Hong Kong Fir - term regarding seaworthiness; not a condition in the past; could be breached in very trivial ways. Recognized a third residual category of terms: innominate/intermediate. If breach deprived the innocent party of substantially the whole benefit which he should obtain, then he could terminate (Diplock LJ). Accepted in subsequent HoL authorities.
Koompahtoo v Sanpine - HC unequivocal recognition of innominate terms in 2007. Kirby J dissents.
If term not intended to be a condition presumed to be intermediate in character, unless intention that warranty (Hansa Nord).
Bunge v Tradax - Stresses residual nature of the term. Scarman LJ thinks the category creates uncertainty.
Express agreement
Classification may be by express agreement, even where parties have used other terminology such as material/serious breach.
Implied agreement
1) on the basis of the presumption above;
2) because of an exclusion clause restricting the right to terminate to specific types of breaches;
3) because the parties have not expressed an intention to depart from the construction previously adopted in a standard form contract.
Degree of seriousness required
Express provision
Strictly speaking, this becomes an express contractual right, rather than an implied right (conferred by law).
Criterion at common law
1. Seriousness of the breach depends not only on the breach itself but also on the consequences of the breach, both actual and foreseeable, for the promisee.
Promisee must establish deprivation of substantially the whole benefit of the contract (Hong Kong Fir).
The Hansa Nord - Orange rind case. Damaged and sold to third party. CA held seller’s breach not sufficiently serious. Diminution of value could be explained, not only because of breach, but also because the market price of sound goods had fallen, and the goods had been resold in suspicious circumstances, for less than their true value. Also could still be used as cattle feed (not substantially different from intended: animal feed).
Foreseeable consequences
Can rely on this and actual consequences. Any foreseeable consequences relied on must have been reasonably foreseeable at the time of termination.
2. It is the effect of the breach on the contract as a whole which matters: due to the promisor’s breach the performance of the contract must be substantially different from that intended by the parties.
3. The assessment of the consequences of the breach is essential a factual matter on which opinions are likely to differ.
4. In commercial contracts at least, the degree of seriousness required is the same as that applied under the doctrine of frustration. Because the ‘frustrating’ event is caused by the promisor’s breach, (1) the promisor is liable in damages and (2) the contract is not automatically discharged.
Repudiation and anticipatory breach
Terminology
Repudiation
(1) Repudiation has traditionally been used to mean conduct which evinces an unwillingness or an inability to render substantial performance of the contract (in other words, conduct which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party’s obligations).
(2) The second sense in which repudiation has been used is in the sense of a repudiatory breach, which is any breach which justifies termination by the other party (on the basis that any such breach may be treated by the promisee as a repudiation of the whole contract). This is the meaning the HCA preferred to leave for repudiation in Koompahtoo.
Can terminate and claim damages OR affirm and claim damages.
Absence of readiness or willingness (or inability) preceding the time at which performance is due, which can be treated as a ground for termination by the promisee.
A repudiation which precedes the time of performance may be accepted by the promisee as an anticipatory breach.
For an anticipatory breach to occur the promisee must terminate the performance of the contract.
Election to terminate
Active act by which innocent party must unequivocally signal acceptance of the breach or elect to affirm the contract.
If they do nothing one way or the other, the law will treat the contract as affirmed by default.
Consequences discussed in McDonald v Denny Lascelles and Securicor. (see below)
Where election to terminate, both parties are discharged from future performance, but accrued rights remain.
Conduct
Vitol v Norelf - Buyers sent sellers telex rejecting the cargo because they said it wouldn’t be loaded in time (but then was).
Was the failure to perform the contract on the part of the innocent party equal to an election?- HoL said yes.
Reasons
Party electing to terminate need not put forward real reasons for electing to terminate, provided there are good reasons.
May rely on any good ground for electing to terminate even if not aware of it when they elected (Shepherd v Felt and Textiles).
Early termination
Can you terminate early if it is clear that performance won’t happen?
The Mihalis Angelos - terminated early on basis that ship would not be ready by prescribed date. Could cancel early.
Timing
The innocent party is not bound to elect at once but runs the risk of affirming if they do not.
Stoczia Gdanska v Latvian Shipping Company (No. 2) - Rix LJ - Innocent party has a period of time to make up their mind. If he does nothing for too long, there may come a time when the law will treat him as having affirmed.
If he maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his contract partner persists in his repudiation, then he has not yet elected.
As long as the contract remains alive, the innocent party runs the risk that a merely anticipatory repudiatory breach, can be overtaken by another event which prejudices the innocent party’s rights under the contract such as frustration or even his own breach.
He also runs the risk that the party in breach will resume performance and thus end any continuing right in the innocent party to elect to accept the former repudiation as terminating the contract.
An election once made is final: Ogle v Comboyuro Investments per Barwick CJ.
