| Date | 7 March 2006 |
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| Judgment | Milburn Services Ltd -v- United Trading Group (UK) Ltd (unreported), 9 November 1995 |
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| The Issue | Entire agreement clauses and the calculation of damages following termination of loss making contracts. |
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| Implication |
An implied term allowing access to the work not excluded by an 'entire agreement' clause. Damages upon termination of loss making contracts will be based upon notional expenditure and receipts after the termination. |
printThe case of Milburn Services Limited -v- United Trading Group (UK) Limited delivered on 9 November 1995 dealt with two interesting points. The first is whether so-called 'entire agreement' clauses will operate to exclude terms which would otherwise be implied by operation of law. Secondly, the case dealt with assessment of damages following termination of a contract where the contract was loss making. The contract concerned the re-painting of the hull of a very large oil tanker anchored in the Red Sea about five miles from the Yemen coast line. United Trading won the contract to blast off 20,000 square metres of existing paint work and subsequent re-painting with multiple coats of paint. They entered into a subcontract with Milburn on the basis that the client would provide the paint, and United as main contractor would provide labour together with plant and equipment. Milburn, as subcontractors, were to provide management and technical personnel to be responsible for the operation and management of all works required under the contract. In the event the client terminated the contract as a result of significant delays to the works and it was held that the main contractor caused this termination by failing to provide the work force and all of the equipment which they had undertaken to provide, and which was essential for the job. As a result of the termination both main contractor and subcontractor were excluded from the oil tanker and, consequently, the subcontractors were prevented from completing the work. The subcontractor contended that there should be an implied term in the subcontract that the main contractor should ensure that the subcontractor is allowed access to the work, quoting the case of Roberts -v- Bury Commissioners (1870) in which it was stated: "It is both reasonable and necessary that someone who undertakes to do work, whether on a site on land or on a vessel at sea, shall be given access to the place where the work is to be done." The subcontract, however, incorporated an 'entire agreement' clause in the following terms. "This contract constitutes the entire agreement between the parties hereto...... and supersedes any understanding oral or written heretofore entered into ...... and may not be changed, modified or amended except in writing ......" Judge Bowsher was not impressed. Reading this clause as a whole, he stated that it was clear that the parties were agreeing simply that the contract should be construed from the written agreement on its own without reference to anything said or written before or afterwards. He held that he did not see that this clause could exclude vital implied terms such as that the parties should be allowed access to the work. The second point concerned whether the claim for damages would be excluded by the fact that this was a loss making contract. It was common ground that the parties had entered into a loss leader contract with the intention of winning further similar work in the region. The defendant main contractor made the submission that if the subcontract had been properly performed then Milburn would have incurred a loss of $ 165,316. They relied upon the North American case of Albert -v- Armstrong (1949) in which was stated: "The law of contract compensates the plaintiff for damages resulting from the defendant's breach. It does not compensate a plaintiff for damages resulting from his making a bad bargain." Judge Bowsher however considered that the facts of the Albert case were to be distinguished from the present case. In the Albert case the loss became greater the longer the contract went on and the loss maker benefited from the termination of the contract. He considered that one should concentrate only on what would have been expended and received after termination and thus if the plaintiff could show that by continuing the contract they would have been able to reduce their loss, then they would be entitled to be awarded that figure as damages. It would be irrelevant whether those damages were properly labelled damages for loss of profit, or damages for 'loss of an opportunity to reduce losses'. The overriding rule stated by Lord Blackburn in the case of Livingstone -v- Rawyards Coal in 1880 is that the measure of damages is that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been if he had not sustained the wrong for which he is now getting his compensation or reparation. Accordingly if the contract had been performed the plaintiff would have made less of a loss than they had in fact made. They were therefore entitled to damages which would put them in the position of making that lesser loss.
CJ-0608
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