Affirming
Cases
Bunge SA v Nidera BV
[2015] UKSC 43
LORD SUMPTION: (with whom Lord Neuberger, Lord Mance and Lord Clarke agree)
Introduction
This appeal concerns the effect of the default clause in a standard form of contract which is widely used in the grain trade. On 10 June 2010 the respondents, Nidera BV, whom I shall call “the buyers”, entered into a contract with the appellants, Bunge SA (“the sellers”), to buy 25,000 metric tonnes (+/- 10% in buyer’s option) of Russian milling wheat crop 2010, FOB Novorossiysk. The shipment period was August 2010, but there were provisions for narrowing that period by notice. In the event it was narrowed to 23-30 August 2010. The contract incorporated GAFTA Form 49 (as in effect from 1 January 2006), which is the standard form of FOB sale contract of the Grain and Feed Trade Association, for goods delivered from central or Eastern Europe in bulk or bags.
Clauses 13 and 20 of GAFTA 49 are the main provisions relevant to the present dispute. They provided:
“13. PROHIBITION – In case of prohibition of export, blockade or hostilities or in case of any executive or legislative act done by or on behalf of the government of the country of origin of the goods, or of the country from which the goods are to be shipped, restricting export, whether partially or otherwise, any such restriction shall be deemed by both parties to·apply to this contract and to the extent of such total or partial restriction to prevent fulfilment whether by shipment or by any other means whatsoever and to that extent this contract or any unfulfilled portion thereof shall be cancelled. Sellers shall advise buyers without delay with the reasons therefor and, if required, Sellers must produce proof to justify the cancellation.”
“20. DEFAULT – In default of fulfilment of contract by either party, the following provisions shall apply:
(a) The party other than the defaulter shall, at their discretion have the right, after serving notice on the defaulter, to sell or purchase, as the case may be, against the defaulter, and such sale or purchase shall establish the default price.
(b) If either party be dissatisfied with such default price or if the right at (a) above is not exercised·and damages cannot be mutually agreed, then the assessment of damages shall be settled by arbitration.
(c) The damages payable shall be based on, but not limited to the difference between·the contract price and either the default price established under (a) above or upon the actual or estimated value of the goods on the date of default established under (b) above.
(d) In all cases the damages shall, in addition, include any proven additional expenses which would directly and naturally result in the ordinary course of events from the defaulter’s breach of contract, but shall in no case include loss of profit on any sub-contracts made by the party defaulted against or others unless the arbitrator(s) or board of appeal, having regard to special circumstances, shall in his/their sole and absolute discretion think fit.
(e) Damages, if any, shall be computed on the quantity called for, but if no such quantity has been declared then on the mean contract quantity and any option available to either party shall be deemed to have been exercised accordingly in favour of the mean contract quantity.”
On 5 August 2010 Russia introduced a legislative embargo on exports of wheat from its territory, which was to run from 15 August to 31 December 2010. On 9 August 2010, the sellers notified the buyers of the embargo and purported to declare the contract cancelled. The buyers did not accept that the sellers were entitled to cancel the contract at that stage. They treated the purported cancellation as a repudiation, which they accepted on 11 August 2010. On the following day, the sellers offered to reinstate the contract on the same terms, but the buyers would not agree. Instead, they began arbitration proceedings under the GAFTA rules, in support of a claim for damages of US$3,062,500.
…….
The common law
Anticipatory breach of contract, probably more accurately referred to as “renunciation”, is a concept which can be traced back to the earliest years of the common law but was first coherently formulated in terms of legal principle in Hochster v De la Tour (1853) 2 E & B 678, [1853] EngR 760 in England and Howie v Anderson (1848) 10 D 355 in Scotland. In its modern form it is a response to the pragmatic concern of Victorian judges to avoid the waste of economic resources implicit in any inflexible rule which required the parties to go through the motions of performing a contract which was for practical purposes dead. The same concern informs much of the law of contract, notably in the area of frustration and remedies. The early rules of pleading, reflecting the terms of the contract, had required the plaintiff in an action for damages to plead that he had tendered performance of any obligation to be performed by him as a condition precedent to the defaulting party’s obligation. But as Lord Campbell explained in Hochster v De la Tour, the effect of the renunciation of a contract in advance of the time agreed for performance was (i) to confer on the injured party an option to accept the renunciation as bringing the contract to an end and to treat himself as discharged from that time onward from further performance; (ii) to enable the injured party to deal with the financial consequences by suing for damages at once, without waiting for the time fixed for performance; and (iii) to bring forward the injured party’s duty to mitigate to the time when the renunciation was accepted.
An accepted renunciation gives rise to particular problems of legal analysis when it comes to the assessment of damages. As Lord Mustill observed in a characteristically sardonic comment on recent case-law:
“there is every reason to be wary about applying the ordinary rules of damages for breach of contract to this special type of ‘breach’ … unlike the position regarding actual breach I do not see how damages for an ‘anticipatory’ breach can be awarded with any semblance of intellectual rigour without at least an attempt to inquire into what was the breach to which the damages are attached, and what kind of breach it was which could be committed before there was any present obligation to perform. … the common law has never succeeded in finding a solution which is both theoretically sound and capable of producing sensible results in practice. The attempt was, to all intents and purposes, given up a long time ago, and the courts have been content to employ that powerful but dangerous weapon of the common law, a fiction. … in the field of anticipatory repudiation, a breach was simply assumed to have occurred when the repudiatory conduct took place, and at least where there was an available market for the goods or services in question those responsible for assessing damages were content to look directly to a comparison between the current market prices or rates and those prescribed by the contract, without any inquiry into why this comparison was being made.”
M Mustill, “The Golden Victory – Some Reflections” (2008) 124 LQR 569, 571-572.
The fundamental principle of the common law of damages is the compensatory principle, which requires that the injured party is “so far as money can do it to be placed in the same situation with respect to damages as if the contract had been performed”: Robinson v Harman (1848) 1 Exch 850, [1848] EngR 135, 855 (Parke B). In a contract of sale where there is an available market, this is ordinarily achieved by comparing the contract price with the price that would have been agreed under a notional substitute contract assumed to have been entered into in its place at the market rate but otherwise on the same terms.
Section 51 of the Sale of Goods Act 1979 provides:
“51. Damages for non-delivery
(1) Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery.
(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract.
(3) Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or (if no time was fixed) then at the time of the refusal to deliver.”
Section 50 contains corresponding provisions for non-acceptance by the buyer.
Sections 50 and 51 reproduce the corresponding provisions of the Sale of Goods Act 1893, and reflect common law principles which had already been established at the time of the earlier Act. Section 51(2) states the compensatory principle in the context of a seller’s non-delivery. Subsection (3) states the prima facie measure of damages where there is an available market, but it is not so much a rule as a technique which is prima facie to be treated as satisfying the general principle expressed in subsection (2). It is not obvious from the terms of the section how it is to apply to a case where by reason of an accepted renunciation the contract has come to an end in advance of the contractual time for delivery. That situation gives rise to two potential questions which are not always sufficiently distinguished in the case-law. The first question is: assuming that there is an available market, as at what date is the market price to be determined for the purpose of assessing damages? It is clear that once that date is determined, any subsequent change in the market price is irrelevant. Most of the case-law on the measure of damages for the repudiation of a contract of sale arises out of disputes about the relevant market price, and this is what judges speaking of the breach-date rule are usually referring to. The second question is: in what if any circumstances will it be relevant to take account of contingencies (other than a change in the market price) if subsequent events show that they would have reduced the value of performance, perhaps to nothing, even without the defaulter’s renunciation? This may happen, for example, if the injured party would have been unable to perform it when the time for performance arrived, or if the defaulter would have been relieved of the obligation to perform by frustration or under the express terms.
The answer to the first question, although like section 51(3) it is only a prima facie answer, is that where there is an available market for the goods, the market price is determined as at the contractual date of delivery, unless the buyer should have mitigated by going into the market and entering into a substitute contract at some earlier stage: Garnac Grain Co Inc v HMF Fauré & Fairclough Ltd [1968] AC 1130, 1168; Tai Hing Cotton Mill Ltd v Kamsing Knitting Factory [1979] AC 91, 102. Normally, however, the injured party will be required to mitigate his loss by going into the market for a substitute contract as soon as is reasonable after the original contract was terminated. Damages will then be assessed by reference to the price which he obtained. If he chooses not to do so, damages will generally be assessed by reference to the market price at the time when he should have done: Koch Marine Inc v d’Amica Societa di Navigazione (The Elena D’Amico) [1980] 1 Lloyd’s 75, 87, 89. The result is that in practice where there is a renunciation and an available market, the relevant market price for the purposes of assessing damages will generally be determined not by the prima facie measure but by the principles of mitigation.
The answer to the second question was given initially by the Court of Appeal in Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos) [1971] 1 QB 164 and then by the House of Lords in Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 AC 353.
In the first of these cases the Court of Appeal held that on the assumption that the voyage charterers of The Mihalis Angelos had repudiated the contract they were nevertheless not liable for substantial damages. This was because if the contract had continued they would have terminated it lawfully for breach of a condition as to the time of the vessel’s arrival at the port of delivery. Lord Denning and Edmund Davies LJ put the matter entirely generally. In Lord Denning’s words (at p 196), “You must take into account all contingencies which might have reduced or extinguished the loss”. But difficulty arose from the suggestion of Megaw LJ (at pp 209-210) that the result turned on the fact that the vessel was “predestined” to arrive late at the port of delivery.
The subsequent decision in The Golden Victory disposed of the argument, based on Megaw LJ’s dictum, that a subsequent event which would have reduced or extinguished the loss had to be inevitable, viewed at the time when the repudiation was accepted. The facts were that a seven-year time charter had been brought to an end by the charterer’s repudiation in the course of performance some four years before its contractual terms but only fourteen months before it would have been cancelled in any event under a war clause. At the time when the charterers’ repudiation was accepted, war was far from inevitable. It was found to be no more than a possibility. The question was how long it should be assumed, in those circumstances, that the charterparty would have lasted if it had not been wrongfully terminated. The House held by a majority that the overriding principle (or “lodestar”) was the compensatory principle. Irrespective of the date as at which the market price was ascertained, it was necessary to take account of contingencies known at the date of the arbitrator’s assessment to have occurred, if their effect was that the contract would have been lawfully terminated at or before its contractual term. It followed that damages were to be assessed on the assumption that the charter would have lasted for another 14 months.
The reasoning has to some extent been obscured by the focus on the implications of the so-called “breach-date rule” and on the competing demands of certainty and compensation. The real difference between the majority and the minority turned on the question what was being valued for the purpose assessing damages. The majority were valuing the chartered service that would actually have been performed if the charterparty had not been wrongfully brought to a premature end. On that footing, the notional substitute contract, whenever it was made and at whatever market rate, would have made no difference because it would have been subject to the same war clause as the original contract: see Lord Scott of Foscote at para 37, and Lord Brown of Eaton-under-Heywood at paras 76-78 and 82. The minority on the other hand considered that one should value not the chartered service which would actually have been performed, but the charterparty itself, assessed at the time that it was terminated, by reference to the terms of a notional substitute concluded as soon as possible after the termination of the original. That would vary, not according to the actual outcome, but according to the outcomes which were perceived as possible or probable at the time that the notional substitute contract was made. The possibility or probability of war would then be factored into the price agreed in the substitute contract: see Lord Bingham of Cornhill at paras 22 and Lord Walker of Gestingthorpe at paras 45-46. I think that the majority’s view on this point was correct. Sections 50 and 51 of the Sale of Goods Act, like the corresponding principles of the common law, are concerned with the price of the goods or services which would have been delivered under the contract. They are not concerned with the value of the contract as an article of commerce in itself. As Lord Brown observed at paras 82-83, even if the charterparty rights could have been sold for a capital sum, this was not a proper basis for assessing loss, and an assessment which proceeded as if it were would “extend the effect of the available market rule well beyond its proper scope”.
The leading speech for the majority, which was delivered by Lord Scott of Foscote, contains dicta which have sometimes been taken to suggest a distinction between a contract for a one-off sale and a contract for the supply of goods or services over a period of time: see paras 34-35. These dicta influenced both the Appeal Board and Hamblen J in the present case. But I do not think that Lord Scott was suggesting that the underlying principle was any different in the case of a one-off sale. Where the only question is the relevant date for taking the market price, the financial consequences of the breach may be said to “crystallise” at that date. But where, after that date, some supervening event occurs which shows that that neither the original contract (had it continued) nor the notional substitute contract at the market price would ever have been performed, the concept of “crystallising” the assessment of damages at that price is unhelpful. The occurrence of the supervening event would have reduced the value of performance, possibly to nothing, even if the contract had not been wrongfully terminated and whatever the relevant market price. The nature of that problem does not differ according to whether the contract provides for a single act of performance or several successive ones. Nor, as it seems to me, is there any principled reason why the majority’s solution should be any different in the two cases. If a distinction were to be made between them, it is difficult to see how The Mihalis Angelos, which concerned a contract for a single voyage, could have been decided as it was. As Lord Scott observed in The Golden Victory at para 36, the compensatory principle would be equally offended by disregarding subsequent events serving to reduce or eliminate the loss under “any anticipatory breach the acceptance of which had terminated an executory contract”. The most that can be said about one-off contracts of sale is that the facts may be different. In particular, if the injured party goes into the market and enters into a substitute contract by way of mitigation, it will not necessarily be subject to the same contingencies as the original contract.
