Cobweb were not impressed to discover that despite a term in its agreement with Phoenix forbidding it from marketing and selling Cobweb’s business information product to named “excluded organisations”.
Topic: Contract
Who: Phoenix Media Ltd and Cobweb Information Ltd
When: May 2000
Where: Chancery Division of the High Court, London
What happened:
Cobweb were not impressed to discover that despite a term in its agreement with Phoenix forbidding it from marketing and selling Cobweb’s business information product to named “excluded organisations,” Phoenix had approached a number of precisely those excluded companies with a view to doing business with them. Cobweb had granted Phoenix an exclusive licence to market and sell Cobweb’s product as part of Phoenix’s own business information package, but when it discovered what Phoenix was doing, it immediately terminated Phoenix’s licence. Phoenix didn’t take this lying down, however, and went to court seeking a declaration that it was not in breach and that even if it were, this was not a serious enough breach to justify termination of the licence. The court agreed with Cobweb that Phoenix was in breach but agreed with Phoenix that there was no “material” or “irremediable” breach. None of Phoenix’s dealings with the excluded companies had gone beyond preliminary discussions, and even if samples of Cobweb’s product had been handed over, these could easily be collected back. In the circumstances Cobweb did not have legitimate grounds for termination of the licence.
Why this matters:
Presumably the Cobweb/Phoenix licence stated that Cobweb could terminate if Phoenix committed a material and irremediable breach, but did not say in terms what would qualify as such. This is quite common in commercial contracts, but this case serves as a reminder that there is no convenient definition of what is and what isn’t a “material” breach that enables contracting parties to distinguish one from the other in every case. One way in which the parties could have saved themselves the delay, cost and aggravation of litigation would have been to set out in the contract a non exhaustive list of what would be regarded as “material ” breaches, but then again the benefit of hindsight is a wonderful thing.
