Published on 9 August 2019 at 10:56am
I INTRODUCTION
Lord Wilberforce observed that the doctrine of anticipatory breach is a ‘perspicuous’ area of law.[1] However, Professor Stephen Waddams asserts that the law of anticipatory breach is ‘confused, irrational, unpredictable, [and] incoherent’.[2] This uncertainty is most evident in the law relating to whether an innocent party must be ‘ready, willing and able’ to perform the contract, whether they must mitigate their loss as well as whether they can rely on anticipatory breach where they have already completed their part of the bargain.
Part II of this paper will briefly explain the history and nature of the doctrine of anticipatory breach. Part III will then highlight the issues with the doctrine in its current form. The remainder of the paper will compare the Australian position with the English, American and Singaporean case law as well as the Convention on Contracts for the International Sale of Goods. The paper will ultimately demonstrate that the law in this area stems from the mid-1800s but it is far from established.
II HISTORY AND NATURE OF ANTICIPATORY BREACH
The doctrine of anticipatory breach stems from the 1853 case of Hochster v De la Tour (‘Hochster’) and was later approved in Frost v Knight.[4] In the case of Hochster, Campbell CJ stated that ‘The man who wrongfully renounces a contract into which he has deliberately entered cannot justly complain if he is immediately sued for compensation in damages by the man whom he has injured’.[5] His Honour also noted that ‘it cannot be laid down as a universal rule that, where by agreement an act is to be done on a future day, no action can be brought for a breach of the agreement till the day for doing the act has arrived’.[6]
Campbell CJ supported his argument by reference to the example of an employer who renounces the employment contract prior to its commencement date. [7] His Lordship observed that ‘instead of remaining idle and laying out money in preparations which must be useless, [the employee should be] at liberty to seek service under another employer’.[8] He also observed in a later case that it would be strange to require a plaintiff to fulfil their contractual obligations in circumstances where they agreed to send a ship to port and are then notified by the charterer that no cargo will be furnished there, as this would require the plaintiff to send and return an empty ship.[9] Therefore, the doctrine is justified to the extent that ‘it is surely 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’ but still be able to sue for any damages arising from the breach.[10]
The case of Hochster ultimately demonstrates that when a party to a contract declares that they do not intend to perform a future contractual obligation, the doctrine of anticipatory breach stipulates that they cannot then demand the innocent party still perform their side of the bargain.[11] Express or explicit anticipatory breach applies in these situations where one contractual party renounces their contractual obligations prior to the date of performance.[12] Implicit anticipatory breach applies in circumstances where there is no express renunciation but ‘the acts and conduct of the party evince an intention no longer to be bound by the contract’.[13] Anticipatory breach may also occur where a contracting party is no longer able to perform their obligations under the contract.[14] It is ultimately a form of repudiation involving prospective non-performance or breach.[15] The innocent party may refuse to accept the repudiation, and therefore continue the contract in full effect, or they may terminate the contract.[16] If the innocent party decides to terminate the contract, both parties will no longer be required to perform any current and future obligations under the contract.[17]
The innocent party must plead and prove that the future non-performance is sufficiently serious to justify the right to terminate and this will not be lightly found or inferred by the courts.[18] An objective test is applied to determine whether the party acted in a manner that would lead a reasonable person to conclude that they did not intend to fulfil their part of the contract.[19] In other words, the court must consider the issue of ‘whether the innocent person reasonably took the view that the repudiating party’s refusal was sufficiently clear, absolute and serious to give him a right to rescind the contract’.[20] This is a question of fact to be decided with regard to the circumstances at the time of the allegedly repudiatory conduct.[21]
III ISSUES WITH THE DOCTRINE
As Associate Professor Lee Aitken notes, ‘In this area, as with so many questions in contract, there are no “bright lines”, all is “fact-specific”, and incorrect advice may be negligent’.[22] This part of the paper will highlight the gaps in the doctrine of anticipatory breach and how the courts have attempted to resolve these issues on a case-by-case basis.
