The extent of a party’s liability to pay damages following a breach of contract is invariably a matter of vital commercial importance. A recent case in the High Court raised two significant questions of legal principle in this context. One was whether a breaching party’s liability to compensate for the other party’s prospective loss ceases upon the contract’s termination, even if that termination was precipitated by the breaching party’s later repudiation of the contract. The other was whether a contracting party’s entitlement to damages for prospective loss is affected by its decision to terminate on an incorrect basis, even if it did in fact possess a legitimate basis for terminating when it purported to do so. In answering both of these questions in the affirmative, Roth J significantly limited the potential liability of one of the parties to this dispute. This article explores whether this was the correct approach. It defends his Lordship’s decision to follow The Golden Victory in answering the first question, but argues that his Lordship’s unconditional refusal to permit a party terminating on an incorrect basis to recover damages for prospective loss was mistaken.

Leofelis v Lonsdale 1 required Roth J to determine an application for summary judgment in each of two separate actions arising out of a prolonged trademark licensing dispute. Each application raised an important question of legal principle. The first was whether a party can reduce its damages liability for a breach of contract by relying on its own later repudiatory breach of the same agreement. This required Roth J to determine the scope of the House of Lords’ decision in The Golden Victory (“TGV”).2 Reasoning from that decision, his Lordship answered this question with a “yes”. The second question was whether one contracting party, after purporting to terminate for an alleged (but nonexistent) repudiatory breach by the other party, can rely on the latter party’s wholly distinct repudiatory breach, of which it was unaware at the time it purported to terminate, retrospectively to justify termination and claim damages for prospective loss. Although accepting that it was open to the terminating party to rely on any available ground for termination, Roth J refused to permit that party to recover damages for loss of the bargain. After analysing various arguments, based in precedent, policy and principle, this comment concludes that Roth J’s answer to the first question was correct, but argues that his Lordship erred in answering the second.