Legal Updates

Commercial Law – Damages for Breach of Commercial Contract

The recent case of Masri v Consolidated Contractors International UK Ltd and Another [2007], concerned the payment of damages as a result of the breach of a commercial contract. The claimant was a Jordanian national and Palestinian businessman. He had a career in the energy industry before founding the EDGO group of companies. The defendants were members of a large group of companies specialising in Middle Eastern construction projects called the Consolidated Contractors Company group (“CCC”).

The claimant, along with other prominent Middle Eastern businessmen, had concern for the welfare of the Palestinian state. They had been involved with Arab Bank plc (“the Bank”), which is a major international banking group. CCC moved business to the Bank after its previous bankers collapsed. In 1992, the parties entered into an agreement (“the 1992 Agreement”) concerning the claimant's participation in CCC's interest in an oil field in the Masila block or concession in southern Yemen.

A dispute arose as to which of the defendants was party to the 1992 Agreement and on whose behalf it had been signed. The concession was immensely profitable and the claimant issued proceedings seeking money he alleged was due to him under it. CCC had not accounted to the claimant in respect of any entitlement he might have. The defendants contended that the claimant had failed to make payments appropriately due under the 1992 Agreement, which amounted to a breach of a condition precedent to the defendants' liability. They also argued that it could potentially be a repudiatory breach, or a mutual abandonment of the agreement.

The court held that the agreement had been made between the claimant on one side, and both the fourth defendant, CCIC, and the fifth defendant, CC (Oil & Gas), on the other. The interest was a proportionate share except that the 1992 Agreement provided for CCC to retain a full 10% of operating cost recoveries without accounting to the claimant for any part of that 10%.

By mid-November in 1992, the parties had reached an understanding that the claimant would benefit from the loan in that he would not have to provide actual funds in respect of his share of that part of development costs which the loan covered.

It was decided that the claimant's failure to make payments constituted a repudiatory breach of the 1992 Agreement, which entitled the defendants to terminate the contract. However there had been no acceptance of the breaches - CCC had waived them and decided to proceed on the basis that no further cash calls would be made and that the claimant's obligations and entitlements under the agreement would be debited to a running account.

Even if that was not so, there had been no communication of any decision to accept the repudiatory breaches. Beyond the admitted limitation of claims accruing due from the defendants in the six years prior to the issue of the claim form, the action against the defendants was not barred by limitation.

This case was primarily concerned with issues of quantum. The issues to be decided on included:

§   Whether CCIC, as well as CC (Oil & Gas), was liable as a judgment debtor;

§   Whether interest should be calculated on a simple or compound basis;

§   What the applicable interest rate should be; and

§   The extent to which the claimant was entitled to receive the benefit of the syndicated loan in the taking of the account.

The court ruled that the natural conclusion from the liability judgment was that both CCIC and CC (Oil & Gas) were parties to the agreement. The former party was held to be the legal owner and the latter party was deemed the beneficial owner. A reasonable person in the claimant's position would have assumed that both were assuming a liability to him for the payments. As far as the interest rate was concerned, it was decided that on the facts it should be calculated on a compound basis at a rate based upon the syndicated loan rate of $US LIBOR + 1.5%.

Please contact us for more information on assessing damages due under termination of a contract at enquiries@rtcoopers.com

Visit http://www.rtcoopers.com/practice_corporatecommercial.php

© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.

SearchBox

Search Shadow

NewsLetterBox

newsletter Shadow

TestimonialBox

Testimonial Bottom Shadow

testimonial Shadow Middle

More Testimonials

Testimonial Bottom Shadow