The principle upheld in The Golden Victory has come in for a certain amount of academic criticism and judicial doubt. To my mind both the criticism and the doubt are unjustified. The most comprehensive and influential critic has been Professor Treitel. His views were set out in their fullest form in a case note on the decision of the Court of Appeal, which had reached the same conclusion as the majority of the Appellate Committee: see “Assessment of Damages for Wrongful Repudiation”, (2007) 123 LQR 9. Professor Treitel’s case note was cited to the Appellate Committee but evidently did not move them. His main criticisms were, first, that the decision failed to distinguish between the different supervening events (successful mitigation by the defaulting party, inability of the innocent party to perform, cancellation under an express provision) which may serve to reduce or extinguish the loss; secondly, that it took no account of the collateral motives that might have moved the party who had repudiated the contract to cancel it lawfully at a later stage if it had continued; and, thirdly, that it attached insufficient weight to the commercial value of certainty. I am no more convinced by these criticisms than the Appellate Committee was in The Golden Victory. The principle which the Committee applied was neither new nor heterodox. There is no principled reason why, in order to determine the value of the contractual performance which has been lost by the repudiation, one should not consider what would have happened if the repudiation had not occurred. On the contrary, this seems to be fundamental to any assessment of damages designed to compensate the injured party for the consequences of the breach. If the contract had not been repudiated, it would have been lawfully cancellable. If it was lawfully cancellable, the charterer would have been entitled to avail himself of that right regardless of his motive. The only question is whether he would in fact have done so, a question which in practice would probably have been determined by his financial interest. Commercial certainty is undoubtedly important, although its significance will inevitably vary from one contract to another. But it can rarely be thought to justify an award of substantial damages to someone who has not suffered any. As Lord Mance pointed out in the Court of Appeal in The Golden Victory [2006] 1 WLR 533, para 24, the degree of uncertainty involved in that case was no greater than the uncertainty inherent in the contract itself. The parties’ obligations were always defeasible in the uncertain event of war, just as their obligations under the contract presently in issue were always defeasible in the uncertain event of an export embargo.
Clause 20 of GAFTA 49
Mr Rainey QC, who appeared before us for the sellers, submitted that there was a strong presumption that an express damages clause was not intended to depart from the compensatory principle applied in The Golden Victory. Unless the contract provided otherwise in clear terms, damages would not be awarded where no loss had been sustained. This was not, he said, inconsistent with clause 20, which only required the assessment of damages to be “based on” the difference between the contract price and the market price or value at the relevant time. He proposed that effect should be given to the parties’ presumed intention to adhere to the compensatory principle by distinguishing between two stages of the inquiry, namely (i) whether any loss has been sustained as a result of the breach, and (ii) if so, how much loss had been suffered. Clause 20, he suggested, was concerned with stage (ii) but not stage (i).
Two preliminary observations are called for.
The first is that damages clauses are commonly intended to avoid disputes about damages, either by prescribing a fixed measure of loss (as in the case of a liquidated damages clause) or by a providing a mechanical formula in place of the more nuanced and fact-sensitive approach of the common law (as in clause 20 of GAFTA 49). In either case, it is inherent in the clause that it may produce a different result from the common law. For that reason there can be no scope for a presumption that the parties intended the clause to produce the same measure of damages as the compensatory principle would produce at common law. The mere fact that in some cases its application will over- or under-estimate the injured party’s loss is nothing to the point. Such clauses necessarily assume that the parties are willing to take the rough with the smooth. However, I would accept a more moderate version of Mr Rainey’s presumption. A damages clause may be assumed, in the absence of clear words, not to have been intended to operate arbitrarily, for example by producing a result unrelated to anything which the parties can reasonably have expected to approximate to the true loss.
The second preliminary observation is that such clauses are not necessarily to be regarded as complete codes for the assessment of damages. A damages clause, like any other contractual provision, is conclusive of the matters with which it deals. It may also implicitly exclude considerations which, although not directly within its scope, cannot be applied consistently with its terms. But it is a question of construction whether the mere fact that it deals with damages means that it must have been intended to do so exhaustively, thereby impliedly excluding any considerations which it has not expressly addressed. To treat a damages clause as a complete code in this all-embracing sense is to tax the foresight of the draftsman in a way which is rarely appropriate unless the alternative is to undermine the coherence or utility of the clause.
Clause 20(a)-(c) of GAFTA 49 is concerned with the determination of the difference between the contract price of the goods and their market price or value. Detailed analysis of the way that it works does not affect the outcome of this appeal, and argument on the point was largely foreclosed by the way that the case was put to the arbitrators. But given the importance of the GAFTA default clause, it is right to deal with it. The position may in my view be summarised as follows:
(1) The clause applies, as its opening words declare, “in default of fulfilment of contract by either party”. As a matter of ordinary language, the “fulfilment” of the contract means its performance, and “default of fulfilment” means its non-performance. This is the sense in which “fulfilment” is used throughout GAFTA 49. Thus clause 4 deals with brokerage, and provides that it is payable “contract fulfilled or not fulfilled”, but not if “such non-fulfilment” is due to the (lawful) cancellation of the contract under the prohibition or force majeure clauses. Clause 13, the prohibition clause, provides that prohibition of export, blockade or of hostilities will cause the contract to be cancelled if and so far as it “prevents fulfilment whether by shipment or by any other means whatsoever”. Clause 14 is a more general force majeure clause applicable to cases where “the execution of this contract or any unfulfilled portion thereof” is prevented by specified categories of event. Clause 22 provides for the closing out of the contract in the event of insolvency supervening “before fulfilment of this contract”. In each of these contexts the “fulfilment” of the contract clearly refers to the performance of the parties’ contractual obligations, and “non-fulfilment” or “default of fulfilment” to their non-performance. The use of the same term in the opening words of clause 20 indicates that that clause is concerned with non-performance. For this purpose, it does not matter whether the contract has not been performed because it was repudiated in advance of the time for performance, or because it was simply not performed when that time arrived. In either case, there is nothing other than contractual performance which can be said not to have been “fulfilled”.
(2) Clause 20(a) gives the injured party the option, at its discretion, of selling or buying (as the case may be) against the defaulter, in which case the sale or purchase price will be the “default price”. Either party is at liberty to reject the default price, if there is one, as the basis for assessing damages. If either (i) there is no default price, because the injured party did not go into the market to buy or sell against the defaulter, or else (ii) there is a default price but one of the parties is dissatisfied with it, then damages must go to arbitration in accordance with sub-clause (c).
(3) Sub-clause (c) provides for two alternative bases of assessment by the arbitrators. The first, which applies if a default price has been established but not accepted, is the difference between the default price and the contract price. In other words, if the injured party has gone into the market and bought or sold against the defaulter, the arbitrators may accept that the default price should be used to calculate damages, notwithstanding the objections of one or other party or even both of them. The second basis of assessment is the difference between the contract price and the “actual or estimated value” of the contract goods at the “date of default”. This means the date of the “default of fulfilment” referred to in the opening words of clause 20, ie the date on which the contract should have been “fulfilled” by performance in accordance with its terms. (The words “established under (b) above” merely refer to the value “settled by arbitration”, that being the only basis on which (b) provides for a value to be fixed.)
(4) The combined effect of sub-clauses (a), (b) and (c) is therefore to produce a measure of damages which differs in two main respects from the common law paradigm. The first is that the injured party is not required to mitigate by going into the market and buying or selling against the defaulter, but has a discretion whether to do so. Damages can be assessed as at the date when the injured party accepted the repudiation only if he actually went into the market to fix a price at that date. The second is that if the injured party has not in fact gone into the market and made a substitute contract the contract price falls to be compared not with the market price of the goods but with their “actual or estimated value”. This may be assessed by reference to the market price of different but comparable goods, for example goods of different origin or shipment date.
Mr Rainey submits that this careful scheme is concerned only with the question how much loss has been suffered, and that it applies only once it has been determined on a preliminary inquiry that there has been at least some loss. It does not apply if at common law there has been none. I do not accept this. In my view there is one question, namely how much loss has been suffered. Zero is simply one possible answer to that question. Mr Rainey’s approach does not even secure the consistent application of the compensatory principle which is said to be its justification. If the clause produces a high figure for the injured party’s loss, it would fall to be applied if the figure calculated in accordance with the compensatory principle was low but not if it was zero. If, for example, the injured party had suffered some modest out of pocket expenses recoverable under sub-clause (d), that would result in the application of the clause to the whole of the rest of the claim, however much its effect was to overstate the actual loss. These consequences seem at least as arbitrary and anomalous as those of which Mr Rainey’s clients complain.
The real distinction in my opinion is not between cases where there would be some damage at common law and cases where there would be none. It is between the two questions which I have identified at para 16 above. As applied to facts like these, they are, first, what is the relevant market price or value of the goods for the purposes of assessing damages? And, secondly, in what circumstances is it relevant to take account of contingencies, other than changes in the market price or value of the goods, which would have prevented the goods from being delivered whatever the market price or value, with the result that the buyer would have suffered the same loss in any event?
Leaving aside the provisions of sub-clause (d) relating to additional expenses and losses on sub-contracts, which have no bearing on the present issue, clause 20 is concerned only with the first of these questions. Sub-clauses (a) to (c) constitute an elaborate, indeed a complete, code for determining the market price or value of the goods that either were actually purchased by way of mitigation or might have been purchased under a notional substitute contract. The clause does not deal at all with the effect of subsequent events which would have resulted in the original contract not being performed in any event. The effect of these events could be excluded from consideration only if clause 20 were treated as a complete code not just for determining the relevant market price or value but for every aspect of the assessment of damages.
In my opinion clause 20 cannot be viewed in that way. In the first place, it neither provides nor assumes that assessment will depend only on the difference between the contract price and the relevant market price or value. It provides that the damages payable “shall be based on” that difference. It does not exclude every other consideration which may be relevant to determine the injured party’s actual loss. The clause is consistent with a conclusion that because of a subsequent supervening event the contract would never have been performed and the same loss would have been suffered even if it had not been renounced. Secondly, this is what one would in any event infer from the limited subject-matter of the clause. Clause 20 is not sufficiently comprehensive to be regarded as a complete code covering the entire field of damages. Sub-clause (c) covers the same territory as sections 50(3) and 51(3) of the Sales of Goods Act, and sub-clauses (a) and (b) cover the territory occupied by the common law principles concerning the mitigation of losses arising from price movements. But this is very far from the entire field. These provisions bring a valuable measure of certainty to issues arising from price movements which have given rise to difficulty and dispute at common law for 150 years. That is a valuable purpose which the clause achieves whatever the answer to the question now before us. But clause 20 is not concerned with bases of assessment which do not depend on the terms of a notional substitute contract or on any determination of the market price: for example expenses incurred by the buyer in the course of performance, which are not occasioned by the breach of contract but have been rendered futile by it, and would normally be recoverable as an alternative to the prima facie measure. Moreover, although the clause deals with the injured party’s duty to mitigate by going into the market to buy or sell against the defaulter, it does not deal with any other aspect of mitigation. It therefore leaves open the possibility that damages may be affected by a successful act of mitigation on the part of the injured party or by an offer from the defaulter which it would have been reasonable for the injured party to accept. Likewise, in my opinion, clause 20 neither addresses nor excludes the consideration of supervening events (other than price movements) which operate to reduce or extinguish the loss.
A similar conclusion was reached in two decisions concerning similar default clauses, both of which I respectfully regard as consistent with principle. Bem Dis A Turk S/A TR v International Agri Trade Co Ltd (The Selda) [1998] 1 Lloyd’s Rep 416 (Clarke J), [1999] 1 Lloyd’s Rep 729 (CA) arose out of the sellers’ repudiation of a C&F contract containing an earlier version of the GAFTA default clause, which was similar to clause 20 but did not include the provision of sub-clause (d) allowing the recovery of expenses occasioned by the breach. The buyers made no claim for damages based on the difference between the contract price and the market price or value, presumably because the market had moved in their favour since the original contract was made. They claimed only the expenses occasioned by the repudiation. They recovered them from the arbitrators, and the award was affirmed by both Clarke J and the Court of Appeal. Among the arguments which were rejected at all three stages was that the default clause was a complete code covering the whole field of damages. This was because it was concerned only with the computation of damages “based on” the difference between the contract price and the market price or value, or on the losses incurred on sub-contracts. A claim for expenses lay outside its scope and was not therefore implicitly excluded.
The argument rejected in The Selda was that the default clause impliedly excluded any head of loss which it did not expressly allow, and some significance was attached to the analogy with exclusion clauses drawn by Lord Diplock in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, 717-718. But I think that the analysis would have been the same in the converse case, where it was suggested that the clause impliedly required the award of a head of damage which has not been suffered. This was the position in Novasen SA v Alimenta SA [2013] 1 Lloyd’s Rep 647, the facts of which were indistinguishable from those of the present case. The contract incorporated a standard form of the Federation of Oil, Seeds and Fats Associations which included a default clause similar to clause 20(a)-(c) and (e) of GAFTA 49, except that the difference between the contract and the market price was expressed to be the maximum measure of damages. The issue was whether a loss computed in accordance with the clause had been extinguished by the later operation of an export ban at the contractual point of shipment. Popplewell J held that it had, on the ground that nothing in the clause required a loss calculated in accordance with the default clause to be awarded to the injured party if supervening events showed that it had not been suffered.
This result seems to me to be consistent with principle. The alternative is to allow the clause to operate arbitrarily as a means of recovering what may be very substantial damages in circumstances where there has been no loss at all. In the present case, the sellers jumped the gun. They repudiated the contract by anticipating that the Russian export ban would prevent shipment at a time when this was not yet clear. But fortunately for them their assumption was in the event proved to have been correct. The ban would have prevented shipment when the time came. The buyers did nothing in consequence of the termination, since they chose not to go into the market to replace the goods. They therefore lost nothing, and the arbitrators should not have felt inhibited from saying so.
