Contract - Discharge for breach

discharge for breach

• need a repudiatory breach to trigger this discharge

• only primary obligations discharged

• secondary obligations kick in if something goes wrong with the primary ones

• law is on the side of the innocent party

right to election and examples

How to exercise the right of election:

Informed choice; know the facts and the law

Need to know what the guilty party has done wrong

Choice is made by an unequivocal statement by innocent party by words or conduct

Examples:

Buyer repudiates; seller sells goods to a 3rd party = acceptance of breach

Landlord repudiates; tenant pays next instalment of rent = affirmation

Urge guilty party to think again and perform = neither

Timeframe

No deadline

• Subject matter of contract liable to fluctuate considerably and suddenly in value

• Perishable goods

And suppose contract requires performance inconsistent with acceptance of breach - forced to choose

Through the nature of the contract, there is an expectation to do something

Logical interpretation of failure to do anything is affirmation by conduct

Structure of contract may force party to make a choice

Facts may compel a quicker election or slower e.g. BDW Trading Ltd v JM Rowe (Investments) Ltd [2011] EWCA Civ 548 at [77].

Fetters on right of election: White & Carter v McGregor [1962]

• boss attempted to get rid of contract after concluded

• no performance or money spent

• not breach, action of enforcement for contractual obligations

• HOL: repudiatory breach getting rid of contract, company chose election via right of election

Lord Reed’s restrictions to White & Carter v McGregor

• Performance requires co-operation of guilty party e.g. inviting builders into your house

• Couldn’t argue affirmation if there was no legitimate interest in maintaining contract

No legitimate interest fetter: The Aquafaith [2012] Justice Cooke

"[A]n innocent party will have no legitimate interest in maintaining the contract if damages are an adequate remedy and his insistence on maintaining the contract can be described as 'wholly unreasonable', 'extremely unreasonable' or, perhaps, in my words, 'perverse'.”

examples of no legitimate interest fetter:

• Contract with expert to travel abroad and prepare complex report. Changes mind and repudiation before any acts towards performance. No legitimate interest in carrying on with performance

• What if not an established expert? They will get financial profit and enhanced reputation. If they accept breach, they still get the money but forfeit reputation. In this context, they do have a legitimate interest

• Ship with engine problems that charter is meant to fix. Charter doesn't want ship anymore and breaks contract. Cost £2 million for repairs. Worth £1 million.

Election binding once made

No change of mind permitted

If accept breach:

• Guilty party free from performance obligations

• Right to damages unaffected

If innocent party affirms:

• Must perform

• Contract could now be frustrated

• If guilty party commits fresh repudiation, fresh right of election

Actual repudiatory breach v anticipatory repudiatory breach

Actual breach when the time for performance has arrived. Anticipatory is when time for performance hasn't arrived but you anticipate not performing when the time does arrive

renunciation of future major obligations

 at some point there is a major event meant to occur via the contract but it is renounced. Can be done via words or via actions/conduct

3 forms of renunciation

• Failure of performance going to the root of the contract

• Renunciation of future fundamental obligations

• Fundamental prospective impossibility of performance created by own act

Address matters in contract - certainty of consequences if party does something wrong, common in commercial contracts

time stipulations

• When is time of the essence?

Late is a repudiatory breach; it doesn't matter how long

Contract doesn't have timing/silent, answer significance by reference to general principle, does being late go to the root of this contract?

More likely to be critical if it is a commercial contract

• Notice requiring performance within a reasonable time

Turning up late/missing deadline isn't of itself a repudiatory breach but that doesn't mean they can be as late as they want

At some point, it becomes so late that it looks like there will be no performance

non-performance/notice making time of the essence

• Prolonged failure to perform for an extended period can meet the test of repudiation.

• To serve a notice of the party in breach calling for performance by a new reasonable deadline. If this is not met, that will be taken to be evidence that the party in breach doesn't intend to perform either at all or within a time that respects the contract.

• "notice making time of the essence" - notice doesn't do this, significance of original deadline. Cannot be changed. Notice designed to provide evidence of repudiatory breach if it is not complied with.

renunciation definition

statement by words or conduct that you intend not to continue contract in the future in the same way, must be a way that is significant, what would reasonable person expect?

impossibility

• Need to know whether guilty party has put themselves in a position where they cannot perform, QUESTION OF FACT More likely to be dealing with renunciation than impossibility

• Links the two: fundamental non performance in the future is inevitable

• Inevitability is legal - renunciation

• Protective impossibility - factual; inevitability

• Taking someone's words even though they may not do that

• Can treat the contract as discharged now and are released from performance.

inevitability definition

innocent party entitled in law to believe an act based on what guilty party says, don’t have to wait to see if they are truthful

can repudiatory breach be cured?

