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17 Cards in this Set
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Photo Production Ltd vSecuricor Transport Ltd [1980]
fundamental breach - nature of the breach |
A contract for provision of security services by Securicor at the Claimant’s factory. The security guard’s negligence caused the destruction of the claimant’s factory by fire. The contract contained a clause excluded liability for negligence of Securicor’s workers. Held: Where the parties are negotiating at arms length, and have set out who should bear the risks, the courts should be unwilling to interfere. Theso-called doctrine of fundamental breach does not operate so as to preventreliance upon an exclusion of liability clause upon the contract being broughtto an end.
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Breach of Contract
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Refusingto perform or saying one does not intend to perform (latter known asanticipatory breach); defective performance; Breach of condition; Disablingoneself, incapacitating performance
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Bridge v CampbellDiscount Co Ltd [1962]
breach and lawful termination |
The parties disputed the validity of a clause in a car hire contract relating to the consequences of a breach. Held: (Majority) The agreement had been terminated by breach rather than by the exercise of an option, so that the stipulated payment could be, and in fact was, a penalty. Lord Morton said that had it been triggered by the exercise of an option then: “In that event the present appellant would have been bound to pay the stipulated sum of £206 3s.4d., not by way of penalty or liquidated damages but simply because payment of that sum was one of the terms upon which the option could be exercised.” The question of penalty or not is determined as a matter of substance not form. The House discussed the meaning of the words ‘in terrorem’ in the context of penalty clauses in contracts: “I do not find that that description adds anything to the idea conveyed by the word “penalty” itself, and it obscures the fact that penalties may quite easily be undertaken by parties who are not in the least terrorised by the prospect of having to pay them.” The rule against penalty clauses is not a rule as to the illegality of a clause, but rather one of refusing to sanction legal proceedings for recovery of a penalty sum, as a matter of public policy.
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Omnium D’Enterprisesv Sutherland [1919]
Failure of conditionprecedent, happening of condition subsequent |
Thedefendant had agreed to rent a ship to the claimant. Before the hire periodcommenced the defendant sold the vessel. The sale of the ship amounted to aclear repudiation of the contract. The claimant could sue for breach ofcontract
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Hong Kong Fir Shipping CoLtd v Kawasaki Kisen Kaisha [1962]
The Effect of Breach ofContractual Terms |
see previous notes
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Decro Wall International SA v Practitionersof Marketing Ltd [1971] The Effect of Breach of Contractual Terms |
Once the court has concluded that a ‘reasonable notice’ requirement was to be implied into a contract, the question of what notice period was reasonable must be judged as at the time the notice was given. Buckley LJ also set out the test for fundamental breach, saying: ‘the . . breach must be such as to deprive the injured party of a substantial part of the benefit to which he is entitled under the contract . . Will the consequences of the breach be such that it would be unfair to the injured party to hold him to the contract and leave him to his remedy in damages’.
EFFECTS OF BREACH:Anticipatory breach does not automatically bring the contract to an end. The innocent party has two options:Treat the contract as discharged and bring an action for damages immediately, without waiting for the contractual date of performance as in Hochster v De La Tour (1853)Elect to treat the contract as still valid, complete his side of the bargain and then sue for payment by the other side as in White & Carter (Councils) v McGregor (1961). |
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TorvaldKlavenessA/S v Arni Maritime Corp ‘The Gregos’[1994
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see previous notes
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Federal Commerce andNavigation v Molena Alpha [1979]
Repudiation and Acceptance |
Aninstruction by owners to masters of vessels prohibiting the signing of freightpre-paid bills of lading may be a repudiatory breach of contract. Bytime-charters, the owners let three ships to the charterers for periods of sixyears. Most of the cargoes were carried on c.i.f. terms in which freightpre-paid bills of lading were used. A dispute arose and the owners instructedthe masters not to sign any pre-paid lading bills. The charterers accepted theowners' conduct as a repudiation and referred the matter to arbitration. Aftera series of appeals the matter was finally appealed by both parties to theHouse of Lords. Held, that since the signing of the pre-paid bills wasessential to the charterers' trade, the owners' instruction constituted an anticipatorybreach of contract which in the circumstances amounted to a repudiation of thecontract.
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Woodar Investments v WimpeyConstruction [1980]
repudiation and acceptance |
Wimpey Construction UK Ltd contracted to buy land from Woodar Investment Development Ltd for £850,000. On completion of the purchase, Wimpey was meant to pay a further £150,000 to a third party, Transworld Trade Ltd.[1] Wimpey terminated the contract alleging they were allowed where statutory authority had started a compulsory purchase. Woodar said this was a repudiatory breach and claimed the full £1m. The claimants argued that Jackson v Horizon Holidays Ltd should be followed so they could claim for a benefit to be given to a third party. The House of Lords held by a majority (Lord Salmon and Lord Russell dissenting) that there had in fact been no repudiatory breach. But as obiter dicta they discussed where the Court of Appeal was right that if Woodar did have a good claim for breach of contract, they could claim damages on behalf of Transworld Trade Ltd. Lord Wilberforce said that Jackson could be supported on its special facts, as a type of contract including family holidays, ordering meals in restaurants and hiring a taxi for a group. But here the ‘factual situation is quite different.’
