Case Study ‘€“ limiting liability in construction contracts

Comau UK Limited v Lotus Lightweight Structures Limited [2014] EWHC 2122 (Comm)

A recent Commercial Court case sheds some light on ‘Termination for Convenience’ clauses.

The case concerned a contract for the provision of goods and services by Comau to the Lotus Group in respect of a new factory production line. Lotus delayed some payments and Comau responded by terminating the contract. Comau then brought proceedings to recover their lost profit.

Lotus Group argued that the claim should fail because of a ‘Termination for Convenience’ clause in the contract (which precluded recovery for loss of profit). The Court agreed on the basis that Lotus could have terminated the contract at any time and Comau had no right to expect an interest to profit for the full duration of the contract.

The most notable aspect of the case was the complete absence of any need for Lotus to prove that it would have exercised its right to terminate had Comau not terminated first.  The mere existence of a termination for convenience clause appears was sufficient without evidence of causation as to whether or not the clause would in fact have impacted upon the profits which Comau would otherwise have received. The decision provides a limitation of liability to the extent a termination for convenience clause is in a contract to which the clause may be relied upon to reduce damages which might otherwise be recoverable under the contract.