Chapter 12 Updates to the Law

Breach of contract and termination
Untitled Document

Chapter 12: Breach of Contract and Termination

12.2.2.2 Status of Terms

12.2.3.3. Classification by the courts

p482, add to end of page-
In Grand China Logistics Holding (Group) Co. Ltd. v Spar Shipping AS [2016] EWCA Civ 982 Gross LJ held that the charterers' failure to pay an instalment of hire punctually under a time charterparty did not breach a condition of the contract because:

  1. For historical and analytical reasons, the inclusion of an express withdrawal clause did not indicate that punctual payment was a condition;
  2. While greater certainty would be achieved by classifying punctual payment as a condition, this could be at the cost of disproportionate consequences flowing from trivial breaches; and
  3. The market view supports it not being a condition.

 
The court rejected a general presumption as to time being of the essence in mercantile contracts. Kuwait Rocks Co v AMN Bulkcarriers Inc, The Astra [2013] EWHC 865 (Comm) which decided that an obligation in the contract to make punctual payment of hire was a condition of the contract was wrongly decided and overruled on this point. However, given the history of the charterer's late payments, the amounts and delays involved, together with the absence of any concrete or reliable reassurance from either the charterer or the guarantor as to the future, the judge was amply entitled to conclude that the charterer had renounced the charterparties.

 

12.3 Affirmation

p. 487 on the operation of the ‘legitimate interest’ factor

MSC Mediterranean Shipping Company S.A. v Cottonex Anstalt  [2016] EWCA Civ 789
Between April and June 2011, the carrier contracted with the shipper to carry 35 containers of raw cotton by sea to the consignee in Bangladesh. Following a collapse in the price of raw cotton, a dispute arose between the shipper and the consignee with the result that neither of them was willing or able to take delivery of the goods, which remained at the port under the control of the customs authorities. The bills of lading provided for a daily tariff if the containers were not returned
14 days after the date of discharge from the vessel. On 2 February 2012 the carrier offered to sell the containers to the shipper but these negotiations were unsuccessful. The carrier sought to affirm the contract and recover a sum in respect of demurrage incurred up to 30 April 2013, and demurrage for each day that the containers remained unavailable to it thereafter.

Held by Moore-Bick LJ:

  1. The test for determining whether the shipper’s inability to redeliver the containers amounted to a repudiatory breach was ‘in substance the same as it would be for frustration’: ‘such as to render performance of the remaining obligations under the contract of carriage radically different from those which the parties had originally undertaken’.
  2. Distinguishing White & Carter:

‘Lord Reid was directing himself to a case in which the innocent party could perform his obligations under the contract, and so earn the price of his services, without the co-operation of the other party. The present case is rather different, however, because the carrier has performed all its obligations under the contracts of carriage and the shipper's breach consists only of the failure to unpack and redeliver the containers. That is the obligation which the shipper has repudiated. The question, then, is whether the carrier can refuse to accept the shipper's repudiation as discharging the contract (and with it his continuing obligation to redeliver the containers) and if so, whether it can obtain a remedy in damages for their continued detention.’

  1. Nature of the White & Carter doctrine: ‘The judge in that case described the principle as being that the court on equitable grounds refuses to allow the innocent party to enforce his full contractual rights, but I am inclined to think that the observations of Lord Reid himself in White & Carter and of Lord Wilson in Geys v Société Générale suggest that the true explanation may be that in an appropriate case the court in the exercise of its general equitable jurisdiction will decline to grant the innocent party the remedy to which he would normally be entitled.
  2. On the facts, the contract was frustrated when the commercial purposes were frustrated; however, had it been open for the carrier to affirm ‘I should have agreed with the judge that it had no legitimate interest in continuing to insist on performance by the shipper of its remaining obligations under the contracts. The accrued demurrage already exceeded by a considerable amount the value of the containers. Replacement containers were readily available at Chittagong and the carrier had no interest in keeping the contract alive other than to earn demurrage pending their return. This is a classic case in which it would have been wholly unreasonable for the carrier to insist on further performance.’
  3. On good faith: i) Good faith is unnecessary to decide the current case; and ii) ‘In my view the better course is for the law to develop along established lines rather than to encourage judges to look for what the judge in this case called some “general organising principle” drawn from cases of disparate kinds…. There is in my view a real danger that if a general principle of good faith were established it would be invoked as often to undermine as to support the terms in which the parties have reached agreement. The danger is not dissimilar to that posed by too liberal an approach to construction, against which the Supreme Court warned in Arnold v Britton [2015] UKSC 36, [2015] A.C. 1619.’

Held by Tomlinson LJ:

  1. Relationship with frustration: at [61]

‘The present case is different. I do not believe that Lord Wilson in Geys [holding that a repudiatory breach only terminates the contract if it is accepted by the injured party] had in mind a case where a contract has become repudiated because it is no longer capable of performance, as in the classic case of frustrating delay. That is the present case. Our conclusion is that as from 2 February 2012 the contract in its agreed form was not capable of performance – further performance in the changed circumstances brought about by the delay would be radically different from that agreed. The guilty party can no longer perform its obligations when the time comes. The time for performance of the obligations of the guilty party is long past. Redelivery of the containers at some future date would be an act radically different in kind from redelivery of the containers in accordance with the contractually agreed time-scale. In those circumstances, as it seems to me, the innocent party simply cannot treat the contract as subsisting because it is no longer capable of performance as agreed. There is no alternative to the conclusion that the contract has come to an end. The fact that the carrier continued to press for performance, in the shape both of redelivery of the containers and the payment of demurrage, is neither here nor there. Those were acts in vain, unrelated to an existing contract.’