A READY, WILLING AND ABLE
It is unclear whether an innocent party may simply rely on the anticipatory breach or whether they must show that they are ready, willing and able to perform their own obligations when the time to do so arrives. [23] In DTR Nominees v Mona Homes (‘DTR Nominees’), the Court held that ‘A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation’ because ‘Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach, and indeed could profit from his misinterpretation of the contract’.[24] This view that readiness and willingness is a relevant consideration was also adopted by Mason CJ and Dawson J in Foran v Wight.[25] The requirement that the innocent party be ready, willing and able to perform reflects the maxim that, ‘He who comes to equity must come with clean hands’.[26] It also reflects the old system of pleading which required plaintiffs to declare performance or readiness and willingness to perform.[27] However, there is a noticeable discontinuity between the decision in DTR Nominees and later cases that have deviated from the limits of this ‘ready, willing and able’ approach.
In Foran v Wight, Deane J disagreed with the approach adopted by Mason CJ and Dawson J and instead asserted that the law should not require ‘the useless and futile expenditure by an innocent party of whatever time, effort or money’ is necessary in order to prove their readiness and willingness to perform the very contract that they are seeking ‘to bring to an end on the ground that it had already been repudiated by the other party’.[28] This view was adopted in a number of subsequent cases including Sharjade Pty Ltd v Commonwealth of Australia, Rooney v ABB Grain Ltd and Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service.[29] In Sharjade, Young JA held that the innocent party must be ready, willing and able to perform where they have terminated the contract and are suing for damages for loss of bargain or particular damage but the expense incurred in demonstrating readiness and willingness is not required where the party terminates but they do not seek damages.[30] Aitken also adopts Deane J’s approach, as he asserts that ‘There can be little to be said in favour of forcing the innocent party to prove that he or she stands ready to perform notwithstanding the counterparty has made it very clear that no performance will be coming from it’.[31]
The innocent party is not required to demonstrate readiness and willingness to perform in so-called ‘half-way house’ cases. Although the innocent party is entitled to either affirm the contract or terminate, their ‘conduct may be equivocal in that it is neither express affirmation nor termination’.[32] In such cases, the parties are in a ‘half-way house’ where the innocent party may hold the other party to the contract but they are simultaneously allowed to escape the need to perform some of their own obligations.[33] Where the other party renounces the entire contract, the innocent party will have to either affirm or terminate the contract but where there is only partial renunciation, the innocent party may be allowed to affirm the contract while escaping performance of some obligations.[34] Partial renunciation can occur where the renunciation is of a fundamental contractual term or a sufficiently serious breach of an intermediate term and the other party ‘intimates’ that performing this contractual duty is ‘useless’.[35] For example, in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd, a contract for the sale of oats required the buyers to nominate a ship.[36] The sellers later advised that they could not supply the oats and argued that the buyers were in breach as they had failed to nominate a ship.[37] The Court held that the seller’s repudiation absolved the buyers from nominating a ship because the sellers expressly or impliedly intimated that it was useless for them to do so.[38] In these cases, the innocent party is clearly able to ‘sue without the necessity to be ready and willing to perform his or her part of the contract’.[39]
The present lack of clarity in this area ultimately demonstrates how our contemporary laws are still greatly influenced by powerful ancient legal concepts pertaining to independent conditions in contract and the requirement to plead specific matters as a condition precedent to judgment.[40] Professor J W Carter attempts to overcome this lack of clarity by limiting the circumstances where readiness and willingness are relevant factors in relation to anticipatory breach. He argues that ‘[a] party who is not ready and willing to perform cannot call for performance by the other party’ but this requirement of readiness and willingness should not apply where the innocent party wishes to terminate the contract.[41] This approach would bring the most certainty to this area of law, as the innocent party would only be required to demonstrate readiness and willingness if they require performance by the other party, such as specific performance, an injunction or if they are claiming loss of bargain damages in order to enforce the contract as a substitute for performance.[42]
B EXECUTED CONTRACT EXCEPTION
