Optimares S.p.A v Qatar Airways Group Q.C.S.C [2022] EWHC 2461

Optimares contracted with Qatar Airways to design and manufacture aircraft seats. Qatar Airways terminated for convenience under clause 12.2.3 after Optimares invoked excusable delay due to Covid-19. The High Court held the termination was lawful, dismissing Optimares' claims and largely upholding Qatar Airways' counterclaim for repayment of non-recurring costs.

Facts

In 2018 and 2019, Optimares S.p.A., an Italian seat manufacturer, entered into four Purchase Agreements with Qatar Airways for the design, manufacture and supply of business and economy class aircraft seats (shipsets) for the Boeing 787-9, Boeing 777-9 and Airbus 321 aircraft. The agreements incorporated Qatar Airways’ Standard Conditions and provided for staged payment of non-recurring costs (NRC) tied to four design milestones (ITCM, CDR, FAI and rectification of defects), with the purchase price for the shipsets payable on delivery.

On 22 March 2020, Optimares served notices of excusable delay under clause 13.1 of the Standard Conditions, citing the Italian Covid-19 lockdown. The following day, 23 March 2020, Qatar Airways issued termination notices in respect of all four contracts and the associated purchase orders, expressly invoking clause 12.2.3 (termination for convenience). Qatar Airways also demanded repayment of sums already paid pursuant to clause 12.3.2. By the date of termination no completed shipsets had been delivered. Qatar Airways subsequently re-awarded the B787 work to Adient Aerospace.

Issues

Calver J identified four issues of construction:

• Whether the existence of a right to terminate for excusable delay under clause 13.1.7 precluded Qatar Airways from terminating under clause 12.2.3.
• The financial consequences of termination under clause 12.2.3, in particular the meaning of “without incurring any liability” and whether clause 12.3.2 applied.
• Whether clause 12.2.3 created an unfettered right to terminate or was qualified by the good faith obligation in clause 16.13.
• Whether there was scope for a claim in unjust enrichment in respect of intellectual property transferred to Qatar Airways.

Arguments

Optimares

Optimares argued that clause 13.1.7, once engaged by an excusable delay, displaced the more general termination for convenience in clause 12.2.3; that “without incurring any liability” did not bar a claim for wasted costs (reliance damages); that the good faith clause (16.13) fettered Qatar Airways’ right to terminate, particularly where termination was effectively to re-award work to a cheaper competitor; and that, in any event, it had a restitutionary claim for the value of the Foreground IP transferred to Qatar Airways.

Qatar Airways

Qatar Airways argued that clause 12.2.3 conferred an unfettered right to terminate for convenience, applying “notwithstanding anything to the contrary”; that the two termination provisions co-existed; that “without incurring any liability” meant precisely that; that clause 16.13 did not apply to the exercise of a termination right because it was not a “responsibility” or “obligation”; and that the contractual regime vested Foreground IP unconditionally in Qatar Airways, leaving no room for unjust enrichment.

Judgment

Calver J accepted Qatar Airways’ construction on each issue. Applying the principles in Arnold v Britton [2015] UKSC 36 and Wood v Capita [2017] UKSC 244, the judge emphasised that this was a sophisticated commercial contract negotiated with the assistance of skilled professionals, calling principally for textual analysis. He acknowledged the agreements were weighted in Qatar Airways’ favour but held that the court will not rewrite a bargain to relieve an unwise party.

Issue 1: Interaction of clauses 12.2.3 and 13.1.7

The two clauses co-exist. Clause 12.2.3 expressly applies “notwithstanding anything to the contrary”. The clauses have differing notice periods and financial consequences and a party might rationally prefer one over the other (for example, to avoid disputes about whether an excusable delay had arisen). Qatar Airways was entitled to terminate under clause 12.2.3 even though clause 13.1.7 was potentially available.

Issue 2: Financial consequences

The phrase “without incurring any liability” precluded both loss of bargain and reliance damages. The sole source of remedies on a contractual termination is the clause itself, citing Phones 4U Ltd v EE Ltd [2018] EWHC 49 (Comm) and Chitty on Contracts (34th Edn) at 25-054. Clause 12.3.2 applied to all terminations under clause 12.2, including for convenience, requiring repayment of “all sums previously paid”. However, the purchase price for delivered shipsets did not fall within that phrase – a concession rightly made by Qatar Airways. NRC payments did, since they represented on-account payments for ongoing design work prior to delivery.

