couture would have to take a further step to terminate the contract.
"The problem here was the ambiguous wording of the termination clause," says Dean Parnell. "In practice, when such clauses are invoked, relations between the companies involved are seldom at their best and the possibility of dispute is high. It is essential that such clauses are drafted in a clear and unequivocal manner." If you would like to discuss any employment matters, please contact Dean on 0121 698 2200 or via email to d.parnell@sydnymitchell.co.uk.
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