Schuler AG v Wickman Machine Tool Sales Ltd [1973]
Share
Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2 is a landmark English contract law case addressing the right to terminate a contract based on performance. The dispute arose from Schuler AG's alleged wrongful termination of the contract with Wickman, where Wickman acted as Schuler's sole representative for marketing panel presses to car makers.
The pivotal clauses in question were Clause 7(b) and Clause 11. Clause 7(b) imposed a requirement on Wickman to visit specific car manufacturers weekly. Clause 11 allowed either party to terminate the agreement on 60 days' notice if the other party was in material breach and failed to rectify the breach within the stipulated period.
Wickman failed to make the required visits initially, which Schuler waived. However, when Wickman made some but not all the visits, Schuler terminated the contract. The central issue was whether Schuler had the right to terminate based on the breaches of Clause 7(b).
The House of Lords, by a majority, held that Schuler was not entitled to terminate. The crucial determination was that Clause 7(b) was not a condition but a term. Lord Reid, in delivering the majority judgment, emphasised that the word "condition" is indicative but not conclusive of the parties' intention. The court considered the unreasonableness of the result if Schuler's interpretation were accepted.
Lord Reid reasoned that when reading Clause 7(b) with Clause 11, notice should be given to remedy the situation, and termination would only be allowed if 60 days passed without compliance. Describing Schuler's interpretation as unreasonable, Lord Reid highlighted the lack of provision for various practical scenarios, making strict adherence to the clause nearly impossible.
Lord Wilberforce dissented, asserting that Clause 7(b) constituted a condition and that Schuler should have the right to terminate. He disagreed with characterising the clause as arbitrary or capricious, emphasising the contractual standard adopted by the parties.
The case underscores the importance of interpreting contractual clauses in harmony with the contract as a whole. It establishes that the mere use of the word "condition" is not conclusive and invites a thorough examination of the contract's overall intention, especially when considering potential unreasonableness. The decision safeguards parties from harsh consequences arising from rigid interpretations of contractual conditions.
The pivotal clauses in question were Clause 7(b) and Clause 11. Clause 7(b) imposed a requirement on Wickman to visit specific car manufacturers weekly. Clause 11 allowed either party to terminate the agreement on 60 days' notice if the other party was in material breach and failed to rectify the breach within the stipulated period.
Wickman failed to make the required visits initially, which Schuler waived. However, when Wickman made some but not all the visits, Schuler terminated the contract. The central issue was whether Schuler had the right to terminate based on the breaches of Clause 7(b).
The House of Lords, by a majority, held that Schuler was not entitled to terminate. The crucial determination was that Clause 7(b) was not a condition but a term. Lord Reid, in delivering the majority judgment, emphasised that the word "condition" is indicative but not conclusive of the parties' intention. The court considered the unreasonableness of the result if Schuler's interpretation were accepted.
Lord Reid reasoned that when reading Clause 7(b) with Clause 11, notice should be given to remedy the situation, and termination would only be allowed if 60 days passed without compliance. Describing Schuler's interpretation as unreasonable, Lord Reid highlighted the lack of provision for various practical scenarios, making strict adherence to the clause nearly impossible.
Lord Wilberforce dissented, asserting that Clause 7(b) constituted a condition and that Schuler should have the right to terminate. He disagreed with characterising the clause as arbitrary or capricious, emphasising the contractual standard adopted by the parties.
The case underscores the importance of interpreting contractual clauses in harmony with the contract as a whole. It establishes that the mere use of the word "condition" is not conclusive and invites a thorough examination of the contract's overall intention, especially when considering potential unreasonableness. The decision safeguards parties from harsh consequences arising from rigid interpretations of contractual conditions.