Issue 3: Good faith

Clause 16.13 applies to the performance of “responsibilities and obligations”; the exercise of a termination right is neither. The judge followed TSG Building Services plc v South Anglia Housing [2013] EWHC 1151 (TCC) and TAQA Bratani Ltd v Rockrose UKCS8 LLC [2020] EWHC 58 (Comm), noting the courts’ reluctance to fetter express termination rights with good faith duties. Even on the evidence, the judge would not have found bad faith. The relationship had broken down by February 2020, Optimares had failed to deliver shipsets by the agreed on-dock dates, and Qatar Airways’ decision to look elsewhere was not in bad faith – and would have been permissible under clause 12.2.3 in any event.

Issue 4: Unjust enrichment

Following Dargamo Holdings Ltd v Azitio Holdings Ltd [2021] EWCA Civ 1149, a restitutionary claim cannot undermine a valid contractual allocation of risk. Foreground IP vested unconditionally and immediately in Qatar Airways under clauses 8.4.4.3 and 8.7 of the Purchase Agreement and clause 15.3 of the Standard Conditions, with no additional payment due. There was no failure of basis, and Optimares’ restitutionary case was unpleaded and unproven.

Quantum

On the counterclaim, Calver J held that NRC payments for the new seat design (US$485,000; US$242,500; EUR 756,178.50; US$475,000) were recoverable with interest at the US prime rate. However, the US$970,000 paid for the old Aria design was not recoverable: Mr Al Baker and Mr Braca had agreed in October 2019 that Optimares would be deemed to have completed all four NRC milestones, the sum was treated as undisputed under clause 11.3 and accordingly fell outside the scope of “all sums previously paid”. Claims for shipping costs (US$352,056.54), insurance guarantee fees (US$45,338) and payments under the separate BFE Agreement (US$352,154.76 and EUR 115,500) all failed for evidential or jurisdictional reasons or because they fell under separate contracts.

Implications

The decision reinforces that English courts will give effect to clearly worded termination for convenience clauses in sophisticated commercial contracts, even where the consequences are commercially harsh for one party. It confirms that:

• A specific contractual termination right (here, for excusable delay) does not necessarily displace a co-existing general right to terminate for convenience, particularly where the convenience clause is drafted to apply “notwithstanding anything to the contrary”.
• An express “without incurring any liability” provision precludes both expectation and reliance damages on the exercise of a contractual termination right; remedies on contractual termination derive solely from the contract.
• An express good faith clause confined to “responsibilities and obligations” will not ordinarily fetter the exercise of an express termination right, consistent with TSG and TAQA.
• Unjust enrichment cannot be deployed to circumvent a clear contractual allocation of IP rights where the recipient has a legal right to the benefit conferred.

The decision is significant for suppliers contracting with airlines and other large purchasers on the purchaser’s standard terms. It illustrates the risks of accepting wide termination-for-convenience rights coupled with claw-back obligations for staged design payments, particularly where the supplier has made significant up-front investment. The case also offers practical guidance on the limited circumstances in which factual evidence will affect the outcome of contractual disputes where the wording of the contract is clear.

Verdict: Optimares’ claim was dismissed. Qatar Airways was held to have lawfully terminated the Purchase Agreements for convenience under clause 12.2.3 of the Standard Conditions, without incurring any liability. Qatar Airways’ counterclaim under clause 12.3.2 succeeded in part, namely for repayment of the non-recurring costs paid in respect of the new seat designs (US$485,000; US$242,500; EUR 756,178.50; and US$475,000) together with interest at the US prime rate. The counterclaims for the US$970,000 paid for the old Aria design, shipping costs of US$352,056.54, insurance guarantee fees of US$45,338, and sums of US$352,154.76 and EUR 115,500 paid under a separate BFE Agreement were dismissed.

Source: Optimares S.p.A v Qatar Airways Group Q.C.S.C [2022] EWHC 2461