The ‘executed contract’ exception is another significant limitation on the anticipatory breach doctrine. The exception prevents repudiation of a duty from operating as a breach of contract if it occurs after the innocent party has performed all their contractual obligations.[43] In these circumstances, the innocent party must wait until the time for performance before they can sue for damages.[44] For example, anticipatory breach would not apply to ‘money contracts’ where one party has fully completed all their contractual undertakings and all that remains is for the other party to pay a certain amount of money at a specified time.[45] The rationale for this exception is not discussed in English cases.[46]However, American and Canadian courts have argued that the basis for anticipatory breach is that the defendant breaches an implied promise that they would not prevent the plaintiff from performing their contractual duties and therefore the doctrine cannot be applied where the plaintiff has already fulfilled their contractual obligations.[47]
It is uncertain whether Australian law adopts this exception because very few cases have considered the issue and judicial opinion has greatly differed. In Progressive Mailing House Pty Ltd v Tabali Pty Ltd, the Court indicated their support for the doctrine applying to executed contracts.[48] In that case, Brennan J pointed out that ‘anomalies would occur if there were an unqualified rule that damages for repudiation by anticipatory breach should be refused where the innocent party has fully performed his obligations, but granted where he has not’.[49] However, the Full Court of Tasmania in Pennicott v Pennicott and Dixon J in Mackenzie v Rees suggest that the doctrine is inapplicable to executed contracts.[50]
This exception to the doctrine of anticipatory breach has been criticised by academics who describe it as nothing more than ‘the result of a grudging acceptance of the doctrine itself’.[51] These criticisms are certainly valid at least to the extent that ‘There is no reason why a plaintiff who has performed its obligations should find itself in a worse position than a plaintiff who has not’.[52] American judges have also highlighted the seeming irrelevance of this exception, as Posner J noted in Central States, Southeast and Southwest Areas Pension Fund v Basic American Industries Inc, ‘Why the doctrine…should be so limited eludes our understanding’. [53] Justice Posner refuted the premise of the executed contract exception by arguing that ‘Announcement by the other party that he has no intention of paying should entitle the prospective victim of the payer’s breach to take immediate steps to protect his interest, as by suing’.[54]
There are significant public policy reasons for extending the application of the anticipatory breach doctrine to executed contracts. For example, it cannot be assumed that the party who has executed their part of the bargain will not suffer any hardship if required to wait for the time for performance before suing.[55] Professors Yihan Goh and Man Yip explain that the innocent party could be adversely affected by the repudiation if the other party’s refusal to perform the contract is known to third parties because this may affect the costs the innocent party would incur in obtaining alternative cash flow as well as contribute to loss of public confidence in their financial health.[56] As previously mentioned, the doctrine of anticipatory breach aims to prevent any useless expenditure by the innocent party. Therefore, it could be argued that the doctrine arises from considerations of ‘economic efficiency’ because it applies to executory contracts with the aim of eliminating the expenses that would result from requiring the innocent party to complete their part of the bargain.[57] These considerations of economic efficiency could be extended to executed contracts, as the doctrine would allow the innocent party to reduce the significant losses that could arise from the other party’s repudiation.[58] Goh and Yip emphasise that ‘Allowing the parties to settle their dispute early enables them to move on and plan their future economic activities – a course of action which might minimise related losses’.[59] Finally, the recent case of In re The STX Mumbai demonstrates that impending insolvency of the defendant party or its related companies is another factor in favour of extending the anticipatory breach doctrine to executed contracts.[60]
IV SINGAPORE
The decision of the Singapore Court of Appeal in In re The STX Mumbai provides an extensive discussion addressing the issues with the anticipatory breach doctrine with reference to case law in the England, America, Canada and Australia. The case involved an agreement where a Singaporean company would supply bunkers to a vessel called ‘STX Mumbai’.[61] The contract required payment within thirty days of delivery but three days prior to payment being due, the supplier issued a letter of demand to the agent of the vessel’s owner demanding immediate payment by close of business.[62] The letter of demand was issued due to the allegedly imminent insolvency of another company, ‘STX Pan Ocean Pty Ltd’, which was the ‘group owner’ of STX Mumbai.[63] This company had also contracted with the supplier to supply bunkers to four other vessels, including STX Alpha, STX Delicata, the Asita Sun and the Cape Race.
