PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.
When a sporting goods distributor terminated its distribution/licensing agreement with a manufacturer, the distributor claimed that the termination was because the contract had been repudiated by the manufacturer. The distributor sought damages for the loss of profit for the remaining term of the contract.
It is usual in such cases for the court to assume that when a party to a contract wishes to terminate it, it has the right to do so as long as the termination can be justified at the time the issue is argued. It is not necessary that the reason for termination is made explicit at the time the contract is terminated.
After lengthy legal proceedings, the manufacturer successfully defended itself against the accusation that it had repudiated the contract on the grounds originally claimed. However, some time after the dispute started, the distributor discovered that in 2007 the manufacturer had given a licensing agreement over its trade mark to a Latvian company. This action would justify a claim for repudiation of its contract.
The court ruled that whilst the 2007 breach did justify termination of the contract by the distributor, there could be no claim for damages resulting from it. Roth J said, “The alleged breach…cannot be the cause of the termination and thus of the loss that flowed from the termination.”
So, despite the fact that the manufacturer had committed an act that would have justified a claim for repudiation and damages, the distributor was denied damages on the ground that the evidence it presented did not support its original claim.
An appeal seems likely.
Pending clarification of the issues involved, it is important to consider carefully the ground on which any termination of contract is effected as your right to damages may depend on it.