Contents: Termination, damages, action for agreed sum, specific performance, injunction
TERMINATION FOR BREACH
X may be entitled to terminate the contract. Termination of a contract requires repudiatory breach. This means a breach so serious that it takes away the benefit from the innocent party.
Termination is available in cases of breach of a condition (which are terms central to the main agreement of the contract) or an innominate term (a term which is neither a condition not a w
A breach of a condition, due to its centrality will undoubtedly lead to a termination of the contract. In cases of breach of innominate terms, the remedy depends on the seriousness of breach
Termination is available only if the seriousness of the breach is enough to take away the entire benefit from the innocent party. If it is not a repudiatory (seriousness relevant) breach, in the
innominate terms damages may be available.
Instructions:
It is important to examine what kind of term X is, as this would impact the remedies available. DECIDE BETWEEN CONDITION AND WARRANTY LEAVE OUT INNOMINATE FOR NOW
CONDITION INNOMINATE TERM
It is possible that X is a condition. It is possible that X is an innominate term.
Is the term a condition? Is the term an innominate term?
As L Schuler AG v. Wickman Machine Tool Sales Ltd [1974] Innominate terms were established as a category in Hong Kong Fir Shipping Co Ltd v. Kawasaki Kisen Kaisha Ltd [1962]. Th
established, just because a term is called a ‘condition’ by the name means they are unnamed or uncategorised as they don’t fit into conditions or warranties. Instead, the category the
parties does not make it so. It only shows the intention that it fall in depends on the seriousness of the breach.
will be binding. It also says a condition’s breach leads to three
options for the innocent party: termination, proceeding on If the breach is so serious that it takes the entire benefit of the contract from the innocent party the term is a condition
the contract or damages. and the claimant may resort to termination. If it is not so serious, the term is a warranty and they may only resort to
The House of Lords in L Schuler AG v. Wickman Machine Tool damages.
Sales Ltd [1974] gives guidance on finding it by deciding if a
term is a condition: it must be ‘of a fundamental character In Hong Kong Fir, similarly to L Schuler AG v. Wickman Machine Tool Sales Ltd [1974] the term about seaworthiness was
going to the root of the contract” or “the parties have chosen rejected as a condition due to there being way too many reasons why a vessel may be considered not seaworthy e.g. sma
to stipulate that it shall have that effect”. In Schuler it was defects such as a missing nail.
shown that lack of reasonableness can prevent a term from
being a condition and it will be a warranty instead. In that case In Bunge Corporation New York v. Tradax Export SA [1981] it was decided terms concerning time periods for notice can be
the term was that a company will send salespersons on 1400 conditions as they can only be breached in one way (not sticking to the time period), unlike the seaworthiness clause in th
visits to certain locations without fail, which was seen as an Hong Kong Fir case, which can be breached in many ways.
unreasonable condition by the court because it is easily
foreseeable that a salesperson may not be able to make it or
will be unavailable for at least one of those 1400 visits.
In Hochster v De La Tour (1853) the High Court established that termination or damages are possible if one party repudiates the contract before the agreed date of performance. This repudi
considered to have taken place where the party in repudiation utterly and unequivocally renounces the agreement or it makes the performance on its own part impossible.
Innocent party has a choice:
Geys v Société Générale [2012] clarifies that the innocent party may choose between accepting the breach and terminating the contract or affirming it and claiming for damages. If they choo
second option this still allows for termination for subsequent breaches (Johnson v Agnew). Additionally, per Geys, termination is not automatic and depends on the acceptance of the innoce
since the party in breach can use the repudiation to escape the obligations of the contract.
The form of termination/acceptance of repudiation:
Termination done by the innocent party requires notice of the termination for the party in repudiation. According to the House of Lords in Vitol v Norelf [1996] this requires no particular for
‘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
treating the contract as at an end.’. Additionally, Vitol says it’s fine if the communication is not done personally or by an agent, it can be done by a third party e.g. ‘unauthorised broker or oth
intermediary’ so long as the communication reaches the other party’s attention.
Middle ground:
The Court of Appeal in Stocznia Gdanska SA v. Latvian Shipping Company (No 2) [2002] clarified that there is a middle ground between the two options e.g. affirmation of the contract may b
inferred if the innocent party does nothing for too long or the option to terminate may become unavailable if ‘the party in repudiation will resume performance of the contract’.
Some guidance on the remedies:
In Johnson v Agnew[1980] the House of Lords gives guidance on how the remedies inter-connect and what can be expected.
● It says that termination removes future obligations, but it does not remove any obligations accrued before the termination i.e. it’s prospective. However, the court used the words ‘term
and ‘rescission’ interchangeably, which confuses the effects of each.
, ● It says specific performance does not preclude the option to terminate and sue for breach.
● It says ‘The general principle for the assessment of damages is compensatory, i.e., that the innocent party is to be placed, so far as money can do so, in the same position as if the contra
been performed’. For the assessment of damages it says the usual position is calculating the sum at the date of breach, but if the innocent party tries to complete the contract after brea
calculation will be done on the date when the contract is lost. CHECK FOR MORE RECENT CASES GOLDEN VICTORY AND BUNGE BELOW
● Johnson v Agnew[1980] says the innocent party has two options: accept the breach, sue for damages (which precludes any later claims for specific performance) or seek specific perform
along with damages for any loss accrued by the delay.