• Actual breach, NO - no legal right to cure

• Anticipatory breach (renunciation): yes, provided not accepted

• Revoke the renunciation, in fact perform before anticipatory breach has been accepted

Union Eagle v Golden Achievement [1997]

• property transaction to buy flat

• purchaser paid 10% deposit

• time of the essence as failure to meet deadline was repudiatory breach and deposit would be forfeited

• purchaser missed deadline by 10 mins; repudiatory breach

breach you think is repudiatory is not?

From innocent party to guilty party:

• A breaks contract

• B thinks A's breach is repudiatory and accepts the repudiation

• B is wrong. A's breach not repudiatory

• B's 'acceptance' turns into a repudiatory breach that A can accept!

Look at circumstances and see where the breach has occurred and whether they are within their right to claim for the breach

Exception: Party who wrongly analyses breach can have the loophole of it being discovered that there is a different breach of contract that is repudiatory

Boston Deepsea Fishing v Ansell [1888]

• can transfer acceptance of breach from original potential breach to the new actual one

• turns out A had previously committed another breach that’s repudiatory

• B can rely on that earlier breach to justify its acceptance

classification of contract terms

Can classify the term that has been broken not the breach

Condition = any breach is repudiatory

Warranty = no breach is repudiatory

Innominate terms (intermediate stipulations) = changes focus from time when contract concluded to the aftermath of the breach

Problem:

• Leads to another issue; how do we know whether condition or warranty as SOG Act only gives so much information

• Too simplistic to classify terms into 2 categories as you may lose proportionality

Hongkong Fir Shipping v Kawasaki [1962]

• time charter for 24 months but vessel in bad condition and spends 24 months being repaired

• spends 20 weeks out of service; charter considers this repudiatory breach

• ship not seaworthy

• COA: unseaworthy means unfit for operation but can be for lesser reasons

• idea they have to label it warranty or condition is ridiculous so they decided not to name it

• middle term is innominate between condition and warranty

classification of terms by statute

Sale of Goods Act 1979

• Statutorty implied terms under S12-15 are conditions

• Section 11(2): breach of condition, B can elect to treat contract as repudiated

The Hansa Nord [1976]

• contract for SOG; implied term of satisfactory quality

• express term that goods are transported in good condition

• goods arrive 1/3 damaged; buyer rejects and claims repudiatory breach

• court orders goods to be sold and buyer buys them for cheaper

• COA: not in breach of S14 of SGA, breach of express term regarding good condition

• not repudiatory, buyer must pay

Sale of Goods Act 1979 s15A

• ‘(1) Where in the case of a contract of sale-

    (a) the buyer would, apart from this subsection, have the right to reject goods by reason of a breach on the part of the seller of a term implied by section 13, 14, or 15 above, but

    (b) the breach would be so slight that it would be unreasonable for him to reject them,

    the breach is not to be treated as a breach of condition but may be treated as a breach of warranty.

• (2) This section applies unless a contrary intention appears in, or is to be implied from, the contract.

• (3) It is for the seller to show that a breach fell within subsection (1)(b) above.’

SOG 1979 S15A application

Drafting of this provision doesn't say that the buyer can reject if it is reasonable to do so; the restriction on the remedies is more confined.

This is not meant to operate commonly, it's intended to deal with cases where on the technical terms, there is a breach of one of the implied terms but it is more of a technical breach e.g. breach of s13 of SGA

Lombard North Central v Butterworth [1987]

• contract for hire of goods, obligation to pay rental monthly

• late instalments, COA says that as a matter of common law, not repudiatory breach

• only remedy available is financial, contract contained time of the essence clause

• hire company wins, contract ended and major damages claim

Schuler v Wickman

• agent represents company in UK and they drum up orders from manufacturers

• obligation to send representatives to visit once a week to get orders

• agent breaks this and company terminates contract

• HOL: if contract can have only one interpretation, you have to with it

• material breach, would be a right to terminate but only if breach wasn’t remedied in a 30 day period

the Antaios [1985]

• 3 year time-charter party

• clause 5 detailing consequences of breaking contract

• after concluded, ship rates rise so can charged more

• owner finds out charter broke contract via innominate term

• common law wouldn’t say repudiatory but clause 5 exists

• owners took ship back, gave it back after 2 days

• HOL: wasn’t conceivable that commercial contract would claim for any breach

• no repudiatory breach so owners wrong

classification of terms by precedent

• Precedent applies here as elsewhere

• Must be applied correctly

• Seaworthiness in time charterparties; innominate term

• Seaworthiness in marine insurance contracts: different