Conclusion
In my opinion the answer to question 2.3 in Andrew Smith J’s order granting permission to appeal from the award is that the compensatory principle established in The Golden Victory is not limited to instalment contracts, and that the GAFTA Appeal Board was in error in thinking that it was. The answer to question 2.2(ii) in the order is that the default clause in GAFTA 49 does not exclude the principle identified in The Golden Victory [2007] 2 AC 353. In both respects, the correct conclusion had been reached in the first tier award. It follows that I would allow this appeal and vary the award of the Appeal Board by excising so much of it as awards substantial damages to the buyers and substituting an award of nominal damages in the sum of US$5. The parties should be directed to deal in writing with the question whether the award should also be varied so far as it awarded costs against the sellers (para 6.4), and with the incidence of costs of the proceedings following the award.
Golden Strait Corporation v. Nippon Yusen Kubishka Kaisha
[2007] UKHL 12 [2007] 2 WLR 691,[2007] 3 All ER 1, [2007] UKHL 12, [2007] 2 AC 353
Lord Scott
My Lords, the answer to the question at issue must depend on principles of the law of contract. It is true that the context in this case is a charterparty, a commercial contract. But the contractual principles of the common law relating to the assessment of damages are no different for charterparties, or for commercial contracts in general, than for contracts which do not bear that description. The fundamental principle governing the quantum of damages for breach of contract is long established and not in dispute. The damages should compensate the victim of the breach for the loss of his contractual bargain. The principle was succinctly stated by Parke B in Robinson v. Harman 1 Ex 850 at 855 and remains as valid now as it was then.
“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
If the contract is a contract for performance over a period, whether for the performance of personal services, or for supply of goods, or, as here, a time charter, the assessment of damages for breach must proceed on the same principle, namely, the victim of the breach should be placed, so far as damages can do it, in the position he would have been in had the contract been performed.
If a contract for performance over a period has come to an end by reason of a repudiatory breach but might, if it had remained on foot, have terminated early on the occurrence of a particular event, the chance of that event happening must, it is agreed, be taken into account in an assessment of the damages payable for the breach. And if it is certain that the event will happen, the damages must be assessed on that footing. In The Mihalis Angelos [1971] 1 QB 164, Megaw LJ referred to events “predestined to happen”. He said, at p.210, that:
“… if it can be shown that those events were, at the date of acceptance of the repudiation, predestined to happen, then … the damages which [the claimant] can recover are not more than the true value, if any, of the rights which he has lost, having regard to those predestined events.”
Another way of putting the point being made by Megaw LJ is that the claimant is entitled to the benefit, expressed in money, of the contractual rights he has lost, but not to the benefit of more valuable contractual rights than those he has lost. In Wertheim v. Chicoutimi Pulp Co. [1911] AC 301, Lord Atkinson referred, at 307, to:
“… the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed”
and, in relation to a claim by a purchaser for damages for late delivery of goods where the purchaser had, after the late delivery, sold the goods for a higher price than that prevailing in the market on the date of delivery, observed, at 308, that:
“… the loss he sustains must be measured by that price, unless he is, against all justice, to be permitted to make a profit by the breach of contract, be compensated for a loss he never suffered, and be put, as far as money can do it, not in the same position in which he would have been if the contract had been performed, but in a much better position.”
The result contended for by the appellant in the present case is, to my mind, similar to that contemplated by Lord Atkinson in the passage last cited. If the charterparty had not been repudiated and had remained on foot, it would have been terminated by the Charterers in or shortly after March 2003 when the Second Gulf War triggered the clause 33 termination option. But the Owners are claiming damages up to 6 December 2005 on the footing, now known to be false, that the charterparty would have continued until then. It is contended that because the Charterers’ repudiation and its acceptance by the Owners preceded the March 2003 event, the rule requiring damages for breach of contract to be assessed at the date of breach requires that event to be ignored.
That contention, in my opinion, attributes to the assessment of damages at the date of breach rule an inflexibility which is inconsistent both with principle and with the authorities. The underlying principle is that the victim of a breach of contract is entitled to damages representing the value of the contractual benefit to which he was entitled but of which he has been deprived. He is entitled to be put in the same position, so far as money can do it, as if the contract had been performed. The assessment at the date of breach rule can usually achieve that result. But not always. In Miliangos v Frank (Textiles) Ltd [1976] AC 443 Lord Wilberforce at 468 referred to “the general rule” that damages for breach of contract are assessed as at the date of breach but went on to observe that:
“… It is for the courts, or for arbitrators, to work out a solution in each case best adapted to giving the injured plaintiff that amount in damages which will most fairly compensate him for the wrong which he has suffered…”
and, when considering the date at which a foreign money obligation should be converted into sterling, chose the date that “gets nearest to securing to the creditor exactly what he bargained for”. If a money award of damages for breach of contract provides to the creditor a lesser or a greater benefit than the creditor bargained for, the award fails, in either case, to provide a just result.
In Dodd Properties v Canterbury City Council [1980] 1 WLR 433, Megaw LJ, commenting on the “general rule” to which Lord Wilberforce had referred in the Miliangos case, said, at 451, that it was “clear” that the general rule was “subject to many exceptions and qualifications”. In County Personnel Ltd v. Alan R Pulver & Co. [1987] 1 WLR 916, Bingham LJ, as my noble and learned friend then was, said at 926 that the general rule that damages were assessed at the date of the breach “should not be mechanistically applied in circumstances where assessment at another date may more accurately reflect the overriding compensatory rule.” In Lavarack v. Woods of Colchester Ltd [1967] 1 QB 278, the Court of Appeal held that damages for wrongful dismissal could not confer on an employee extra benefits that the contract did not oblige the employer to confer and Diplock LJ (as he then was) said at 294, that:
“… the first task of the assessor of damages is to estimate as best he can what the plaintiff would have gained in money or money’s worth if the defendant had fulfilled his legal obligations and had done no more. Where there is an anticipatory breach by wrongful repudiation, this can at best be an estimate, whatever the date of the hearing. It involves assuming that what has not occurred and never will occur has occurred or will occur, i.e. that the defendant has since the breach performed his legal obligations under the contract and, if the estimate is made before the contract would otherwise have come to an end, that he will continue to perform his legal obligations thereunder until the due date of its termination. But the assumption to be made is that the defendant has performed or will perform his legal obligations under his contract with the plaintiff and nothing more.”
This passage was cited and applied by Waller LJ in giving his judgment, concurred in by Roch and Ward LJJ, in North Sea Energy Holdings NV v. Petroleum Authority of Thailand [1999] 1 Lloyd’s Rep 483 at 494/5.
The assessment at the date of breach rule is particularly apt to cater for cases where a contract for the sale of goods in respect of which there is a market has been repudiated. The loss caused by the breach to the seller or the buyer, as the case may be, can be measured by the difference between the contract price and the market price at the time of the breach. The seller can re-sell his goods in the market. The buyer can buy substitute goods in the market. Thereby the loss caused by the breach can be fixed. But even here some period must usually be allowed to enable the necessary arrangements for the substitute sale or purchase to be made (see e.g. Kaines v. Österreichische [1993] 2 Lloyd’s Rep 1). The relevant market price for the purpose of assessing the quantum of the recoverable loss will be the market price at the expiration of that period.
In cases, however, where the contract for sale of goods is not simply a contract for a one-off sale, but is a contract for the supply of goods over some specified period, the application of the general rule may not be in the least apt. Take the case of a three year contract for the supply of goods and a repudiatory breach of the contract at the end of the first year. The breach is accepted and damages are claimed but before the assessment of the damages an event occurs that, if it had occurred while the contract was still on foot, would have been a frustrating event terminating the contract, e.g. legislation prohibiting any sale of the goods. The contractual benefit of which the victim of the breach of contract had been deprived by the breach would not have extended beyond the date of the frustrating event. So on what principled basis could the victim claim compensation attributable to a loss of contractual benefit after that date? Any rule that required damages attributable to that period to be paid would be inconsistent with the overriding compensatory principle on which awards of contractual damages ought to be based.
The same would, in my opinion, be true of any anticipatory breach the acceptance of which had terminated an executory contract. The contractual benefit for the loss of which the victim of the breach can seek compensation cannot escape the uncertainties of the future. If, at the time the assessment of damages takes place, there were nothing to suggest that the expected benefit of the executory contract would not, if the contract had remained on foot, have duly accrued, then the quantum of damages would be unaffected by uncertainties that would be no more than conceptual. If there were a real possibility that an event would happen terminating the contract, or in some way reducing the contractual benefit to which the damages claimant would, if the contract had remained on foot, have become entitled, then the quantum of damages might need, in order to reflect the extent of the chance that that possibility might materialize, to be reduced proportionately. The lodestar is that the damages should represent the value of the contractual benefits of which the claimant had been deprived by the breach of contract, no less but also no more. But if a terminating event had happened, speculation would not be needed, an estimate of the extent of the chance of such a happening would no longer be necessary and, in relation to the period during which the contract would have remained executory had it not been for the terminating event, it would be apparent that the earlier anticipatory breach of contract had deprived the victim of the breach of nothing. In the Bwllfa case [1903] AC 426, Lord Halsbury at 429 rejected the proposition that “because you could not arrive at the true sum when the notice was given, you should shut your eyes to the true sum now you do know it, because you could not have guessed it then” and Lord Robertson said at 432, that “estimate and conjecture are superseded by facts as the proper media concludendi” and, at 433, that “as in this instance facts are available, they are not to be shut out”. Their Lordships were not dealing with a contractual, or tortious, damages issue but with the quantum of compensation to be paid under the Waterworks Clauses Act 1847. Their approach, however, is to my mind as apt for our purposes on this appeal as to theirs on that appeal.
My noble and learned friend Lord Bingham, in what has been rightly described as a strong dissent, has referred (in para 9) to the overriding compensatory principle that the injured party is entitled to such damages as will put him in the same financial position as if the contract had been performed. On the facts of the present case, however, the contract contained clause 33 and would not have required any performance by the Charterers after March 2003. It should follow that, in principle, the owners, the injured party, are not entitled to any damages in respect of the period thereafter. As at the date of the Owners’ acceptance of the Charterers’ repudiation of the charterparty, the proposition that what at that date the Owners had lost was a charterparty with slightly less than four years to run requires qualification. The charterparty contained clause 33. The Owners had lost a charterparty which contained a provision that would enable the Charterers to terminate the charterparty if a certain event happened. The event did happen. It happened before the damages had been assessed. It was accepted in argument before your Lordships that the Owners’ charterparty rights would not, in practice, have been marketable for a capital sum. The contractual benefit of the charterparty to the Owners, the benefit of which they were deprived by the repudiatory breach, was the right to receive the hire rate during the currency of the charterparty. The termination of the charterparty under clause 33 would necessarily have brought to an end that right.
The arguments of the Owners offend the compensatory principle. They are seeking compensation exceeding the value of the contractual benefits of which they were deprived. Their case requires the assessor to speculate about what might happen over the period 17 December 2001 to 6 December 2005 regarding the occurrence of a clause 33 event and to shut his eyes to the actual happening of a clause 33 event in March 2003. The argued justification for thus offending the compensatory principle is that priority should be given to the so-called principle of certainty. My Lords there is, in my opinion, no such principle. Certainty is a desideratum and a very important one, particularly in commercial contracts. But it is not a principle and must give way to principle. Otherwise incoherence of principle is the likely result. The achievement of certainty in relation to commercial contracts depends, I would suggest, on firm and settled principles of the law of contract rather than on the tailoring of principle in order to frustrate tactics of delay to which many litigants in many areas of litigation are wont to resort. Be that as it may, the compensatory principle that must underlie awards of contractual damages is, in my opinion, clear and requires the appeal in the case to be dismissed. I wish also to express my agreement with the reasons given by my noble and learned friends Lord Carswell and Lord Brown of Eaton-under-Heywood for coming to the same conclusion.
Lord Bingham
Principle
The repudiation of a contract by one party (“the repudiator”), if accepted by the other (“the injured party”), brings the contract to an end and releases both parties from their primary obligations under the contract. The injured party is thereupon entitled to recover damages against the repudiator to compensate him for such financial loss as the repudiator’s breach has caused him to suffer. This is elementary law.
The damages recoverable by the injured party are such sum as will put him in the same financial position as if the contract had been performed. This is the compensatory principle which has long been recognised as the governing principle in contract. Counsel for the charterers cited certain classical authorities to make good this proposition, but it has been enunciated and applied times without number and is not in doubt. It does not, however, resolve the question whether the injured party’s loss is to be assessed as of the date when he suffers the loss, or shortly thereafter, in the light of what is then known, or at a later date when the assessment happens to be made, in the light of such later events as may then be known.
An injured party such as the owners may not, generally speaking, recover damages against a repudiator such as the charterers for loss which he could reasonably have avoided by taking reasonable commercial steps to mitigate his loss. Thus where, as here, there is an available market for the chartering of vessels, the injured party’s loss will be calculated on the assumption that he has, on or within a reasonable time of accepting the repudiation, taken reasonable commercial steps to obtain alternative employment for the vessel for the best consideration reasonably obtainable. This is the ordinary rule whether in fact the injured party acts in that way or, for whatever reason, does not. The actual facts are ordinarily irrelevant. The rationale of the rule is one of simple commercial fairness. The injured party owes no duty to the repudiator, but fairness requires that he should not ordinarily be permitted to rely on his own unreasonable and uncommercial conduct to increase the loss falling on the repudiator. I take this summary to reflect the ruling of Robert Goff J in Koch Marine Inc v D’Amica Società di Navigazione ARL (The “Elena D’Amico”) [1980] 1 Lloyd’s Rep 75. That case concerned the measure of damages recoverable by a charterer for breach of a time charter during its currency by an owner. While taking care to avoid laying down an inflexible or invariable rule, the judge held (p 89, col 2) that if, at the date of breach, there is an available market, the normal measure of damages will be the difference between the contract rate and the market rate for chartering in a substitute ship for the balance of the charter period. An analogy was drawn with section 51(3) of the Sale of Goods Act 1893. Neither party challenged this decision, which has always been regarded as authoritative. It does however assume that the injured party knows, or can ascertain, what the balance of the charter period is.