The supplier’s understanding was that all these vessels were ‘part of a conglomerate or related companies’ such that default in payment by any one of them would cause the supplier to fear that the owner of STX Mumbai would default in their obligations to pay in respect of the vessel.[64] Six days prior to the original date for payment by the STX Mumbai, the supplier did not receive the payment for bunkers supplied to STX Alpha.[65] The next day, the supplier learned from a newspaper report that one of STX Pan Ocean’s vessels, the ‘New Ambition’, had been arrested in Seattle for unpaid bunkers and that the company had filed for bankruptcy in South Korea.[66] This prompted the issue of the letter of demand to STX Mumbai for a global sum of US$2,845,987.78, which was an aggregation of the contract prices for the bunkers supplied to all five vessels in the STX Pan Ocean group.[67] Payment was not made by close of business and the following day, the supplier arrested the STX Mumbai and commenced proceedings alleging that the owner was in anticipatory breach of its payment obligation due to the imminent insolvency of STX Pan Ocean Pty Ltd.[68] The basis of the supplier’s claim was two-fold: first unwillingness to perform, due to the owner’s failure to comply with the letter of demand; and, second, impossibility of performance, due to STX Pan Ocean’s poor financial state.[69]
The issue before the Singaporean Court of Appeal was whether the doctrine of anticipatory breach applies where the innocent party has already performed all of their obligations under the contract. [70] There was no question that the contract was executed by the supplier because they had fully performed their obligation to provide the bunkers and all that remained was for the owner of the STX Mumbai to make payment at the agreed future date. The Court ultimately had to determine whether the supplier should have waited until this agreed date before commencing proceedings, or whether they were justified in bringing the suit three days early. [71] If they would have waited three days, they could have established a clear breach of contract by the owner if payment was not received by the date stipulated in the original agreement.
The urgency in commencing proceedings stemmed from the desire of the supplier to keep the STX Mumbai within Singaporean jurisdiction. The supply of bunkers gave rise to a lien over the vessel, which would have entitled the supplier to arrest the vessel and seek an order for sale to satisfy their debts.[72] However, once the vessel had sailed, the Singapore Court would have no jurisdiction. Therefore, the suppliers sought to rely on the doctrine of anticipatory breach to commence an action in rem before the actual date of payment so that they could arrest the vessel in Singapore.[73] As Professor Anselmo Reyes points out, this shows how ‘anticipatory breach can be deployed as a strategic weapon in shipping litigation’.[74]
The Court adopted a liberal approach and held that the doctrine applied to executed contracts. The Court noted the artificiality of the implied promise thesis developed in American courts and instead created a ‘modern approach’ that an actual breach occurs whenever one party displays a clear intention not to perform their contractual obligations. [75] The assumption is that where one party renounces their contractual obligations, the innocent party’s performance, whether executed or not, would be an ‘exercise in futility’.[76] The Court also noted that insolvency cannot, in and of itself, amount to an anticipatory breach, as this will depend on the facts of each case and the innocent party will need to prove that the company will actually be unable to perform the specific contract.[77] Nevertheless, the Court held it was possible that STX Pan Ocean’s insolvency could be found at trial to amount to anticipatory breach of the contract to pay for the bunkers.[78]
Reyes criticises this ‘modern approach’ for being ‘self-contradictory’ because there ‘is nothing “prospective” about a contract-breaker being accused of breaching a present existing obligation’.[79] He maintains that the ‘Singapore Court squared the circle only by pinning anticipatory breach on the actual breach of an obligation that had not yet become due’ and the ‘modern approach’ still fails to explain why the mere inference of a likely serious breach in the future should entitle a party to treat the contract as repudiated.[80] However, Dr Anton Trichardt points out that this approach is certainly ‘practical’, ‘legally justifiable’ and ‘more commercially sensible because there is no reason why an innocent party in an executed contract ought not to be placed in an unnecessarily worse position than an innocent party in an executed contract’.[81] It has also been favoured by legal scholars like Professors J W Carter and Qiao Liu for providing increased fairness and commercial certainty.[82]
V UNITED STATES
