Terminating your school’s contracts: Do you still need to engage?

The recent case AMT Vehicle Rental Ltd v Volkswagen Group United Kingdom Ltd [2022] heard in the High Court has clarified whether parties are still obliged to engage with one another during the notice period for termination.

Termination

Where your school has entered into a commercial contract, for instance in relation to catering or cleaning services, you may find yourself for a number of reasons in a position of seeking to terminate the contract. However, whilst termination may sometimes seem simple, there are a number of complications which can arise if appropriate steps are not followed. The effectiveness and consequence of termination very much depends on what the contract says and you need to ensure that your school continues to comply with the terms of the contract even after a termination notice has been served on the other party.

The case

AMT Vehicle (“AMT”) was engaged by Volkswagen Group United Kingdom (“VW”) to supply hire vehicles when VW customers’ vehicles were in need of repair or were otherwise out of service. VW used a third-party intermediary, via which AMT could access a spreadsheet showing VW’s vehicle requirements, allowing AMT to match a vehicle to VW’s need.

VW gave notice to AMT to terminate the contract in September 2019, as well as the relationship with the third-party intermediary. It was agreed between the parties that notice was effective from March 2020. However, from October 2019 to March 2020, VW denied AMT access to the vehicle spreadsheet, meaning that AMT could not meet VW’s vehicle supply requirements. Accordingly, AMT claimed that VW was in breach of the contract and claimed damages for lost profits.

Was VW in breach of the contract?

In summary, yes. The court considered whether there was an obligation, pursuant to the contract, for VW to allow AMT to continue to meet its vehicle requirement during the notice period. Clause 2.1 of the contract between VW and AMT which stated that “[VW] engages [AMT] to provide the services to [VW]“. It was found that this provision was a term of the contract, giving it some operational significance rather than simple background. It was therefore decided that there was a requirement for AMT to understand VW’s vehicle needs, whether by way of the spreadsheet or otherwise, in order for the contract to be performed.

In terms of breach, the court found that by failing to give AMT information in respect of its vehicle needs, VW had breached clause 2.1 of the contract throughout the period from October 2019 until termination and AMT was awarded losses based on the potential vehicles it could have supplied to VW in that period.

Practical steps

One of the key aspects of the court’s decision in this case was whether clause 2.1 was intended to form part of the background to the contract between AMT and VW, or whether it was an operative clause. It is therefore important to keep in mind when entering into contracts whether any information which is purely intended to be background could be considered to form part of the operation of the contract.

You should also consider whether there are particular aspects of the contract which must continue during any notice period, as it is always preferable to make requirements explicitly clear to avoid any alternative interpretation.

If you have any queries in respect of preparing a commercial contract, or terminating an existing contract, please get in touch with our team.