It is a general, but not an invariable, rule of English law that damages for breach of contract are assessed as at the date of breach. Authority for this familiar proposition may be found in Jamal v Moolla Dawood Sons & Co [1916] AC 175, 179: Miliangos v George Frank (Textiles) Ltd [1976] AC 443, 468; Johnson v Agnew [1980] AC 367, 400-401; Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433, 450-451, 454-455, 457; County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 WLR 916, 925-926; Chitty on Contracts, 29th ed (2004), vol 1, para 26-057; Professor S M Waddams, “The Date for the Assessment of Damages”, (1981) 97 LQR 445, 446. The Sale of Goods Acts of 1893 and 1979 both give effect to this prima facie rule in section 51(3) of the respective Acts in the case of refusal or neglect by a seller to deliver goods to a buyer where there is an available market.
The argument
While not, I think, challenging the general correctness of the principles last stated, the charterers dispute their applicability to the present case. Their first ground for doing so is in reliance on what, from the name of the case in which this principle has been most clearly articulated, has sometimes been called “the Bwllfa principle”. It is that where the court making an assessment of damages has knowledge of what actually happened it need not speculate about what might have happened but should base itself on the known facts. In non-judicial discourse the point has been made that you need not gaze into the crystal ball when you can read the book. I have, for my part, no doubt that this is in many contexts a sound approach in law as in life, and it is true that the principle has been judicially invoked in a number of cases. But these cases bear little, if any, resemblance to the present. In Bwllfa and Merthyr Dare Steam Collieries (1891) Limited v Pontypridd Waterworks Company [1903] AC 426 a coalowner claimed statutory compensation against a water undertaking which had, pursuant to statutory authority, prevented him mining his coal over a period during which the price of coal had risen. The question was whether the coal should be valued as at the beginning of the period or at its value during the currency of the period. The coalowner was entitled to “full compensation” and the House upheld the latter measure. In doing so, it was at pains to distinguish the case from one of sale or property transfer: see Lord Halsbury LC, pp 428-429; Lord Macnaghten, p 431; Lord Robertson, p 432. In re Bradberry [1943] Ch 35, where the principle was invoked, concerned the valuation of an annuity in the course of administering an estate. The claim in Carslogie Steamship Co Ltd v Royal Norwegian Government [1952] AC 292 was a claim by shipowners for loss of time during repairs of damage caused by a collision. After the collision the ship had suffered heavy weather damage, which required the ship to be detained for repair of that damage. It was common ground that the ship would have been detained for the same period if the collision had never occurred (p 313). In In Re Thoars Deceased ([2002] EWHC 2416(Ch), unreported, 15 November 2002) the principle was invoked in the course of deciding whether a policy of life insurance had been transferred at an undervalue within the meaning of section 339 of the Insolvency Act 1986. The principle was again invoked in McKinnon v E Survey Ltd ([2003] EWHC 475 (Ch), unreported, 14 January 2003), a claim against negligent surveyors in which the court was asked to assume, for purposes of a preliminary issue, that the property had not been the subject of movement at the date of valuation and had not been subject to movement since, but that it would not have been possible to establish these facts until after the purchase of the property. In Aitchison v Gordon Durham & Company Limited (unreported, 30 June 1995) the Court of Appeal applied the principle where a joint venture agreement to develop land had been broken and the court took account of what actually happened to decide what the claimant’s profit would have been. I do not think it necessary to discuss these cases, since it is clear that in some contexts the court may properly take account of later events. None of these cases involved repudiation of a commercial contract where there was an available market.
The charterers further submit that even if, as a general rule, damages for breach of contract (or tort, often treated as falling within the same rule) are assessed as at the date of the breach or the tort, the court has shown itself willing to depart from this rule where it judges it necessary or just to do so in order to give effect to the compensatory principle. I accept that this is so. But it is necessary to consider the cases in which the court departs from the general rule. Some are personal injury claims, of which Curwen v James [1963] 1 WLR 748 and Murphy v Stone-Wallwork (Charlton) Ltd [1969] 1 WLR 1023 may serve as examples. Dudarec v Andrews [2006] EWCA Civ 256, [2006] 1 WLR 3002 was in form a negligence claim against solicitors, but damages were sought for the loss of a chance of success in a personal injuries action struck out for want of prosecution seven years earlier, and the issue was similar to that in a personal injuries action. It is unnecessary to consider the extent to which, in the light of Baker v Willoughby [1970] AC 467 and Jobling v Associated Dairies Ltd [1982] AC 794, the breach date principle applies to the assessment of personal injury damages in tort. The court has also departed from the general rule in cases where, on particular facts, it was held to be reasonable for the injured party to defer taking steps to mitigate his loss and so reasonable to defer the assessment of damage. Radford v De Froberville [1977] 1 WLR 1262 and Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433 are examples. In both cases the general rule was acknowledged and reasons given for departing from it. County Personnel (Employment Agency) Ltd v Alan Pulver & Co [1987] 1 WLR 916 was a claim against solicitors whose negligent advice had saddled the plaintiffs with a ruinous underlease, from which the plaintiffs had had to buy themselves out. The ordinary diminution in value measure of damage was held to be wholly inapt on the particular facts. Again, reasons were given for departing from the normal rule. In Miliangos v George Frank (Textiles) Ltd [1976] AC 443 the effect of inflation led the House to sanction a departure from the rule that losses sustained in a foreign currency must be converted into sterling at the date of breach. The plaintiff in Re-Source America International Ltd v Platt Site Services Ltd [2005] EWCA Civ 97, [2005] 2 Lloyd’s Rep 50 was bailee of spools used to carry optic fibre cables which it was to refurbish. The spools were destroyed by fire. It was held to be entitled to recover the cost of replacing the spools, subject to a deduction based on the saved cost of refurbishment. The Court of Appeal took account of what happened after the fire. It was expressly found (para 5) that there was no available market in used spools, so the plaintiff could not have mitigated its loss by replacing them. Sally Wertheim v Chicoutimi Pulp Company [1911] AC 301, cited by the charterers, was not a case of non-delivery or refusal to deliver, but of delayed delivery. The goods, although delivered late, were received and there was no accepted repudiation. The case would not have fallen under section 51(3) of the 1893 Act. The buyer made a claim for damages, based on the difference between the market price at the place of delivery when the goods should have been delivered and the market price there when the goods were in fact delivered. It was apparent on the figures that this claim, if successful, would have yielded the plaintiff a much larger profit than if the contract had not been broken, and he was compensated for his actual loss. None of these cases, as is evident, involves the accepted repudiation of a commercial contract such as a charterparty. It is necessary to consider some cases more similar to the present case to which the House was referred.
Considerable attention has been paid to the decision of the Court of Appeal (Lord Denning MR, Edmund Davies and Megaw LJJ) in Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (“The Mihalis Angelos”) [1971] 1 QB 164. The case concerned a voyage charterparty by which the ship was fixed to sail to Haiphong and there load a cargo for delivery in Europe. In the charterparty dated 25 May 1965 the owners stated that the ship was “expected ready to load under this charter about July 1, 1965”. The charterparty also provided, in the first sentence of the cancelling clause, “Should the vessel not be ready to load (whether in berth or not) on or before July 20, 1965, charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before vessel’s expected arrival at port of loading”. On 17 July 1965 the ship was at Hong Kong still discharging cargo from her previous voyage. It was physically impossible for her to finish discharging and reach Haiphong by 20 July. The charterers gave notice cancelling the charter. The owners treated this as a repudiation and claimed damages, which were the subject of arbitration and of an appeal to Mocatta J. On further appeal, there were three issues. The first was whether the “expected readiness” clause was a condition of which the owners were in breach, entitling the charterers to terminate the charter contract. All three members of the court decided this issue in favour of the charterers and against the owners. The second issue was whether (if the answer to the first issue was wrong) the charterers had repudiated the contract by cancelling on 17 July, three days before the specified 20 July deadline. Lord Denning held that they had not, but Edmund Davies and Megaw LJJ held that they had. The third issue was as to the damage suffered by the owners, on the assumption that the charterers’ premature cancellation had been a repudiation. Lord Denning, in agreement with the arbitrators, who were themselves agreed, held that they had suffered no damage (p 197):
“Seeing that the charterers would, beyond doubt, have cancelled, I am clearly of opinion that the shipowners suffered no loss: and would be entitled at most to nominal damages.”
Edmund Davies LJ agreed (p 202):
“One must look at the contract as a whole, and if it is clear that the innocent party has lost nothing, he should recover no more than nominal damages for the loss of his right to have the whole contract completed.”
Megaw LJ (at pp 209-210) stated:
“In my view, where there is an anticipatory breach of contract, the breach is the repudiation once it has been accepted, and the other party is entitled to recover by way of damages the true value of the contractual rights which he has thereby lost; subject to his duty to mitigate. If the contractual rights which he has lost were capable by the terms of the contract of being rendered either less valuable or valueless in certain events, and if it can be shown that those events were, at the date of acceptance of the repudiation, predestined to happen, then in my view the damages which he can recover are not more than the true value, if any, of the rights which he has lost, having regard to those predestined events.”
It is evident that all members of the court were viewing the case as from the date of acceptance of the repudiation (although only Megaw LJ said so in terms). They were not taking account of later events. They were recognising, as was obvious on the facts as found, that the value of the contractual right which the owners had lost, as of the date of acceptance of the repudiation, was nil because the charter was bound to be lawfully cancelled three days later.
If, as I think, the Court of Appeal’s decision on the third issue in the Mihalis Angelos was entirely orthodox, so was the decision of Mustill J in Woodstock Shipping Co v Kyma Compania Naviera SA (“The Wave”) [1981] 1 Lloyd’s Rep 521. This concerned a time charter for 24 months, 3 months more or less at charterers’ option. The owners repudiated the charter and the charterers accepted their repudiation on 2 August 1979. In assessing the charterers’ loss, and allowing for their ability to obtain a substitute fixture in the available market shortly after the date of the accepted repudiation, in accordance with the ruling in the Elena D’Amico, above, the judge compared the charterparty rate with the market rate in the early days of September 1979, declining to speculate whether market rates in September 1981 would induce the charterers to exercise their three month option one way or the other.
SIB International SRL v Metallgesellschaft Corporation (“The Noel Bay”) [1989] 1 Lloyd’s Rep 361 concerned a voyage charterparty. The charterers repudiated the charterparty and the owners accepted the repudiation on 3 June 1987. On appeal to the Court of Appeal, Staughton LJ accepted (p 364, col 2) the submission of counsel that the value of the contract which the owners lost “must be assessed as at June 3, the date when repudiation was accepted”. He went on to quote, with approval, the passage from the judgment of Megaw LJ in the Mihalis Angelos which I have set out in para 14 above.
Kaines (UK) Ltd v Osterreichische Warrenhandelsgesellschaft Austrowaren Gesellschaft m.b.H. [1993] 2 Lloyd’s Rep 1 concerned not a charterparty but a contract for the sale and purchase of crude oil. The sellers repudiated and at 17.28 hours on 18 June 1987 the buyers accepted the repudiation. Steyn J held that the buyers should have replaced the oil in the market by, at latest, 19 June, and their damages were assessed accordingly. It was an anticipatory repudiation. Both the judge and the Court of Appeal in dismissing the appeal cited with approval (pp 7, 10) a passage in Treitel, The Law of Contract, 7th ed (1987), p 742:
“Under this [mitigation] rule, the injured party may, and if there is a market generally will, be required to make a substitute contract; and his damages will be assessed by reference to the time when the contract should have been made. This will usually be the time of acceptance of the breach (or such reasonable time thereafter as may be allowed under the rules stated above) …”
The Court of Appeal observed (p 11) that the judge’s finding on the date when the buyers should have bought in a substitute cargo “fixes the level of the plaintiffs’ damages on the facts of this case irrespective of what the plaintiffs did or failed to do at the time” and (p 13) “crystallises the position so far as the basis of a capital award of damages is concerned”.
The buyers in North Sea Energy Holdings NV v Petroleum Authority of Thailand [1999] 1 Lloyd’s Rep 483 repudiated an oil purchase agreement and the sellers accepted their repudiation. The sellers could not, however, show that they would have been able to obtain the oil to sell, and the Court of Appeal accordingly held that they were not entitled to substantial damages. In reaching this conclusion the court cited and applied part of Megaw LJ’s statement in the Mihalis Angelos which I have quoted in para 14 above.