The implied promise theory of US law inevitably prevents the doctrine of anticipatory breach from applying to executed contracts. This is because the implied promise to prevent the other party from performing their contractual obligations is not breached where that party has already fully performed their obligations.[83] As previously mentioned, this theory has been criticised as artificial because it invents a promise where there appears to be none.[84] Moreover, the Restatement on Contracts provides that where at the time of the breach the only remaining duties of performance are those of the party in breach and are for payment of money in instalments then this breach does not give rise to a claim for damages for total breach.[85] This means that the innocent party cannot make a claim for anticipatory breach if the other party renounces their contractual obligations of payment after they have received all of the agreed exchange under the contract.[86]
The rationale for this exception is that the innocent party has no future obligations and therefore suffers no hardship by having to wait for the arrival of the other party’s time for performance before they can sue for breach.[87]However, the exception is unpopular in American courts and has been only infrequently applied, with the courts preferring to avoid the exception by ‘making available other types of relief, such as declaratory judgment or restitution… and permitting a claim for total breach where the repudiation is accompanied by a breach that would otherwise support only a claim of partial breach’.[88] Moreover, a number of US jurisdictions do not apply the exception.[89] For example, the Texas courts apply the doctrine to all contracts and maintain that ‘the doctrine of anticipatory breach is to be applied without distinction to contracts still to be performed by both parties and to those fully executed by one party’.[90] It appears that the law in the United Kingdom also does not adopt the exception under US law and instead applies the doctrine of anticipatory breach to executed contracts.[91]Therefore, the exception under US law does not appear to be widely supported, especially compared to the ‘modern approach’.
VI ENGLAND
In the past twelve years, the English courts have created some novel developments to the law relating to the calculation of damages in anticipatory breach cases. The 2007 decision of the House of Lords in Golden Straight Corp v Nippon Yusen Kubishika Kaisha (‘The Golden Victory’) and the 2015 decision of the UK Supreme Court in Bunge SA v Nidera BV (‘Bunge’) both held that events occurring after repudiation may be taken into account when assessing damages in anticipatory breach situations.[92]
The Golden Victory involved a seven year charterparty entered into on 10 July 1998.[93] Clause 33 of the contract was a war clause entitling either party to cancel the charter if war broke out between specified countries. On 14 December 2001, the charterer repudiated their obligations by redelivering the vessel to the owner approximately four years earlier than the earliest date for redelivery. The owner accepted the repudiation three days after redelivery and claimed damages from the charterer for loss of hire over the remaining four years of the charterparty. On 20 March 2003, during the arbitration proceedings, the Iraq War broke out. The countries referred to in the war clause of the charterparty included the UK, US and Iraq. Therefore, the charterer would have been able to evoke the war clause if the charterparty had still been in effect. The House of Lords was required to determine whether damages should be assessed on the basis of circumstances at the time of breach or the date of the award, as the war would only be relevant in the latter case.[94] The House of Lords held that damages are to be assessed at the date of the award and therefore rejected the shipowners’ argument that damages could not be reduced by reference to events occurring after the breach.[95] The rationale for this conclusion was that the courts should not disregard facts known at the time of calculating damages.
Bunge involved a contract for the supply of Russian milling wheat with an agreed shipment period in August 2010.[96] A clause of the contract stipulated that the contract would effectively be frustrated if the Russian government imposed an embargo on milling wheat. On 5 August 2010, the Russian government did announce an embargo on milling wheat, which was to run from 15 to 31 August. On 9 August, the sellers declared that the contract was frustrated. The buyers argued that the sellers repudiated their contractual obligations by prematurely declaring the contract as frustrated. There was no doubt that the sellers had breached the contract but the question for the UK Supreme Court was whether The Golden Victory applied to the present case such that the buyers would be entitled to only recover nominal damages for the seller’s default.[97] The Court reaffirmed The Golden Victory and held that innocent parties should be compensated for loss suffered as a result of breach and any relevant events occurring after the repudiation may be considered in determining this loss.[98]
The English courts have also suggested that an innocent party may be required to take all reasonable steps to mitigate the loss arising from the anticipatory breach.[99] The case law has long established that mitigation principles apply from the date of termination, rather than the date of repudiation.[100] This means that innocent parties are only under a duty to mitigate their loss in cases where they accept the repudiation and terminate the contract.[101] In White & Carter (Councils) Ltd v McGregor (‘White’), Lord Reid held that the requirement to mitigate loss only operates once the breach of contract has occurred, namely once the contract is terminated.[102] This case involved an agreement between the plaintiff and the defendant’s representative to advertise the defendant’s services on bins in the local area.[103] The defendant wrote to the plaintiffs on the same day of the agreement seeking to repudiate the contract because his representative misunderstood his wishes.[104] The plaintiffs ignored the repudiation, proceeded to advertise the defendant’s services and later sought payment.[105] The majority of the Court held that the innocent party was entitled to reject the repudiation, proceed to perform and then sue for the agreed contract price.[106]
