A High-Value Contract, Drafted Without Lawyers
You’d think no right-minded business would fail to take legal advice before entering into high value commercial arrangements.
This case1 is a cautionary tale about not but one – but two organisations who did not appear to have involved any lawyers in the drafting of the contract. The claimant (Olympic Council of Asia) entered into an Aircraft Lease to Purchase Agreement with the defendant (an international private aviation company) with a value of US$14,400,000.
A dispute was likely to arise at some point, not least because the drafting of the agreement was not clear in every respect. The dispute arose in relation to an unpaid invoice for expenses. Matters were not resolved and the defendant purported to suspend the contract then, later, terminate it on the basis of the unpaid invoice. It claimed the non-payment amounted to a repudiatory breach.
Fundamental issues for the court related to issues including repudiatory breach and (unsurprisingly) contractual interpretation.
Termination of contract
The court ruled that although the claimant’s non-payment of the expenses invoice was a breach of contract, it did not amount to a repudiatory breach (a repudiatory breach is where the actions of a party in default are so serious as to allow the innocent party to terminate the contract). That meant the defendant’s action in suspending, then terminating the contract were breaches entitling the claimant to damages.
The claimant had argued that there was an implied term, for reasons of business efficacy, that the defendant was required to engage and co-operate with it in relation to any legitimate queries in respect of the expenses invoiced, and/or to use reasonable endeavours to resolve any such issues.
However, the court made clear that the contract “does not lack commercial or practical coherence” without such an implied term.
Contract drafting
The lack of lawyers involved in the contractual drafting was a factor for the court in reaching a view as to the objective meaning of the language used.
It said the significance of the fact it was not drafted by lawyers is that “in balancing the indications given by the language used against the context and the commercial ramifications”, less weight should be placed on the precise language used. The quality of the drafting had to be considered
However, the court also had to take into account that the parties may have agreed something which with hindsight did not serve its interest. It was possible that the parties with hindsight might have reached a different agreement.
On the evidence, the court did not find there had been an obvious mistake in the contract terms. The defendant was not entitled to terminate the contract.
Key takeaway
The dispute may or may not have reached the court had the contract been drafted by lawyers. However, it is clear that had it been professional drawn up professionally – or at least, thoroughly reviewed by commercial lawyers - the risk of litigation would have been reduced.
The ruling is also useful for its legal guidance on what amounts to a repudiatory breach, which businesses and their advisers will find useful.
1Olympic Council of Asia v Novans Jets LLP [2022] EWHC 88 (Comm)
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