News / 02-11-2022 / London

Optimares S.p.A. vs. Qatar Airways Group Q.C.S.C 2022 WL 06175341 (2022)

A termination ‘for convenience’ clause generally allows the cancellation of a contract without fault in circumstances where performance is no longer required or the terminating party finds, at its will, that the agreement should be abandoned.

In Optimares S.p.A. vs. Qatar Airways Group, the High Court reaffirmed the main principles of interpreting termination ‘for convenience’ in the context of an agreement to design and deliver aircraft seats. It also considered the interplay between termination for convenience and fault-based termination clauses in the same agreement.

Background

Optimares entered into an agreement to design, manufacture, sell and deliver seats for various Boeing and Airbus aircraft to Qatar Airways in 2018/19. In order to win the contract, Optimares had to invest in its facilities to meet Qatar Airways’ conditions and turn away new work for other clients.

In March 2020, after incurring significant amounts in progressing the works for Qatar Airways and before making complete deliveries, Optimares served a notice of “Excusable Delay” stating that the outbreak of Covid-19 made it impossible to, meaningfully, estimate the time for any delivery.

The following day, Qatar Airways served a three-month notice on Optimares declaring that the agreement was terminated “for convenience and without incurring any liability whatsoever” and demanding, among other things, repayment of all sums previously paid by Qatar Airways.

The issues

Optimares argued that invoking the “Excusable Delay” clause in itself gave rise to a separate contractual right to terminate, which prevented Qatar Airways from terminating for convenience. Optimares asserted that the agreement was therefore wrongfully terminated. In addition, the evidence presented by Optimares suggested that it would not have signed the agreements on such onerous terms allowing Qatar Airways to terminate at any time without any financial consequences. In essence, Optimares claimed that it was entitled to lost profits and wasted costs actually incurred if termination was wrongful, and only wasted costs if termination was valid.

Qatar Airways disagreed and contended that the right to terminate for convenience was absolute and unfettered within the meaning of the contractual terms, which provided that it could terminate “[n]otwithstanding anything to the contrary contained in the [contracts]” and “without incurring any liability”.

Judgment

The starting point for the Court was to analyse the rules of interpretation. It recognised that the agreement between Optimares and Qatar Airways was negotiated and prepared with the help of “skilled professionals”. This, in the Court’s view, favoured following a textual (as opposed to contextual) analysis. It was acknowledged that commercial common sense was an important consideration, but this could not be invoked retrospectively or warrant the departure from the natural meaning of a provision simply because it appeared later to be a very imprudent term for Optimares to have agreed to.

The Court relied on a long line of established authorities reaffirming, among other things, that interpretation aims to identify what the parties have actually agreed, not what the court thinks that they should have agreed to.

There were four main questions of contractual construction to be determined by the Court, namely:

1. Did the notice of “Excusable Delay” prevent Qatar Airways from terminating the agreement for convenience?

The Court agreed that both termination clauses (for convenience and excusable delay) co-existed, and noted that:

i) The words used by the parties in respect of the termination rights were clear and unambiguous. Qatar Airways clearly had the choice to terminate for convenience and/or for excusable delay and, importantly, was under no duty to cancel the agreement in the event of an excusable delay.

ii) Each termination clause provided for different requirements, notice periods, and financial consequences, and Qatar Airways had an option whether to rely on one  or the other. Although termination for excusable delay would have been immediate and did not require serving a three-month notice, Qatar Airways might have preferred to terminate for convenience to avoid a potential dispute as to whether an excusable event had in fact taken place.

iii) Allowing termination for convenience in the circumstances did not render termination for excusable delay redundant or necessarily allow Qatar Airways to walk away from the agreements at any time with zero financial consequences. The Court envisaged a number of scenarios where payment would fall due e.g. in the event of delivery during the notice period while the agreement was alive. However, it was Optimares’ express choice to agree to relieve Qatar Airways of any liability beyond that point.

Qatar Airways was not precluded from terminating the agreement ‘for convenience’ despite the notice of “Excusable Delay” and their termination was therefore valid. 

2. What, if any, were the financial consequences of termination for convenience on Qatar Airways?

The Court emphasised that termination for convenience would arise as a contractual right, as opposed to termination for a breach, so the remedy would lie solely in the words of the termination term itself. Optimares was therefore not entitled to claim any common law remedies, such as reliance damages for the great financial risk it took to prioritise Qatar Airways’ contracts. Given that there were no agreed contractual remedies, Optimaries was not entitled to any other damages either and had to repay sums previously paid by Qatar Airways. However, the Court acknowledged that had delivery taken place and payment received for completed works under the agreement, such sums would not be repayable.

3. Was the right to terminate for convenience absolute or could it be restricted by other contractual provisions, such as a duty of good faith?

The Court did not agree with Optimares that the good faith provision qualified Qatar Airways’ right to terminate or required it to allow, or at least avoid taking steps to frustrate the works under the agreement. As a matter of construction, good faith applied only to the performance of contractual “responsibilities and obligations”. The Court cited a number of legal authorities in support of its conclusion where courts did not or at least were reluctant to qualify contractual rights to terminate by express or implied duty of good faith. The language used in the agreement was narrow, such that the exercise of a right to terminate for convenience was neither a responsibility nor an obligation within the meaning of the good faith provision.

4. Was there scope for a claim for unjust enrichment or restitution in respect of the IP provided by Optimares to Qatar Airways?

The Court considered this argument “hopeless”. It was clear that the parties agreed that IP rights would immediately vest in Qatar Airways when the agreement was signed free of charge. It was well established that the contractual allocation of risk could not be undermined by a claim for unjust enrichment.

As such, the Court dismissed Optimares’ claim and awarded Qatar Airways around USD 2.5 million, including interest. Optimares was also ordered to pay GBP 2 million of Qatar Airways’ legal costs on an indemnity basis. Whilst the basic rule is to award the successful party costs on standard basis, the Court found Optimares’ conduct to have taken the case outside the norm as it insisted on advancing speculative claims (such as the good faith and unjust enrichment arguments) at full length despite the great risk of failure and their weakness on construction.

Comments

This judgment sheds light on the principles of contractual interpretation, and emphasises that English Courts will not rewrite a clear and unambiguous bargain, negotiated by sophisticated professionals, even if it heavily favours one party and imposes a significant risk on the other.

In the circumstances, a textual analysis to interpretation is likely to be followed by the Courts. Parties must ensure that they understand what their rights and available remedies are in the event of termination at the contractual negotiation stage, and if multiple provisions are at play, expressly set out how they should operate in the contract.

Although the case involves a contract for the supply of aircraft seats the findings are of potential relevance to similar termination provisions in other contracts and industries.