BS & N Ltd (BVI) v Micado Shipping Ltd (Malta) (“The Seaflower”) [2000] 2 Lloyd’s Rep 37 concerned a time charterparty dated 20 October 1997 for a period of 11 months, maximum 12 months at charterers’ option. The charterparty referred to various major oil company approvals including that of Mobil all on the point of expiring and provided that if during the charter term the owners lost one of these approvals they should reinstate the same within 30 days failing which the charterers would be at liberty to cancel the charterparty. It also contained a guarantee by the owners to obtain an approval from Exxon within 60 days of the charter date. The vessel was duly delivered but the owners had not obtained an Exxon approval from Exxon and did not do so within 60 days from the charter date. On 30 December 1997 the charterers fixed the vessel to load a cargo of Exxon products. On the same date the charterers asked the owners if they had obtained the Exxon approval and gave notice requiring the owners to obtain it by 5 January 1998. The owners replied that the vessel would be ready for Exxon inspection by late January or early February. The charterers responded by terminating the charter and redelivering the vessel. At an initial hearing Aikens J held that the 60-day guarantee was an innominate term, not a condition. Thus the charterers were not entitled to terminate, and had repudiated the charterparty, which the owners had accepted. In proceedings initiated by the charterers, the owners counterclaimed for damages for wrongful termination of the charter, quantified as the difference between the daily hire rates in the charter and the alternative employment found for the vessel for the rest of the charter period. The charterers met this claim by contending that the owners would have lost their Mobil approval on 27 January 1998 and would not have been able to regain it within 30 days, namely 26 February: therefore the charterers would be contractually entitled to cancel, and the owners’ damages should end then. Timothy Walker J discerned a difference between the three judgments in the Mihalis Angelos, discounting Megaw LJ’s formulation as that of a minority, but found on the facts, as established at 30 December 1997, that the owners would have lost the Mobil approval on 27 January 1998. This conclusion he found to be supported by evidence of what actually happened after 30 December. He concluded that it was inevitable that the charter would have come to an end on 26 February, and limited the owners’ damages accordingly. This was, as I read the judgment, a conclusion he regarded as inevitable on 30 December. It does not appear that there was argument about the permissibility of relying on evidence of what happened later, and the judge cannot have supposed that he was deciding any issue of principle. The result of this case was perhaps less obvious than that on the third issue in the Mihalis Angelos, but it was a judgment, on different facts, to very much the same effect. It was quite unlike the present case, because early termination was very clearly predictable on the date when the repudiation was accepted, and the judge only relied on evidence of later events to fortify his conclusion on that point. I do not think he would have reached a different conclusion had he not received that evidence.
Dampskibsselskabet “Norden” A/S v Andre & Cie SA [2003] EWHC 84 (Comm), [2003] 1 Lloyd’s Rep 287 is a recent example of the application of the general rule. A forward freight swap agreement was treated as terminated because of the defendants’ breach of solvency guarantees. It was common ground by the end of the trial that the injured party’s loss was to be measured by the difference between the contract rate and the market rate after the date of termination. Toulson J recorded this agreement, observing (p 292, col 2) that “The availability of a substitute market enables a market valuation to be made of what the innocent party has lost, and a line thereby to be drawn under the transaction”. This is what the general rule is intended to achieve.
In support of their argument that damages should be assessed as of the date of actual assessment, the charterers contend that their claim attributable to loss of profit share would in any event have to be deferred. Neither the arbitrator nor the judge mentioned this point, from which it seems safe to infer that the point was not at that stage relied on. But Lord Mance, giving the leading judgment in the Court of Appeal, did refer to it (para 25), and counsel for the owners accepted in argument that the assessment of the profit share loss would have had to be deferred. I am far from convinced that counsel was right to accept this. It would of course be very difficult to calculate loss of profit prospectively over a four year period, but an injured party can recover damages for the loss of a chance of obtaining a benefit (see Treitel, 11th ed, (2003), pp 955-957) and the difficulty of accurate calculation is not a bar to recovery. Even if counsel is right on this point and I am wrong, this would not in my view be sufficient to displace the general rule in this context.
Conclusion
The thrust of the charterers’ argument was that the owners would be unfairly over-compensated if they were to recover as damages sums which, with the benefit of hindsight, it is now known that they would not have received had there been no accepted repudiation by the charterers. There are, in my opinion, several answers to this. The first is that contracts are made to be performed, not broken. It may prove disadvantageous to break a contract instead of performing it. The second is that if, on their repudiation being accepted, the charterers had promptly honoured their secondary obligation to pay damages, the transaction would have been settled well before the Second Gulf War became a reality. The third is that the owners were, as the arbitrator held (see para 7 above), entitled to be compensated for the value of what they had lost on the date it was lost, and it could not be doubted that what the owners lost at that date was a charterparty with slightly less than four years to run. This was a clear and, in my opinion, crucial finding, but it was not mentioned in either of the judgments below, nor is it mentioned by any of my noble and learned friends in the majority. On the arbitrator’s finding, it was marketable on that basis. I can readily accept that the value of a contract in the market may be reduced if terminable on an event which the market judges to be likely but not certain, but that was not what the arbitrator found to be the fact in this case. There is, with respect to those who think otherwise, nothing artificial in this approach. If a party is compensated for the value of what he has lost at the time when he loses it, and its value is at that time for any reason depressed, he is fairly compensated. That does not cease to be so because adventitious later events reveal that the market at that time was depressed by the apprehension of risks that did not eventuate. A party is not, after all, obliged to accept a repudiation: he can, if he chooses, keep the contract alive, for better or worse. By describing the prospect of war in December 2001 as “merely a possibility”, the expression twice used by the arbitrator in paragraph 59 of his reasons, the arbitrator can only have meant that it was seen as an outside chance, not affecting the marketable value of the charter at that time.
Hochster v De La Tour
(1853) 2 E&B 678
Lord Campbell CJ
“If a man promises to marry a woman on a future day, and before that day marries another woman, he is instantly liable to an action for breach of promise of marriage; Short v Stone.[1] If a man contracts to execute a lease on and from a future day for a certain term, and, before that day, executes a lease to another for the same term, he may be immediately sued for breaking the contract; Ford v Tiley.[2] So, if a man contracts to sell and deliver specific goods on a future day, and before the day he sells and delivers them to another, he is immediately liable to an action at the suit of the person with whom he first contracted to sell and deliver them; Bowdell v Parsons.[3] One reason alleged in support of such an action is, that the defendant has, before the day, rendered it impossible for him to perform the contract at the day: but this does not necessarily follow; for, prior to the day fixed for doing the act, the first wife may have died, a surrender of the lease executed might be obtained, and the defendant might have repurchased the goods so as to be in a situation to sell and deliver them to the plaintiff. Another reason may be, that, where there is a contract to do an act on a future day, there is a relation constituted between the parties in the meantime by the contract, and that they impliedly promise that in the meantime neither will do any thing to the prejudice of the other inconsistent with that relation. As an example, a man and woman engaged to marry are affianced to one another during the period between the time of the engagement and the celebration of the marriage.
In the present case, of traveller and courier, from the day of the hiring till the day when the employment was to begin, they were engaged to each other; and it seems to be a breach of an implied contract if either of them renounces the engagement. This reasoning seems in accordance with the unanimous decision of the Exchequer Chamber in Elderton v Emmens,[4] which we have followed in subsequent cases in this Court. The declaration in the present case, in alleging a breach, states a great deal more than a passing intention on the part of the defendant which he may repent of, and could only be proved by evidence that he had utterly renounced the contract, or done some act which rendered it impossible for him to perform it. If the plaintiff has no remedy for breach of the contract unless he treats the contract as in force, and acts upon it down to the 1st June 1852, it follows that, till then, he must enter into no employment which will interfere with his promise “to start with the defendant on such travels on the day and year,” and that he must then be properly equipped in all respects as a courier for a three months’ tour on the continent of Europe.
But it is surely much more rational, and more for the benefit of both parties, that, after the renunciation of the agreement by the defendant, the plaintiff should be at liberty to consider himself absolved from any future performance of it, retaining his right to sue for any damage he has suffered from the breach of it. Thus, instead of remaining idle and laying out money in preparations which must be useless, he is at liberty to seek service under another employer, which would go in mitigation of the damages to which he would otherwise be entitled for a breach of the contract. It seems strange that the defendant, after renouncing the contract, and absolutely declaring that he will never act under it, should be permitted to object that faith is given to his assertion, and that an opportunity is not left to him of changing his mind. If the plaintiff is barred of any remedy by entering into an engagement inconsistent with starting as a courier with the defendant on the 1st June, he is prejudiced by putting faith in the defendant’s assertion: and it would be more consonant with principle, if the defendant were precluded from saying that he had not broken the contract when he declared that he entirely renounced it.
Suppose that the defendant, at the time of his renunciation, had embarked on a voyage for Australia, so as to render it physically impossible for him to employ the plaintiff as a courier on the continent of Europe in the months of June, July and August 1852: according to decided cases, the action might have been brought before the 1st June; but the renunciation may have been founded on other facts, to be given in evidence, which would equally have rendered the defendant’s performance of the contract impossible. The man who wrongfully renounces a contract into which he has deliberately entered cannot justly complain if he is immediately sued for a compensation in damages by the man whom he has injured: and it seems reasonable to allow an option to the injured party, either to sue immediately, or to wait till the time when the act was to be done, still holding it as prospectively binding for the exercise of this option, which may be advantageous to the innocent party, and cannot be prejudicial to the wrongdoer.
An argument against the action before the 1st of June is urged from the difficulty of calculating the damages: but this argument is equally strong against an action before the 1st of September, when the three months would expire. In either case, the jury in assessing the damages would be justified in looking to all that had happened, or was likely to happen, to increase or mitigate the loss of the plaintiff down to the day of trial.
We do not find any decision contrary to the view we are taking of this case… The only other case cited in the argument which we think it necessary to notice is Planche v Colburn,[5] which appears to be an authority for the plaintiff. There the defendants had engaged the plaintiff to write a treatise for a periodical publication. The plaintiff commenced the composition of the treatise; but, before he had completed it, and before the time when in the course of conducting the publication it would have appeared in print, the publication was abandoned. The plaintiff thereupon, without completing the treatise, brought an action for breach of contract. Objection was made that the plaintiff could not recover on the special contract for want of having completed, tendered and delivered the treatise, according to the contract. Tindal CJ said: “The fact was, that the defendants not only suspended, but actually put an end to, ‘The Juvenile Library;’ they had broken their contract with the plaintiff.” The declaration contained counts for work and labour: but the plaintiff appears to have retained his verdict on the count framed on the special contract, thus shewing that, in the opinion of the Court, the plaintiff might treat the renunciation of the contract by the defendants as a breach, and maintain an action for that breach, without considering that it remained in force so as to bind him to perform his part of it before bringing an action for the breach of it.
If it should be held that, upon a contract to do an act on a future day, a renunciation of the contract by one party dispenses with a condition to be performed in the meantime by the other, there seems no reason for requiring that other to wait till the day arrives before seeking his remedy by action: and the only ground on which the condition can be dispensed with seems to be, that the renunciation may be treated as a breach of the contract.
Upon the whole, we think that the declaration in this case is sufficient. It gives us great satisfaction to reflect that, the question being on the record, our opinion may be reviewed in a Court of Error. In the meantime we must give judgment for the plaintiff.
Judgment for plaintiff.”
Jackson v Union Marine Insurance
(1874) 10 Common Pleas 125
Bramwell B
“ The first question is, whether the plaintiff could have maintained an action against the charterers for not loading; for, if he could, there certainly has not been a loss of the chartered freight by any of the perils insured against.
In considering this question, the finding of the jury that “the time necessary to get the ship off and repairing her so as to be a cargo-carrying ship was so long as to put an end in a commercial sense to the commercial speculation entered into by the shipowner and charterers,” is all important. I do not think the question could have been left in better terms; but it may be paraphrased or amplified. I understand that the jury have found that the voyage the parties contemplated had become impossible; that a voyage undertaken after the ship was sufficiently repaired would have been a different voyage, not, indeed, different as to the ports of loading and discharge, but different as a different adventure,—a voyage for which at the time of the charter the plaintiff had not in intention engaged the ship, nor the charterers the cargo; a voyage as different as though it had been described as intended to be a spring voyage, while the one after the repair would be an autumn voyage.
It is manifest that, if a definite voyage had been contracted for, and became impossible by perils of the seas, that voyage would have been prevented and the freight to be earned thereby would have been lost by the perils of the seas. The power which undoubtedly would exist to perform, say, an autumn voyage in lieu of a spring voyage, if both parties were willing, would be a power to enter into a new agreement, and would no more prevent the loss of the spring voyage and its freight than would the power (which would exist if both parties were willing) to perform a voyage between different ports with a different cargo.
But the defendants say that here the contract was not to perform a definite voyage, but was at some and any future time, however distant, provided it was by no default in the shipowner, and only postponed by perils of the seas, to carry a cargo of rails from Newport to San Francisco; and that, no matter at what distance of time, at what loss to the shipowner, whatever might be the ship’s engagements, however freights might have risen, or seamen’s wages, though the voyage at the time when the ship was ready might be twice as dangerous, and possibly twice as long, from fogs, ice, and other perils, though war might have broken out meanwhile between the country to whose port she was to sail and some other, still she was bound to take and had the right to demand the cargo of the shippers; who in like way had a right to have carried and were bound to find the agreed cargo, or, if that had been sent on already, a cargo of the same description, no matter at what loss to them, and however useless the transport of the goods might be to them. This is so inconvenient, that, though fully impressed with the considerations so forcibly put by Mr. Aspland, and retaining the opinion I expressed in Tarrabochia v Hickie,[1] I think that, unless the rules of law prohibit it, we ought to hold the contrary.
The question turns on the construction and effect of the charter. By it the vessel is to sail to Newport with all possible dispatch, perils of the seas excepted. It is said this constitutes the only agreement as to time, and, provided all possible dispatch is used, it matters not when she arrives at Newport. I am of a different opinion. If this charterparty be read as a charter for a definite voyage or adventure, then it follows that there is necessarily an implied condition that the ship shall arrive at Newport in time for it. Thus, if a ship was chartered to go from Newport to St. Michael’s in terms in time for the fruit season, and take coals out and bring fruit home, it would follow, notwithstanding the opinion expressed in Touteng v Hubbard,[2] on which I will remark afterwards, that, if she did not get to Newport in time to get to St. Michael’s for the fruit season, the charterer would not be bound to load at Newport, though she had used all possible dispatch to get there, and though there was an exception of perils of the seas.
