Is doing nothing a breach of contract?


20th May 2020

With the outbreak of COVID-19, there are many companies who are unfortunately not able to fulfil their contractual duties to other businesses.

The recent case of Bains v Arunvill Capital Ltd looks at whether doing nothing or simply stating that you are willing to complete your obligations is enough to not be in breach of contract. It also highlights the need for clear wording within contracts and for the parties to be sure of their contractual obligations.

Background of the case

Mr Bains entered into a contact with Arunvill, in which it was agreed that Mr Bains would provide a consulting service. At clause 2.1 of the contract, this service was defined as “Structuring and implementation of various equity finance strategies within the Company [Arunvill], or elsewhere within the Recipient Group, and management of various Newly Created Strategies“.

Another important clause was 3.4, which outlined how the parties could terminate the contract; “This Agreement may be terminated by either Party in the event of the other Party having materially breached any of the provisions of this Agreement and not having remedied such breach within 21 days after the service of written notice by the first Party requiring the same to be remedied“.

During a meeting on 24 February 2016, Mr Bains stated that he was no longer willing to provide a service to Arunvill. This was apparently due to Arunvill not paying him a bonus, expenses or a profit share. Following a period of inactivity by Mr Bains, Arunvill wrote to him on 5 April 2016, outlining that as Mr Bains did not intend to perform his obligations under the contract, he was in breach of contract.

The letter provided notice of termination if Mr Bains did not rectify the situation within 21 days (i.e. by 26 April 2016). On 20 April 2016 Mr Bains’ solicitors wrote to Arunvill confirming that Mr Bains did intend to perform his contractual obligations and the breach was therefore remedied.

If Arunvill terminated the contract and Mr Bains was considered to have performed the service required, then Mr Bains was entitled to a termination payment of six months remuneration. Notwithstanding what the letter from his solicitors said, Mr Bains did not subsequently take any action to provide a service to Arunvill. The contract was terminated and Mr Bains did not receive the termination payment so pursued a claim against Arunvill for damages for breach of contract.

Judgment on a breach of contract

Mr Bains asserted that by being willing to provide a service he was not in breach of contract. His apparent expectation was that Arunvill would provide him with further instructions on the tasks he was required to undertake.

Arunvill argued that the contract required the defaulting party to remedy the breach within the specified period of time and Mr Bains simply stating that he was ready to provide a service was different to actually doing the tasks and actions which provide the service itself.

The Court of Appeal agreed with Arunvill, on the grounds that Mr Bains had explicitly stated during the meeting in February that he was not willing to work and an assertion of readiness to comply with his contractual obligations in April was not sufficient to remedy the breach.

The Court provided that clause 2.1 of the contract clearly stated what Mr Bains’ obligations were, and to remedy the breach he simply needed to take practical steps to do that work.

Conclusion

In the above case, it was clear due to the wording of the contract what Mr Bains’ duties were, as well as on what basis the contract could be terminated if there was a breach.

Many agreements between businesses are not this simple and there is a degree of ambiguity surrounding each party’s obligation to the other. If the contract in Bains v Arunvill had not been so specific, it would potentially have been Mr Bains’ responsibility to seek clarity on what he was expected to do. If Mr Bains had proactively sought to confirm Arunvill’s expectations and then carry out the required tasks, the case could have potentially had a different outcome.

The current lockdown arrangements have led to many businesses not being able to fully perform their contractual obligations. Even if this cannot be avoided, it is important to be aware of the consequences of this action, or in-action, and if anything can be done to mitigate the situation.

To avoid a dispute ensure that you review the wording of your contracts carefully and comply with its terms where possible. If the contract has a process in place for resolving disputes, or potential disputes, this should always be strictly followed. If any wording is ambiguous you should promptly take steps to clarify what is required. If you have any queries in relation to your obligations under a commercial contract or are in a dispute with the other party about its obligations, please do not hesitate to contact us.

This article has been co-written by Charlotte Boatman and Heather Welham.

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