Risk-of-Loss Provisions in War-Zone Service Contracts: Accrual, Affirmative Defenses, and Termination-for-Convenience Claims
The Fourteenth Court of Appeals addressed when breach-of-contract claims accrue under termination-for-convenience clauses in war-operations dining services contracts, holding that accrual occurred when the general contractor affirmatively denied termination costs rather than upon mere termination or implicit refusal through non-payment. The court enforced a risk-of-loss provision barring recovery for equipment abandoned during emergency military evacuations, distinguishing it from termination-for-convenience remedies and holding that offset claims constitute affirmative defenses not subject to limitations periods.
Background
Tamimi Global Company, Ltd., a subcontractor providing dining and utility services for war operations, sued Kellogg Brown & Root entities (collectively "KBR") alleging wrongful refusal to make payments due under certain contracts. KBR counterclaimed for breach of contract. Following a bench trial in Harris County's 55th District Court, judgment was entered in favor of Tamimi. Both parties appealed, presenting multiple issues concerning contract interpretation, statute of limitations, and damages in the context of service contracts performed in active war zones.
The Accrual Dispute
A central issue concerned when Tamimi's breach-of-contract claims accrued for statute of limitations purposes. The court held that Tamimi's claim for breach of the termination-for-convenience clause accrued when KBR affirmatively denied the claim for termination costs, not when KBR issued the notice of termination or when invoices went unpaid 30 days after an employee's approval. The court reasoned that the mere act of termination did not constitute breach and that the employee's approval was not ultimate approval, as the evaluation process required submission to KBR's claims department for resolution. Similarly, for claims based on failure to pay for minimum meal headcounts, the court held accrual occurred when KBR informed Tamimi it refused to pay for minimum headcounts.
Risk-of-Loss Provisions Trump Termination Rights
The court addressed whether Tamimi could recover for equipment abandoned during emergency evacuations at military sites. The contract contained both a termination-for-convenience clause and a risk-of-loss provision. The court held the risk-of-loss provision controlled and barred recovery for items abandoned during evacuation and never recovered, even though a termination-for-convenience notice had been issued prior to evacuation. The court found that the risk-of-loss provision, rather than the termination-for-convenience provision, applied to items abandoned during evacuation. The court rejected arguments that enforcing the risk-of-loss provision rendered the termination-for-convenience clause illusory, explaining that the provisions allocated responsibility for different types of damages.
Offset as Affirmative Defense
The court held that KBR's offset allegations constituted an affirmative defense not subject to the statute of limitations. The court also held that KBR failed to establish that Tamimi's breach of anti-kickback provisions was a substantial factor in its damages.