The two stipulations, to use all possible dispatch, and to arrive in time for the voyage, are not repugnant; nor is either superfluous or useless. The shipowner, in the case put, expressly agrees to use all possible dispatch: that is not a condition precedent; the sole remedy for and right consequent on the breach of it is an action. He also impliedly agrees that the ship shall arrive in time for the voyage: that is a condition precedent as well as an agreement; and its non-performance not only gives the charterer a cause of action, but also releases him. Of course, if these stipulations, owing to excepted perils, are not performed, there is no cause of action, but there is the same release of the charterer. The same reasoning would apply if the terms were, to “use all possible dispatch, and further, and as a condition precedent, to be ready at the port of loading on June 1st.” That reasoning also applies to the present case. If the charter be read, as for a voyage or adventure not precisely defined by time or otherwise, but still for a particular voyage, arrival at Newport in time for it is necessarily a condition precedent. It seems to me it must be so read. I should say reason and good sense require it. The difficulty is supposed to be that there is some rule of law to the contrary. This I cannot see; and it seems to me that, in this case, the shipowner undertook to use all possible dispatch to arrive at the port of loading, and also agreed that the ship should arrive there “at such a time that in a commercial sense the commercial speculation entered into by the shipowner and charterers should not be at an end, but in existence.” That latter agreement is also a condition precedent. Not arriving at such a time puts an end to the contract; though, as it arises from an excepted peril, it gives no cause of action.
The same result is arrived at by what is the same argument differently put. Where no time is named for the doing of anything, the law attaches a reasonable time. Now, let us suppose this charterparty had said nothing about arriving with all possible dispatch. In that case, had the ship not arrived at Newport in a reasonable time, owing to the default of the shipowner, the charterers would have had a right of action against the owner, and would have had a right to withdraw from the contract. It is impossible to hold that, in that case, the owner would have a right to say, “I came a year after the time I might have come, because meanwhile I have been profitably employing my ship: you must load me, and bring your action for damages.” The charterers would be discharged, because the implied condition to arrive in a reasonable time was not performed. Now, let us suppose the charter contains, as here, that the ship shall arrive with all possible dispatch,—I ask again, is that so inconsistent with or repugnant to a further condition that at all events she shall arrive within a reasonable time? or is that so needless a condition that it is not to be implied? I say certainly not. I must repeat the foregoing reasoning. Let us suppose them both expressed, and it will be seen they are not inconsistent nor needless. Thus, I will use all possible dispatch to get the ship to Newport, but at all events she shall arrive in a reasonable time for the adventure contemplated. I hold, therefore, that the implied condition of a reasonable time exists in this charter. Now, what is the effect of the exception of perils of the seas, and of delay being caused thereby? Suppose it was not there, and not implied, the shipowner would be subject to an action for not arriving in a reasonable time, and the charterers would be discharged. Mr. Benjamin says the exception would be implied. How that is, it is not necessary to discuss, as the words are there: but, if it is so, it is remarkable as shewing what must be implied from the necessity of the case.
The words are there. What is their effect? I think this: they excuse the shipowner, but give him no right. The charterer has no cause of action, but is released from the charter. When I say he is, I think both are. The condition precedent has not been performed, but by default of neither. It is as though the charter were conditional on peace being made between countries A. and B., and it was not; or as though the charterer agreed to load a cargo of coals, strike of pitmen excepted. If a strike of probably long duration began, he would be excused from putting the coals on board, and would have no right to call on the shipowner to wait till the strike was over. The shipowner would be excused from keeping his ship waiting, and have no right to call on the charterer to load at a future time. This seems in accordance with general principles. The exception is an excuse for him who is to do the act, and operates to save him from an action and make his non-performance not a breach of contract, but does not operate to take away the right the other party would have had, if the non-performance had been a breach of contract, to retire from the engagement: and, if one party may, so may the other. Thus, A. enters the service of B., and is ill and cannot perform his work. No action will lie against him; but B. may hire a fresh servant, and not wait his recovery, if his illness would put an end, in a business sense, to their business engagement, and would frustrate the object of that engagement: a short illness would not suffice, if consistent with the object they had in view. So, if A. engages B. to make a drawing, say, of some present event, for an illustrated paper, and B. is attacked with blindness which will disable him for six months, it cannot be doubted that, though A. could maintain no action against B., he might procure some one else to make the drawing. So, of an engagement to write a book, and insanity of the intended author. So, of the case I have put, of an exception of a strike of pitmen.
There is, then, a condition precedent that the vessel shall arrive in a reasonable time. On failure of this, the contract is at an end and the charterers discharged, though they have no cause of action, as the failure arose from an excepted peril. The same result follows, then, whether the implied condition is treated as one that the vessel shall arrive in time for that adventure, or one that it shall arrive in a reasonable time, that time being, in time for the adventure contemplated. And in either case, as in the express cases supposed, and in the analogous cases put, non-arrival and incapacity by that time ends the contract; the principle being, that, though non-performance of a condition may be excused, it does not take away the right to rescind from him for whose benefit the condition was introduced.
On these grounds, I think that, in reason, in principle, and for the convenience of both parties, it ought to be held in this case that the charterers were, on the finding of the jury, discharged.
It remains to examine the authorities. The first in date relied on by the defendants is Hadley v Clarke.[3] Now, it may safely be said that there the question was wholly different from the present. There was no question in that case as to the performance of a condition precedent to be ready at a certain or within a reasonable time, or such a time that the voyage in question, the adventure, should be accomplished and not frustrated. That condition had been performed: the ship had loaded and sailed in due time. The plaintiff had had a part of the benefit intended. The defendant had in justice earned part of his freight. Had the plaintiff demanded his goods at Falmouth, he ought to have paid something for their carriage there. He could not, therefore, well have said that he would not go on with the adventure, but undo it. But, if I am right, unless both could, neither could. Further, in that case there was no finding, nor anything equivalent to a finding, that the objects of the parties were frustrated. This case is therefore in every way distinguishable.
Then, there is the case of Touteng v Hubbard.[4] The opinion there expressed was obiter,—of weight, no doubt; but not of the same weight it would have been had it been the ratio decidendi. I cannot think that it would have been so held, had it been necessary to act on it. To hold that a charterer is bound to furnish a cargo of fruit at a time of year when there is no fruit,—at a time of year different to what he and the shipowner must have contemplated, the change to that time being no fault of his, but the misfortune at best of the shipowner,—is so extravagant, when the consequences become apparent, that it could not be. Suppose a charter to fetch a cargo of ice from Norway, entered into at such a time that the vessel would reach its destination, with reasonable dispatch, in February, when there was ice, and bring it back in June, when ice was wanted, and by perils of the seas it could not get to Norway till the ice was melted, nor return till after ice was of no value: can it be that the charterer would be bound to load? that he had agreed in those events to do so?
Another case is Hurst v Usborne.[5] That is a case of which, if I knew no more than I learn from the books, I should say it did not decide the question we have before us. It is true that the report in the Law Journal,[6] as Mr. Aspland pointed out, says that Mr. Justice Cresswell said he knew of no time the shipowner was bound to, except to use reasonable dispatch. Still, I cannot see from the reports that the point now before us was presented to the judges in that case. My Brother Blackburn, who was counsel in the cause, says it was intended to raise this point by the evidence that was rejected at nisi prius. No doubt, therefore, that was so; but I cannot think it so understood by the Court. I see no adjudication on it. Mr. Butt pointed out that the charter was for barley or other lawful merchandise. Even if for barley only, it does not appear that barley might not have been stored at Limerick, nor that barley from Limerick arriving in England at the time it would, had the defendant loaded, would not have been as valuable as barley arriving earlier. I cannot but think it was a hasty decision: a rule was refused; and certainly one would think, after the argument we have heard, that the matter was worth discussing. At the same time, its tendency is favorable to the defendants. I think it is unsatisfactory, and, if a decision on the question now before us, wrong. Mr. Justice Willes did not seem to be of opinion that the law was as he is supposed to have laid it down in that case: see his judgment in M’Andrew v Chapple,[7] where, indeed, there had been a breach of his contract by the shipowner; but the observations are general. I may also properly refer to the opinions, if not of myself, of my Brothers Blackburn and Brett in Rankin v Potter.[8] They undoubtedly assume the law to be as the plaintiff contends.
There is also Geipel v Smith,[9] nearly if not quite in point. The shipowner there was excused, not merely for refusing to take a cargo to a port which became blockaded after the charter, but also in effect for refusing to do so after the blockade was removed. Restraint of princes not only excused, but discharged him. The same, no doubt, would have been held as to the charterers.
Then, there are the cases which hold that, where the shipowner has not merely broken his contract, but so broken it that the condition precedent is not performed, the charterer is discharged: see Freeman v Taylor.[10] Why? Not merely because the contract is broken. If it is not a condition precedent, what matters it whether it is unperformed with or without excuse? Not arriving with due diligence, or at a day named, is the subject of a cross action only. But, not arriving in time for the voyage contemplated, but at such a time that it is frustrated, is not only a breach of contract, but discharges the charterer. And so it should, though he has such an excuse that no action lies. Taylor v Caldwell[11] is a strong authority in the same direction. I cannot but think, then, that the weight of authority, as might be expected, is on the side of reason and convenience.
On the other question, viz. whether, though the charterers by perils insured against had a right to refuse to load the cargo, there has been a loss of freight by perils of the seas,—I am of opinion there has been.
It was argued that the doctrine of Causa proxima, non remota, spectetur, applies; and that the proximate cause of the loss of the freight here was, the refusal of the charterers to load. But, if I am right, that the voyage, the adventure, was frustrated by perils of the seas, both parties were discharged, and a loading of cargo in August would have been a new adventure, a new agreement. But, even if not, the maxim does not apply. The perils of the seas do not cause something which causes something else. The freight is lost unless the charterers choose to go on. They do not. In the case of goods carried part of the voyage, and the ship lost, but the goods saved, the shipowner may carry them on if he chooses, but is not bound. Suppose he does not, his freight is lost. So, if he does not choose to repair a vessel which remains in specie, but is a constructive total loss.
For these reasons, I think the judgment should be affirmed.
My Brothers Blackburn, Mellor, and Amphlett agree in this judgment; as does my Brother Lush, who, however, heard part only of the argument.”
Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos)
[1970] EWCA Civ 4 [1971] QB 164, [1970] 3 All ER 125, [1970] 2 Lloyd’s Rep 43, [1970] 3 WLR 601, [1971] 1 QB 164,
THE MASTER OF THE ROLLS:
The material facts are these. On 35th May, 1965, the shipowners let the steamer Mihalis Angelos to the charterers for a voyage from Haiphong, in North Vietnam, to Hamburg or other port in Europe. In the charter party the shipowners said that she was “expected ready to load under this charter about 1st July, 1965”. The vessel was to proceed to Haiphong and then load a cargo of apatite and carry it to Europe. There was a cancelling clause in case the vessel was not ready to load by 20th July, 1965.
The owners were quite wrong in saying she was “expected to load on 1st July” at Haiphong. They had no reasonable grounds for any such expectation. On 25th May, 1965, the date of the charter, the Mihalis Angelos was in the Pacific on her way to Hong Kong. She was not expecting to reach Hong Kong until 25th or 26th Jure., She would need fourteen days to discharge, thus taking it to 9th or 10th July. She had to have a special survey of two days. That took it to 11th or 12th July. She would take two days from Hong Kong to Haiphong. So she could not reasonably be expected to arrive at Haiphong until 15th or 14th July. Yet the shipowners, quite wrongly, said she was expected to arrive on 1st July.
In point of fact, she made up time across the Pacific, and arrived at Hong Kong on 23rd June: but the discharge at Hong Kong was unexpectedly prolonged. She did not complete it until 23rd July. Meanwhile, however, the charterers had their own troubles. They discovered there was no apatite ore available at Haiphong. They thought it was due to the War in North Vietnam. It was said that the Americans had bombed the railway line to the port. On 17th July, 1965, the charterers cancelled the contract as a case of force majeure. The ship-owners accepted this information as a repudiation of the contract. They did not charter the vessel to anyone else. Instead they sold her on 29th July as she lay in Hong Kong.
The Arbitrators found that if the ship, after discharge at Hong Kong, had proceeded to Haiphong, the charterers would, beyond doubt, have cancelled the charter on the ground that the ship had missed her cancelling date. So the owners, in fact, lost nothing. But they claimed damages on the footing that they lost the charter on 17th July and were entitled to £4,000 damages. The Arbitrators rejected the claim, but the Judge allowed it.
The first point arises on the clause by which the charterers said that the vessel was “expected to arrive ready to load about 1st July, 1965”. The charterers said that this was a condition of the contract: and that it was broken because the owners had no reasonable grounds for any such expectation. The Arbitrators found that “on 25th May, 1965, the owners could not reasonably have estimated that the Mihalis Angelos could or would arrive at Haiphong about 1st July, 1965”.
The charterers did not take this point on 17th July, 1965, when they cancelled the charter. They put it on the ground of force majeure. But the owners admit that, if this point is a good one, the charterers can rely on it. The fact that a contracting party gives a bad reason for determining it does not prevent him from afterwards relying on a good one when he discovers it: see British & Beningtons v. Cachar (1923 A.C.,48 at 71-2) by Lord Sumner.
The contest resolved itself simply into this. Was the “expected ready to load” clause a condition, such that for breach of it the charterers could throw up the charter? Or was it a mere warranty such as to give rise to damages if it was broken, but not to a right to cancel, seeing that cancellation was expressly dealt with in the cancelling clause?