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FercometalSARL v Mediterranean Shipping Co SA ‘The Simone’ [1988]
affirmation |
Wherea non-repudiating party chooses to affirm a contract rather than accept therepudiation, that party is not absolved from performing its obligations underthe contract until the repudiating party is ready to perform its contractualobligations. |
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Yukong Line of Korea vRendsburg Investment [1996]
affirmation |
Repudiation by charterer: Funds were transferred by a charterer’s “alter ego” to another company controlled by him with intent to defeat owner’s claim – whether “alter ego” acting as undisclosed principal of charterer – whether permissible to pierce corporate veil – whether actionable conspiracy. A company creditor is owed no direct duty by a director putting his assets beyond the jurisdiction anticipating the company’s insolvency. In an unlawful means conspiracy, the unlawful act relied on must be actionable at the suit of the plaintiff: “As to an unlawful means conspiracy, Mr. Yamvrias undoubtedly owed a fiduciary duty to Rendsburg. Although he was not formally a director, he was a “shadow director” and controlled the company’s activities.” and “. . since Mr Yamvrias had effective control over Rendsburg, he would presumably have been in a position on behalf of the company to get back from himself that which he had caused to be paid for his benefit. It might in an appropriate case be within the scope of the Court’s Mareva jurisdiction to require a company, and its only effective officer, to do just that; but that has not been the subject of argument.”
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State Trading Corp of India v MGolodetz Ltd [1989]
termination |
Where two parties have contractual obligations towards each other, a breach by one that does not go to the root of the contract will not relieve the other of performance. S sold a cargo of sugar to B "afloat": payment was to be by letter of credit and B were to open their letter within seven days. S agreed to guarantee their performance, and to place orders in other goods from B to 60 per cent of the value of sugar over the coming six months. It was further a term of the contract that the vessel would be a "direct sailing vessel" to the discharge port. The vessel in fact called at Hong Kong en route. She then caught fire and sank after colliding with a salvage vessel. S opened a sugar guarantee, but failed to provide a guarantee for further purchases. S pressed B to open their letter of credit, but B failed to do so. Arbitrators held that B were in repudiatory breach in failing to open their letter of credit and B were not excused from performance because of S' failure to open the counter-trade guarantee. Evans J. overturned the arbitrators on appeal, holding that S were not in breach of their obligation to "sail direct" to India, but that B's non-performance was excused by S' prior or simultaneous repudiatory breach. Held, allowing the appeal, that S' cross-guarantee on purchases was not a condition of the contract, and any breach by them of their obligations thereunder did not go to the root of the contract.
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VitolSA v Norelf Ltd [1996]
termination |
Norelf Ltd contracted to sell a cargo of propane to Vitol SA in 1991. The propane market had been very volatile. The cargo was being shipped (on the Santa Clara) from Houston, U.S. It was meant to leave before March 7. On March 8, while it was still being loaded, Vitol sent a telex to Norelf saying it did not wish the contract to continue because it was not going to arrive on time (i.e. Vitol repudiated the contract). The ship was loaded, and it sailed on March 9. The price of the cargo fell. Neither side did anything further to perform the contract. Norelf sold the cargo at a loss, and then claimed damages ($950,000) from Vitol for breach of contract.The arbitrator held that Vitol's telex was an anticipatory breach of contract, but Norelf's failure to take further steps to perform the contract was sufficient communication to Vitol that they had accepted the repudiation. Vitol's appeal was dismissed in the High Court by Phillips J. But it succeeded in the Court of Appeal, who held that a mere failure to perform contractual obligations could not constitute acceptance of the repudiation. Norelf appealed to the House of Lords. Appeal allowed. In some circumstances an innocent party may simply fail to perform his obligations under a repudiated contract, and that was enough to accept the repudiation. So communication (orally or written) was not always necessary. The question was whether the innocent party's conduct did convey, unequivocally, that he was treating the contract as repudiated. A failure could be unequivocal.