What if the interest is illegitimate due to being unreasonable:
In Clea Shipping v Bulk Oil International [1984] the High Court said that in exceptional circumstances it may be decided that the innocent party should not be allowed to affirm he contract be
the unreasonableness of the affirmation means they have no legitimate interest to do so. In the case, charterers returned a ship to the shipowners due to an engine issue and after the owne
repaired it. The repairs took seven months and the contract (since the charter was for 24 months) and the charterers said they do not want the ship back as they no longer needed it, the ow
refused to accept the charterers’ repudiation.
In Isabella Shipowner SA v Shagang Shipping Co Ltd [2012] the High Court once again said this principle is limited to exceptional cases. It said the principle applies if the damages are adequat
remedy (therefore the continuation with the contract is no longer necessary) and affirming the contract would be ‘beyond all reason’. In Isabella, there was once again a premature return of
by by charterers, with them claiming they no longer needed it. However this time the owners had not contributed to this lack of necessity. It was held there is a legitimate interest to affirm b
the damages would not have been an adequate remedy and the charterers could have sub-let the charter instead of leaving this responsibility to the innocent party. The bad state of the ma
(with regards to the sub-letting) was considered.
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ANOTHER OPTION IF THERE IS ANTICIPATORY BREACH IS THE AGREED SUM SECTION BELOW
DAMAGES
A breach of a warranty (a term subsidiary to the main agreement) or a condition (going to the root of the contract) will lead to compensation through damages for the innocent party.
General principles:
Robinson v. Harman (1848) established that in contract law damages must put the innocent party in the position they would be in if the contract had been performed. This can either be done through
damages in the form of the diminution of value (the difference in value between the promised and actual performance) or cost of cure (the money spent by the innocent party to make up for the
unfulfilled performance).
Date of breach or date of trial for calculation:
● Johnson v Agnew[1980] says ‘The general principle for the assessment of damages is compensatory, i.e., that the innocent party is to be placed, so far as money can do so, in the same position as if
the contract had been performed’. For the assessment of damages it says the usual position is calculating the sum at the date of breach, but if the innocent party tries to complete the contract
after breach, calculation will be done on the date when the contract is lost.
o More recently, in Golden Victory [2007] the House of Lords showed willingness to use a more flexible approach by allowing damages to be assessed at the date of trial and not of breach
(which allows for more accurate compensation). The House of Lords also gave guidance on when this flexibility should be applied. It should be applied in cases where there is supply of
services or goods over a period (in Golden Victory this concerned a time charter for a ship), but it should not apply in cases where there is a sale of goods for which a market is available that
would aid in the valuation of the difference between market price and contract price on the date of breach. In Golden Victory this meant the claimant got compensated for less years of the
charterparty than they would have been if the damages were calculated from the date of breach. The court wanted them to be compensated for the loss that actually occurred and saw the
claim for the date of breach damages as asking for more than their loss. The reason for this was because the Second Gulf War, which broke out more than a year after the repudiation meant the
defendants could have lawfully terminated and therefore the claimants would have incurred the same loss. Therefore, the case also shows that the court may reduce the damages where
circumstances known at the time of trial would have reduced the actual loss anyway.
In ****Bunge SA v. Nidera BV [2015] the Supreme Court affirmed the principle that damages may be reduced if events after the breach mean the loss incurred would have been the same anyway.
They clarify that this principle along with the other principle from the Golden Victory on flexibility when it comes calculation of damages at the date of trial can apply to one-off sales, not just supply of
goods or services over a period. This is because ‘ 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.’.
Non-pecuniary loss “Reliance” Damages
Cost of cure: In Anglia TV Ltd v Reed [1972] the Court of Appeal attempted to establish
Radford v. De Froberville [1977] affirmed ‘cost of cure’ damages, which are damages providing the money that should reliance damages as a separate category of damages from the expectation
be spent by the claimant to make up for the unfulfilled performance. In that case the claimant was given the money to interest. In Omak Maritime v. Mamola Challenger Shipping [2010] the High
build a wall promised in a covenant (that ended up not being fulfilled) because he had shown genuine intention to build Court clarified that reliance damages are a type of expectation interest and
it himself. It was said it is of no importance that the cost of cure may be financially beneficial for the claimant and it also are only available if the profit expected from the contract at least equalled
does not matter if the thing the contract was about was ‘commercial, aesthetic or merely eccentric’. It did not matter the expenditure made in reliance of it by the claimant. This means recovery
that the claimant was not going to live in the house, and he was doing this for the benefit of his tenants (as without the for bad bargains is prevented e.g. where the claimant has agreed to a
walls they would be deprived of their right to privacy). They kept in mind that the prices had gone up and the damages bargain that leads him to spend more money than the benefit incurred.
need to be raised. Omak follows the principle established by the Court of Appeal in C and P
However, Ruxley Electronics & Construction v Forsyth [1996] changed this as the House of Lord declared that the cost of Haulage Co Ltd v Middleton [1983] that the expenditure in reliance should
cure damages need to be proportionate to the benefit intended by the contract. In Ruxley the benefit intended was a not exceed the profit expected because damages should not put the claimant