Sir Frederick Pollock divided the terms of a contract into two categories; Conditions and Warranties. The difference between them was this: If the promisor broke a condition in any respect, however slight, it gave the other party a right to be quit of his future obligations and to sue for damages: unless he by his conduct waived the condition, in which case he was bound to perform his future obligations but could sue for the damage he suffered. If the promisor broke a warranty in any respect, however serious, the other party was not quit of his future obligations. He had to perform them. His only remedy was to sue for damages.
This division was adopted by Sir Mackenzie Chalmers when he drafted the Sale of Goods Act, and by Parliament when it passed it. It was stated by Lord Justice Fletcher Moulton, in his celebrated dissenting judgment in Wallis v. Pratt (1910, 2 K.B., 1003, at 1012), which was adopted in its entirety by the House of Lords in 1911 A.C., 394.
It would be a mistake, however, to look upon that division as exhaustive. There are many terms of many contracts which cannot be fitted into either category. In such cases the Courts, for nigh on 200 years, have not asked themselves: Was the term a condition or warranty? But rather: Was the breach such as to go to the root of the contract? If it was, then the other party is entitled, at his election, to treat himself as discharged from any further performance. That is made clear by the judgment of Lord Mansfield in Boone -v- Eyre (1777, 1 H.B1., 273); and by the speech of Lord Blackburn in Mersey v. Naylor (1834, 9 A.C., 434, at 443-4); and the notes to Cutter v. Powell (2 Smith’s Leading Cases, at 16-18). The case of Hongkong Fir Shipping Co. v. Kawasaki Kisen Kaisha (1962, 2 Q.B., 26) is a useful reminder of this large category.
Although this large category exists, there is still remaining a considerable body of law by which certain stipulations have been classified as “conditions” so that any failure to perform, however slight, entitles the other to treat himself as discharged. Thus a statement in a charter-party on 19th October, 1860, that the ship is “now in the port of Amsterdam” was held to be a “condition”. On that date she was just outside Amsterdam and could not get in owing to strong gales. But she got in a day or two later when the gales abated. The Court of Exchequer Chamber held that the charterer was entitled to call off the charter: see Behn v. Burness (1863, 3 B. & S., 751), overruling the Court of Exchequer (1862, 1 B. & S., 877).
The question in this case is whether the statement by the owner: “expected ready to load under this charter about 1st July, 1965” is likewise a “condition”. The meaning of such a clause is settled by a decision of this Court. It is an assurance by the owner that he honestly expects that the vessel will be ready to load on that date and that his expectation is based on reasonable grounds* see Sanday v. Keighley, Maxted & Co. (1922, 27 Commercial Cases, 296). The clause with that meaning has been held in this Court to be a “condition” which, if not fulfilled, entitled the other party to treat himself as discharged; see Finnish Government v. Ford (1921, 6 Lloyds List Reports, 188). Those were Sale of Goods cases. But I think the clause should receive the same interpretation in charter party cases. It seems to me that, if the owner of a ship or his agent states in a charter that she is “expected ready to load about 1st July, 1965” he is making a representation as to his own state of mind; that is, of what he himself expects: and, what is more, he puts it in the contract as a term of it, binding himself to its truth. If he or his agent breaks that term by making the statement without any honest belief in its truth or without any reasonable grounds for it, he must take the consequences. It is at lowest a misrepresentation which entitles the other party to rescind- and at highest a breach of contract which goes to the root of the matter, The charterer, who is misled by the statement is entitled, on discovering its falsity, to throw up the charter. It may, therefore, properly be described as a “condition”.
I am confirmed in this view by the illustration given by Lord Justice Scrutton himself in all the editions of his work on charter parties: “A ship was chartered ‘expected to be at X about the 15th December… shall with all convenient speed sail to X’. The ship was in fact then on such a voyage that she could not complete it and be at X by 15th December. Submitted that the charterer was entitled to throw up the charter”.
I do not regard the case of Associated Portland Cement Manufacturers v. Houlder Bros. (1917, 22 Comm.Cas., 279) as any authority to the contrary. The facts are too shortly reported for any guidance to be got from it.
I hold, therefore, that on 17th July, 1965, the charterers were entitled to cancel the contract on the ground that the owners had broken the ”expected ready to load” clause. In case I am wrong, however, I go on to consider the charterers’ second point. They say that they were entitled to cancel on that day under the cancelling clause, which reads:
“(11) Should the vessel not be ready to load (whether in berth or not)on or before 20 July ’65 Charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before vessel’s expected arrival at port of loading”.
The charterers said that on 17th July, 1965, it was plain that the vessel would not be ready to load on or before 20th July, 1965: and on that account they were entitled to cancel the charter. But the shipowners said that the charterers could not exercise the option until 20th July, 1965, after office hours on that day.
We were referred to the antecedents of this clause. The part “…such option to be declared”, etc. was inserted to modify the decision of this Court in Moel Tryvan v. Andrew Weir (1910, 2 K.B., 844). We were also referred to The “Helvetia -S” (1960, 1 LlL.R., 540 at 551), and to The “Madeleine” (1967, 2 LlL.R., 224), where the Judges said, of a somewhat similar clause, that a charterer cannot exercise the option to cancel before the cancelling date. That is simply not true of this present clause. Suppose that the vessel was delayed so that she was not expected to arrive at the port of loading until 21st July: and that on 15th July they told the charterer: “She will not be able to arrive until 21st July. Please declare your option”. The charterer would be bound, under this clause, to declare his option at least by 19th July. So on those facts the charterer would not only be entitled, but would be bound, to exercise it before the cancelling date. Seeing that result, it seems to me that the clause is a concise way of expressing this meaning:
“Should the vessel not be ready to load (whether in berth or not), or be in such a position that she will not be ready to load on or before 20th July, 1965, Charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before vessel’s expected arrival at port of loading”.
So expanded, the clause means that the charterers have the option of cancelling the contract as soon as it becomes plain that the vessel cannot possibly be ready to load on or before 20th July, 1965. This is a sensible interpretation: because, as a matter of commercial convenience, it is better for both sides that, when it is obvious that the vessel will not arrive in time, the charterer should be able to cancel. The charterer can then engage another vessel: and the ship-owner can use his ship elsewhere.
I limit myself, of course, to saying that the charterer is entitled to exercise his option before the cancelling date: not that he is bound_ to exercise it before that date, save in the circumstances described in the second part of the sentence. The Moel Tryvan case still holds good to show that the charterer is not bound to exercise it.
Mr Goff submitted that in any case the charterers cannot rely on the clause, for this reason; They did not exercise the option given to them by the clause. They did not cancel on the ground that the vessel would not be ready to load on or before 20th July, 1965. They cancelled on the ground of force majeure, i.e., that they themselves could not load the vessel. But I think that the principle stated by Lord Sumner in British & Beningtons applies here also. If they had a right to cancel on 17th July, they can rely on it, even though they gave a wrong reason for it. I would hold, therefore, that the charterers on 17th July were entitled to cancel under the cancelling clause.
In case I am wrong on this second point, I come to the third point, It proceeds on the footing that the charterers were wrong in cancelling or. 17th July, 1965, If so, their cancellation was a renunciation of their contract to load the vessel when she arrived at Haiphong. The shipowners accepted this renunciation and called off the charter. They are entitled to damages, But what are the damages? The Arbitrators found that, if the vessel had sailed to Haiphong, the charterers would beyond_ doubt have cancelled the charter, and would be within their rights then in so doing. So the shipowner suffered no loss.
The Arbitrators on this account awarded the shipowners only nominal damages. But the Judge, with regret, found they were entitled to damages of £4,000.
The reason, as I understand it, was as follows:-
The shipowners are entitled to damages for “anticipated breach” of contract. The Court must, therefore, accept that there would inevitably have been a breach by the charterers if the contract had run its full course. The Court cannot listen to any argument which says that the charterers would have committed no breach, not even in reduction of damages.
This reasoning was supported by the statement of Chief Justice Cockburn in Frost v. Knight (1872, L.R., 7 Ex.Cas., at 114):
“The eventual non-performance may, therefore, by anticipation, be treated as a cause of action…”;
and of Mr Justice Devlin in Universal Cargo Carriers v.Citati (1957, 2 Q.B.,401, at 438):
“The injured party is allowed to anticipate an inevitable breach”.
I think that the argument is rooted in fallacy. The words “anticipatory breach” are misleading. The cause of action is not the future breach. It is the renunciation itself. I venture to quote the notes to Cutter v. Powell (2 Smith’s Leading Cases, at 30):
“It is of the essence of every contract that each party thereto should have the right to consider it as of binding force from the moment it is made and should have the right to base his conduct on the expectation of its being fulfilled by the other party. If, therefore, the other side by an unqualified refusal to perform his side of the contract, destroys that expectation, he destroys that which is the basis of the contract: and his conduct may be treated as a breach going to the whole of the consideration”.
Seeing that the renunciation itself is the breach, the damages must be measured by compensating the injured party for the loss he has suffered by reason of the renunciation. You must take into account all contingencies which might have reduced or extinguished the loss. That is made clear by the very first case in which that doctrine of anticipatory breach was established, in Hochster v. De la Tour itself (1853, 2 E. & B. at 686-7). It follows that if the defendant has under the contract an option which would reduce or extinguish the loss, it will be assumed that he would exercise it. Again, if it is reasonable for him to take steps to mitigate his loss, he must do it. And so forth. In short, the Plaintiff must be compensated for such loss as he would have suffered if there had been no renunciation: but not if he would have lost nothing.
Seeing that the charterers would, beyond doubt, have cancelled, I am clearly of opinion that the shipowners suffered no loss; and would be entitled at most to nominal damages. On this point the two experienced Arbitrators (one on each side) were quite agreed. I agree with them. I would allow the appeal and restore the Award, which adjudged that the claim of the owners failed.
LORD JUSTICE EDMUND DAVIES:
The two broad questions raised by this appeal may be thus stated;
(1) On 17th July, 1965, did the charterers of the vessel Mihalis Angelos commit an anticipatory breach of their contract with the shipowners?
(2) If they did, are the owners entitled to recover more than nominal damages?
By their admirably clear and helpful Award, the Arbitrators answered the first question in the affirmative. But they considered that the second question called for a negative answer and, as the charterers had tendered £5 at a sufficiently early date, they held that the owners’ action failed. The learned Judge upheld their finding in relation to the first question but held that the second question must be answered in the affirmative and awarded the owners £4,000 damages.
While these two questions summarise the basic matters raised by this appeal, they have been considered before us under three heads, and it seems right that I should indicate my conclusions regarding each of them.
Issue A. Clause 1 of the Charter party of 25th May, 1965, stated that the Mihalis Angelos was “expected ready to load under this Charter about the 1st July, 1965”. These words mean that, in the light of the facts known to the owner at the time of making the contract, he honestly expected that the vessel would be ready as stated and, further, that such expectation was based on reasonable grounds; Sanday v. Keighley. Maxted & Co. (1922, 27 Com.Cas., 296).
It is undisputed that in the present case the owner had no reasonable grounds to expect that his ship would be ready to load “about 1st July, 1965”. That Clause 1 was a contractual term is not in issue, and is, in any event, established by Corkling v. Massey (1873 L.R., 8 C.P., 39 5). But what is in dispute is its legal nature. In other words, was it a condition of the contract, a breach of which entitled the charterers to repudiate? Or was it a term which, if broken, restricted the charterers to claiming damages? The owners urge the latter, and rely on Associated Portland Cement Manufacturers v. Houlder Bros. (1917, 22 Com. Cas.,279, at 281), where Mr Justice Atkin said:
“The obligation of the defendants to be ready to load on May 25th by reason of the definite alongside date having been given to the plaintiffs is not in my opinion one which it was of the essence of the contract for them to perform. I think the plaintiffs are merely entitled to recover such carnages as in fact they suffered by reason of the defendants’ delay…”
But as to this Mr Mustill makes two cogent observations:
(a) It does not appear to have been a term of the contract itself that the ship should be ready to load on 25th May, and
(b) the quoted observation of Mr Justice Atkin was obiter, inasmuch as the only question there arising was as to damages for one day’s delay, and whether the term was a condition or not made no difference, as the plaintiffs never sought to treat the term as a condition entitling them to cancel. This last-mentioned case may be contrasted with C. Mathisens v. Smith (1922, 13 LlL.R., 212), where the charter party contained the following clause as to the vessel’s position:
“Now leaving today Birkenhead for Flushing for orders, and expecting to load June 28th-29th”.
Mr Justice Greer said:
“There can be no question that the words ‘leaving Birkenhead for Flushing for orders’ are not mere terms or an independent term of contract, but they are a condition of the contract which gives the charterer every right to say he can cancel… They were untrue, that is to say inaccurate, at the time of the signing of the Charter party, and on that ground the charterers were entitled to cancel, as they did, after they had ascertained the facts”.
It was strenuously argued by Mr Goff, for the owners, that, in the light of Hongkong Fir Shipping Co. v. Kawasaki Risen Kaisha (1962, 2 Q.B., 26), the long-standing dichotomy between conditions and warranties should no longer persist and that, as Lord Justice Diplock put it (at page 70):
“There are, however, many contractual undertakings…which cannot be categorised as being ‘conditions’ or ‘warranties’… Of such undertakings all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a ‘condition’ or a ‘warranty’ For instance, to take Baron Bramwell’s example in Jackson v. Union Marine Insurance Co.Ltd. (L.R. 10 C.P., 125 at 142) itself, breach of an undertaking by a shipowner to sail with all possible dispatch to a named port does not necessarily relieve the charterer of further performance of his obligation under the charter party, but if the breach is so prolonged that the contemplated voyage is frustrated, it does have this effect”.