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Hochesterv De la Tour (1853)
anticipatory breach |
In April, De La Tour agreed to employ Hochster as his courier for three months from 1 June 1852, to go on a trip around the European continent. On 11 May, De La Tour wrote to say that Hochster was no longer needed. On 22 May, Hochster sued. De La Tour argued that Hochster was still under an obligation to stay ready and willing to perform till the day when performance was due, and therefore could commence no action before. Lord Campbell CJ held that Hochster did not need to wait until the date performance was due to commence the action and awarded damages. A contract is repudiated before the date of performance, damages may be claimed immediately.
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Whiteand Carter (Councils) Ltd v McGregor[1962]
anticipatory breach |
The claimant supplied bins to the Local Authority and were allowed to display adverts on these bins. The defendant owned a garage. The defendant's sales manager entered a contract with the claimant for them to place adverts on the bins for a period of 3 years. The agreed price was payable by three annual instalments and if one of the payments was late the whole price became immediately due. The defendant had not authorised the sales manager to enter the contract and phoned the claimant on the same day as the contract had been made telling them that he did not want the advertising. The claimant ignored the defendant's communication and arranged for the advertising plates to be made up and placed on the bins. The defendant refused to pay the first instalment and the claimant submitted a bill for the full three years of advertising.Held:The House of Lords held that the claimant was not obliged to accept the breach of contract and could continue with the contract. They were thus entitled to full payment for the three years advertising.NB this case seems to ignore the general rule of the duty to mitigate loss applicable to claims for damages. no obligation to accept the breach If there is a legitimate interest, other then immediate financial interest, to perform the contract then the party is entitled to recover damages.→ If you cant show you have legitimate interest in waiting or performing then you have a duty to mitigate. Majority - Where one party repudiates the other party has an option. May accept and sue for damages for breach, whether or not time for performance has come. May disregard it and contract remains in full effect.Dissenting - Repudiation by one party does not put an end to a contract. If the party who repudiated still refuses to carry out the contract, then what? - The innocent party can sue for damages for loss associated with the bre
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CleaShipping Corporation v Bulk OilInternational Ltd ‘The Alaskan Trader’ [1984]
anticipatory breach post 'White and Carter' |
Althoughgenerally the innocent party has an absolute discretion as to whether to acceptthe repudiation of a contract, where he has no legitimate interest inperforming the contract, rather than claiming damages, the court will not allowhim to enforce his full contractual rights. This involved a charter starting on 19 Oct 79 for 24 months. Exactly one year later the ship broke down and charterer decided to end the contract. There was a break down of the engine, but this was not serious enough to warrant termination. In fact, the rate for chartering had dropped, and the charterer wanted to charter elsewhere more cheaply. The shipowner said the ship was ready, the charterer said "no thanks". The owner held the ship ready for the balance of the period. The charterer did pay the hire for that period, "under protest", and sought to recover the money. At arbitration, it was said that there was no legitimate interest in keeping the ship on hand. The shipowner should have claimed damages for breach rather than the hiring charge.The QBD on appeal agreed with this.
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GoldenStrait Corporation v NipponYusen Kaisha (‘The Golden Victory’) [2005] |
Golden Strait Corp chartered a ship to Nippon Yusen Kubishika Kaisha from 10 July 1998. The earliest contractual date for termination was 6 December 2005. The only exception (in clause 33 of the charterparty) for cancellation was if war broke out between Iraq, the United States, the United Kingdom and a number of others. Nippon, nevertheless repudiated the charter on 14 December 2001, redelivering the ship to Golden. Golden accepted this three days after.They took the case to an arbitrator to consider how much Nippon should pay in damages. By that time, America had started the Iraq War, in March 2003. This was just the event that would have allowed Nippon to cancel the charter, if stayed with it.The arbitrator, Mr Robert Gaisford, reluctantly decided that the outbreak of war had created a limit on the payable damages. Nippon was liable for no damages after 21 March 2003. Golden appealed, the question being, in what circumstances could a party in breach rely on subsequent events to show that the contractual rights lost were not valuable?Golden argued that where there was an available market, the loss should be measured at the date of acceptance of breach. It said that this created finality in contractual negotiations, and certainty because events subsequent to the date of acceptance of a contractual breach would become irrelevant.
Three members of the House of Lords upheld the decision of the Court of Appeal, while Lord Bingham and Lord Walker dissented.The majority held that because the outbreak of war occurred before the damages fell to be assessed, they could be taken into account. The most important thing was an accurate assessment of damages based on the loss actually incurred, which goes to the root of the compensatory principles that a victim of breach of contract will be compensated for the loss of his bargain. The victim should be placed in the position as if the contract were performed. The court should not ignore facts that were available. Golden was trying to argue for compensation exceeding the value of what it had lost. Lord Bingham, dissenting, would have held that damages should be assessed on the date of the breach. That should have meant Golden got damages for four years left on the charterparty. He emphasised the importance of certainty and predictability in English commercial law and said this decision would hurt it. |
