Lloyd's Maritime and Commercial Law Quarterly

Professor Francis D Rose

Document

Termination as a response to unjust enrichment

Christopher Langley and Rebecca Loveridge *

The power to terminate a contract at law has traditionally been seen as a response to a breach of contract. This paper explores the nature of powers to terminate at law and those contained within the contract and argues that the power to terminate at law is never a response to a breach but responds to unjust enrichment: the holding of contractual rights is an enrichment at the expense of the other party which becomes unjust when the basis for their conferment fails. Recognising this enables a clear separation of the questions of termination and damages with important practical consequences including a more principled approach to the award of loss of bargain damages which resolves the inconsistency between Lombard North Central v Butterworths and Financings v Baldock. It also brings greater certainty for parties faced with a choice between exercising a power to terminate at law and an express contractual provision for termination.

I. INTRODUCTION

The question whether a contract can be terminated is a crucial one for commercial parties. In answering this question, the current approach is to look for a power at law following a repudiatory breach of the contract or an express contractual power contained in the contract. There are important practical differences between these two powers. The former

* Barristers at Middle Temple and Inner Temple respectively. We are grateful to Professor Andrew Burrows QC, Professor Charles Mitchell, Mischa Balen and the anonymous referees for helpful discussion and comments. Any errors remain our own.

The following abbreviations are used:

Bant, Change of Position: E Bant, The Change of Position Defence (Hart, Oxford, 2009);

Birks, “Concept”: P Birks, “The Concept of a Civil Wrong”, in D Owen (ed), The Philosophical Foundations of Tort Law (OUP, Oxford, 1995);

Burrows, Restitution: A Burrows, The Law of Restitution, 3rd edn (OUP, Oxford, 2010);

Contract Terms: A Burrows & E Peel (eds), Contract Terms (OUP, Oxford, 2007);

Chambers, “Two Kinds”: R Chambers, “Two Kinds of Enrichment”, in R Chambers, C Mitchell & J Penner

(eds) Philosophical Foundations of the Law of Unjust Enrichment (OUP, Oxford, 2009);

Chitty: H Beale (ed), Chitty on Contracts, 30th edn (Sweet & Maxwell, London, 2010);

Edelman, “Liability”: J Edelman, “Liability in Unjust Enrichment where a Contract Fails to Materialize”, in A

A Burrows & E Peel (eds), Contract Formation and Parties (OUP, Oxford, 2010);

Edelman, “Meaning”: J Edelman, “The Meaning of Loss and Enrichment”, in R Chambers, C Mitchell & J

Penner (eds) Philosophical Foundations of the Law of Unjust Enrichment (OUP, Oxford, 2009); Mapping the Law: A Burrows & Lord Rodger of Earlsferry (eds), Mapping the Law: Essays in Memory of Peter Birks (OUP, Oxford, 2006);

Treitel: E Peel (ed), Treitel: The Law of Contract, 13th edn (Sweet & Maxwell, London, 2011); Whittaker: S Whittaker, “Termination Clauses”, in Contract Terms.

LLOYD’S MARITIME AND COMMERCIAL LAW QUARTERLY

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