In that case the Court of Appeal held that, although the owners were in breach of the clause in the charter party relating to seaworthiness, the vessel being unseaworthy on delivery by reason of an incompetent engine room staff, seaworthiness was not a condition of the charter party a breach of which entitled the charterer at once to repudiate. Lord Justice Upjohn said, at page 63:
“It is open to the parties to a contract to make it clear either expressly or by necessary implication that a particular stipulation is to be regarded as a condition which goes to the root of the contract, so that it is clear that the parties contemplate that any breach of it entitles the other party at once to treat the contract as at an end. That matter has to be determined as a question of the proper interpretation of the contract”.
He then went on to recall Baron Bramwell’s warning in Tarrabochia v. Hickie (1 H. & N., 183) against the dangers of too readily implying such a condition, but continued:
“Where, however, upon the true construction of the contract, the parties have not made a particular stipulation a condition, it would in my judgment be unsound and misleading to conclude that, being a warranty, damages is necessarily a sufficient remedy”.
In other words, breach of a stipulation which is not a condition strictly so called may nevertheless be such as, in certain circumstances, to entitle the innocent party to treat the contract as at an end. In that case the Court of Appeal held that the initial unseaworthiness did not go so much to the root of the contract that the charterers were then and there entitled to treat the charter party as at an end, for, being due to the insufficiency and incompetence of the crew, the parties must have contemplated that in such an event the crew could be changed and augmented.
An undertaking as to seaworthiness being of obvious importance and yet, in the circumstances of the Hongkong Fir case, being found not to amount to a “condition” the breach of which entitled the charterers at once to repudiate, Mr Goff has urged how much less does clause 1 of the present charter-party import such a condition. With respect, I do not find such an approach convincing, for as Mr Justice Williams said in Behn v. Burness (1865, 3 B. & S., 751, at 759):
“For most charterers, considering winds, markets and dependent contracts, the time of a ship’s arrival to load is an essential fact, for the interest of the charterer… Then if the statement of the place of the ship is a substantial part of the contract, it seems to us that we ought to hold it to be a condition, unless we can find in the contract itself or the surrounding circumstances reason for thinking that the parties did not so intend”.
How ought this matter to be resolved? Notwithstanding the observations in the Hongkong case, if the fact is that a provision in a charter party such as that contained in clause 1 in the present case has generally been regarded as a condition, giving the charterer the option to cancel on proof that the representation was made either untruthfully or without reasonable grounds, it would be regrettable at this stage to disturb an established interpretation. The standard textbooks unequivocally state that such a clause as we are here concerned with is to be regarded as a condition: see, among others, Chitty on Contracts (23rd Edition, “General Principles” Volume, para.598) and Carver (Vol.3, para.355). Even more impressive is the fact that certainly from the 10th Edition and onwards of Scrutton on Charter parties the learned author and his successive editors have “submitted” that such a clause as we are presently concerned with is one the breach of which entitled the charterer to throw up the charter. In sale of goods cases the Courts have for many years held that an analogous provision imported a condition – see, for example, Finnish Government v. H_._Ford Ltd. (1921, 6 L1L.R., 188) and Macpherson, Train & Co. Ltd. v. Howard Ross Ltd. (1955, 1 W.L.R., 641) – and it is difficult to see on what ground a distinction should be drawn in the case of charter-parties.
On these grounds, and particularly having regard to the importance to the charterer of the ability to be able to rely upon the shipowner giving no assurance as to expected readiness save on grounds both honest and reasonable, I would be for holding that clause 1 in the present case imported a condition. That the owners were in breach of it is common ground. It is equally undisputed that, if, as I think, the circumstances entitled the charterers to repudiate on 17th July, the fact that they did so by reliance on an untenable plea of force majeure does not invalidate their act of cancellation. In the result, I would be for reversing the finding of the Arbitrators and of the learned Judge on the first question and for holding that on 17th July, 1965, the charterers were entitled to cancel the charter party, as they in fact purported to do.
If I am right in so holding, that is an end of this case. But, out of respect for the able arguments of learned Counsel, I feel I ought to express the views I have formed regarding the two other questions canvassed before us.
……
I am bound to say that this conclusion has throughout seemed to me both reasonable and ineluctable. Indeed, I confess that I would have regarded the contrary view as unarguable had we not had presented to us by Mr Goff an argument so skilful that he actually succeeded in persuading Mr Justice Mocatta that his clients should recover £4,000 damages, a conclusion at which the learned Judge nevertheless arrived with confessed reluctance. The stages in Mr Goff’s argument are these: In Frost v. Knight (1872 L.R., 7 Ex. Cas., 111), where the defendant had promised to marry the plaintiff as soon as the defendant’s father died but nevertheless married another during his father’s lifetime, it was held that the plaintiff was entitled to recover damages while the father was still alive, Chief Justice Cockburn observing, at page 114, that:
“The contract having been thus broken by the promisor, and treated as broken by the promisee, performance at the appointed time becomes excluded, and the breach by reason of the future non-performance becomes virtually involved in the action as one of the consequences of the repudiation of the contract; and the eventual non-performance may therefore, by anticipation, be treated as a cause of action, and damages be assessed and recovered in respect of it, though the time for performance may yet be remote”.
Mr Goff next relies upon the observations of Mr Justice Devlin in Universal Cargo v. Citati (1957, 8 Q.B., 401), founding himself largely on Hochster v. De la Tour (1853, 2 E. & B., 678), that a renunciation, when acted upon, becomes final and that it is essential to the concept of anticipatory breach that “the injured party is allowed to anticipate an inevitable breach… So anticipatory breach means simply that a party is in breach from the moment that his actual breach becomes inevitable. Since the reason for the rule is that a party is allowed to anticipate the inevitable breach and is not obliged to wait till it happens, it must follow that the breach which he anticipates is of just the same character as the breach which would actually have occurred if he had waited”.
Upon this basis Mr Goff skilfully constructed an elaborate submission that, since one is proceeding here on the basis that on 17th July, 1965, the charterers committed an anticipatory breach of the charter party, it was no longer open to them to assert that, on the very belated arrival of the vessel at Haiphong, they could invoke the right to cancel conferred by clause 11. In other words, one is driven to assume an actual breach of the charter party being committed by the charterers, and the submission made was that this involved assuming that the charterers, being obliged to load a cargo of apatite, wrongfully refused to load any cargo at all. Influenced by Mr Goff’s persuasive argument, Mr Justice Mocatta said, at page 19-A:
“Once there is a renunciation and an acceptance of it, there is in the eyes of the law a breach and the contract is at an end, but the assumed (and, in law, inevitable) failure to perform is one at a date in the future when performance would have been required had there been no anticipatory breach. It is in relation to that assumed future breach of contract, which by law is anticipated, that damages will have to be assessed. Here, on the facts, the assumed breach can only be a failure to load; omission to exercise an option to cancel can never be a breach of contract”,
I am afraid it has to be said, though with the greatest respect, that this approach leads to a result so manifestly unrealistic that there must surely be something wrong with it. And so there is, in my judgment. As Mr Mistill clearly brought out, the underlying fallacy is in assuming that the anticipatory breach was one which presupposes that the right to cancel will not be exercised – in other words, that you must always anticipate not only a breach, but the worst breach. But the true test in a case of anticipatory breach is: “What would the position of the parties have been if the defendant had not wrongly announced his refusal to fulfil his part of the contract when the time for performance arrived?” One must look at the contract as a whole, and if it is clear that the innocent party has lost nothing, he should recover no more than nominal damages for the loss of his right to have the whole contract completed. The assumption has to be made that, had there been no anticipatory breach, the defendant would have performed his legal obligation and no more. “A defendant is not liable in damages for not doing that which he is not bound to do” (per Lord Justice Scrutton in Abrahams v. Reiach (1922, 1 K.B. , 477, at 482), cited with approval by Lord Justice Diplock in Laverack v. Woods & Co. (1967, 1 Q.B., 278, at 293). In the light of the Arbitrators’ finding, it is beyond dispute that, on the belated arrival of the Mihalis Angelos at Haiphong, the charterers not only could have elected to cancel the charter party, but would actually have done so. The rights lost to the owners by reason of the assumed anticipatory breach were thus certain to be rendered valueless. It follows from this that, in my judgment, the Arbitrators were right in holding that, in the circumstances, the claim of the owners for damages should be dismissed.
As to the appeal as a whole, for the reasons given in relation to Issue A, I concur in holding that it should be allowed and judgment entered for the charterers.
Vitol SA v. Norelf Ltd or The Santa Clara)
[1996] A.C. 800; [1996] 3 W.L.R. 105; [1996] 3 All E.R. 193,
Lord Steyn
“ My Lords, the question of law before the House does not call for yet another general re-examination of the principles governing an anticipatory breach of a contract and the acceptance of the breach by an aggrieved party. For present purposes I would accept as established law the following propositions. (1) Where a party has repudiated a contract the aggrieved party has an election to accept the repudiation or to affirm the contract: Fercometal S.A.R.L. v. Mediterranean Shipping Co. S.A. [1989] A.C. 788 . (2) An act of acceptance of a repudiation requires no particular form: a communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that that aggrieved party is treating the contract as at an end. (3) It is rightly conceded by counsel for the buyers that the aggrieved party need not personally, or by an agent, notify the repudiating party of his election to treat the contract as at an end. It is sufficient that the fact of the election comes to the repudiating party’s attention, e.g. notification by an unauthorised broker or other intermediary may be sufficient: Wood Factory Pty. Ltd. v. Kiritos Pty. Ltd. (1985) 2 N.S.W.L.R. 105 , 146, per McHugh J.A.; Majik Markets Pty. Ltd. v. S. & M. Motor Repairs Pty. Ltd. (No. 1) (1987) 10 N.S.W.L.R. 49 , 54, per Young J.; Carter and Harland, Contract Law in Australia, 3rd ed. (1996), pp. 689-691, para. 1970.
The arbitrator did not put forward any heterodox general theory of the law of repudiation. On the contrary he expressly stated that unless the repudiation was accepted by the sellers and the acceptance was communicated to the buyers the election was of no effect. It is plain that the arbitrator directed himself correctly in accordance with the governing general principle. The criticism of the arbitrator’s reasoning centres on his conclusion that ‘the failure of [the sellers] to take any further step to perform the contract which was apparent to [the buyers] constituted sufficient communication of acceptance.’ By that statement the arbitrator was simply recording a finding that the buyers knew that the sellers were treating the contract as at an end. That interpretation is reinforced by the paragraph in his award read as a whole. The only question is whether the relevant holding of the arbitrator was wrong in law.
It is now possible to turn directly to the first issue posed, namely whether non-performance of an obligation is ever as a matter of law capable of constituting an act of acceptance. On this aspect I found the judgment of Phillips J. entirely convincing. One cannot generalise on the point. It all depends on the particular contractual relationship and the particular circumstances of the case. But, like Phillips J., I am satisfied that a failure to perform may sometimes signify to a repudiating party an election by the aggrieved party to treat the contract as at an end. Postulate the case where an employer at the end of a day tells a contractor that he, the employer, is repudiating the contract and that the contractor need not return the next day. The contractor does not return the next day or at all. It seems to me that the contractor’s failure to return may, in the absence of any other explanation, convey a decision to treat the contract as at an end. Another example may be an overseas sale providing for shipment on a named ship in a given month. The seller is obliged to obtain an export licence. The buyer repudiates the contract before loading starts. To the knowledge of the buyer the seller does not apply for an export licence with the result that the transaction cannot proceed. In such circumstances it may well be that an ordinary businessman, circumstanced as the parties were, would conclude that the seller was treating the contract as at an end. Taking the present case as illustrative, it is important to bear in mind that the tender of a bill of lading is the pre-condition to payment of the price. Why should an arbitrator not be able to infer that when, in the days and weeks following loading and the sailing of the vessel, the seller failed to tender a bill of lading to the buyer he clearly conveyed to a trader that he was treating the contract as at an end? In my view therefore the passage from the judgment of Kerr L.J. in the Golodetz case [1989] 2 Lloyd’s Rep. 277 , 286, if it was intended to enunciate a general and absolute rule, goes too far. It will be recalled, however, that Kerr L.J. spoke of a continuing failure to perform. One can readily accept that a continuing failure to perform, i.e. a breach commencing before the repudiation and continuing thereafter, would necessarily be equivocal. In my view too much has been made of the observation of Kerr L.J. Turning to the observation of Nourse L.J. [1996] Q.B. 108 , 116-117, that a failure to perform a contractual obligation is necessarily and always equivocal I respectfully disagree. Sometimes in the practical world of businessmen an omission to act may be as pregnant with meaning as a positive declaration. While the analogy of offer and acceptance is imperfect it is not without significance that while the general principle is that there can be no acceptance of an offer by silence, our law does in exceptional cases recognize acceptance of an offer by silence. Thus in Rust v. Abbey Life Assurance Co. Ltd.[3] [1979] 2 Lloyd’s Rep. 334 the Court of Appeal held that a failure by a proposed insured to reject a proffered insurance policy for seven months justified on its own an inference of acceptance: see also Treitel, The Law of Contract, 9th ed. (1995), pp. 30-32. Similarly, in the different field of repudiation, a failure to perform may sometimes be given a colour by special circumstances and may only be explicable to a reasonable person in the position of the repudiating party as an election to accept the repudiation.
My Lords, I would answer the question posed by this case in the same way as Phillips J. did. In truth the arbitrator inferred an election, and communication of it, from the tenor of the rejection telex and the failure, inter alia, to tender the bill of lading. That was an issue of fact within the exclusive jurisdiction of the arbitrator.
For these reasons I would allow the appeal of the sellers.”