L Schuler AG v Wickman Machine Tool Sales Ltd
House of Lords
Citations: [1974] AC 235; [1973] 2 WLR 683; [1973] 2 All ER 39; (1973) 117 SJ 340; [1973] 2 Lloyd’s Rep 53; [1973] CLY 396.
Facts
The appellants granted the respondents sole selling rights for their panel presses. The agreement was to last 4.5 years. Clause 7(b) of the contract stated that it was a ‘condition’ that the respondents visit six particular motor manufacturers weekly to solicit orders. This was the only clause which was described as a ‘condition’. Clause 11(a)(i) permitted either party to end the agreement if the other committed a ‘material breach‘ of their obligations and did not remedy it within 60 days.
The respondents failed to fulfil the requirements of clause 7(b). The parties submitted to arbitration. The arbitrator found that the respondents had committed ‘material breaches’. However, they also found that the appellants had waived their right to terminate under clause 11(a)(i).
The respondent later committed further breaches of clause 7(b) which the appellants did not waive. Further arbitration held that these breaches were immaterial, and so did not allow the use of clause 11(a)(i). Despite this, the appellants terminated the contract. They claimed that they had the right to terminate the contract without relying on clause 11(a)(i). This was because the respondents had breached a ‘condition’ of the contract (clause 7(b)).
Issue(s)
The respondents sued for wrongful repudiation of the contract. They argued that despite it being described as a ‘condition’, the appellants could not terminate the contract for minor breaches of clause 7(b).
- Was clause 7(b) a ‘condition’ in the legal sense of the term?
Decision
The House of Lords held in favour of the respondents. The use of the word ‘condition’ in clause 7(b) was ambiguous. However, when the clause was construed in light of the contract as a whole, it was clear that the parties did not intend it to mean ‘condition’ in the legal sense. In other words, the parties did not intend for the appellants to have the right to terminate the contract for any breach of clause 7(b), no matter how trivial.
This meant that clause 7(b), like every other clause in the contract, was subject to clause 11(a)(i). The appellants were not entitled to rely on clause 11(a)(i) to terminate the contract, as there had been no further ‘material’ breaches. They had therefore wrongfully repudiated the contract.
This Case is Authority For…
A clause is to be construed in light of the contract as a whole. Just because the parties have labelled a clause a ‘condition’ does not mean that they intended any breach of that clause to enable termination of the contract. The courts should be careful, as sometimes parties use the word ‘condition’ as synonymous with ‘clause’ or ‘term’.
Other
Lord Reid thought that if a possible interpretation of a clause leads to a very unreasonable result, this is strong evidence that the parties did not intend the clause to have that meaning. If the parties intend to agree to a clause with a very unreasonable effect, they will normally use very clear wording.
In this case, the contract anticipated the respondents making around 1400 visits to manufacturers. It would be very unreasonable if missing a single one could result in the contract’s termination.
The Lords noted that normally the parties’ subsequent conduct is not admissible as evidence as to the meaning of a contract.
