Getting termination notice wrong meant innocent party could not claim for its US$15m losses – Shell v Dana Gas, High Court

S and D entered into an agreement. Clause 3.1.8 said that if the closing date had not occurred within nine months, then S could terminate the contract by 30 days’ notice, but S would not get back its US$15m. Clause 3.1.9 provided, however, that S could terminate on the same basis and get back its US$15m if the closing date had not occurred but the reason for this was D’s failure to make a particular acquisition. The closing date was not achieved and S terminated. The arbitrator interpreted S’s termination notice as a reference to its right under clause 3.1.9 (even though that clause was not specifically mentioned). S was mistaken and D had actually made the necessary acquisition, meaning that clause 3.1.8 applied and no refund applied. D was in fact in repudiatory (ie very serious) breach of the agreement on other grounds, which would have justified termination and damages under other clauses, but because of S’s termination notice, the arbitrator initially, and now the High Court, ruled that S was deemed to have accepted those breaches and had terminated on the grounds of clauses 3.1.8/3.1.9, and this meant that it lost out on a claim for refund or damages.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘This case was decided on its own facts. However, it shows the great importance of getting termination notices right. Otherwise, you could lose out on a right to claim damages or other remedies. It is easy to mess up without having professional help.’