Lord Reid noted that the innocent party is under no duty to mitigate their loss if they do not accept the repudiation and they are even entitled to continue to perform their contractual rights ‘in an unreasonable way’, such as where it incurs needless and unwanted expense.[107] However, he did suggest that the innocent party’s freedom of choice to continue to perform may be limited where this party has ‘no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages’ because this would ‘saddle the other party with an additional burden with no benefit to himself’.[108]
This line of reasoning was recently rejected by the High Court of Ireland in the case of Browne v Irish Rail (No 2)where it was noted that ‘Even if the reasoning may be correct as a matter of strict logic, it nonetheless leads to results which are distinctly unpalatable and, in truth, unacceptable’. [109] The Court referred to Lord Keith’s dissenting judgment in White where he provided the example of ‘a man who has contracted to go to Hong Kong at his own expense and make a report in return for remuneration of £10,000’ and has not incurred any expense prior to the start of the journey but is informed by the other party that the contract is cancelled or repudiated.[110] Lord Keith proposed that it would not be in accordance with authority to allow the innocent party to ‘set off for Hong Kong and produce his report in order to claim in debt the stipulated sum’ because this would undermine the ‘rule that where one party is in breach of contract the other must take steps to minimise the loss sustained by the breach’.[111]
The expenses incurred by the plaintiffs in White were undoubtedly self-imposed and not caused by the breach of contract, and this led the Irish High Court to conclude that the White decision ‘might well bring about the over compensation of (the admittedly innocent) plaintiff, even if this result was prompted by an understandable desire to see that the party in breach did not profit from its own wrong’.[112] As Samuel Stoljar explains, the position adopted by the majority in White is ‘utterly untenable’ because it inevitably prevents a party in the position of the defendant from even repudiating the contract because he will remain liable for the contract price.[113]
VII UNITED NATIONS
Unlike the English position, the United Nations International Convention on Contracts for the Sale of Goods (‘Convention’) requires innocent parties to mitigate damages in all cases resulting from the breach of a contract governed by the Convention.[114] The United States and Australia are bound by the Convention but the United Kingdom is not bound, as they have not yet ratified the Convention. Article 77 of the Convention stipulates that ‘A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach’ and if the innocent party fails to mitigate their loss, ‘the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated’. Reasonableness is not defined under the Convention and is a question of fact to be determined in each case.[115]
However, the innocent party is not obliged to ‘undertake measures which might well mitigate the loss but would require excessive and unreasonable efforts and costs’ and different factors will be considered in determining reasonableness, including ‘perishability of the goods, fluctuation in market price, availability of a specific market, third party obligations etc.’.[116] For example, the purchase of substitute goods by the buyer or the resale of goods by the seller are often considered to be measures that is reasonable in the circumstances.[117] Any additional costs suffered by the innocent party in mitigating the loss is to be ‘considered as a loss suffered as a consequence of the breach of contract’ and can be claimed on the basis of art 74 of the Convention.[118] The costs incurred must be the result of ‘reasonable’ measures undertaken to mitigate loss but this includes even the costs of measures that failed to successfully mitigate the loss. Therefore, costs are ‘refundable even if they have been undertaken in vain, as long as they can be considered reasonable in the circumstances’.[119]
Articles 71 and 72 of the Convention specifically address anticipatory breach. Article 71(1) provides that ‘A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations’ due to the other party’s poor creditworthiness or their conduct in preparing to perform or performing the contract. The anticipated breach does not need to be a certainty, rather ‘the apparent inability to perform must only induce subjective fears with regard to the performance of the contract but it must also enable objective observers to foresee non-performance’.[120] This article effectively allows an innocent party to suspend performance in cases of anticipatory breach where the other party’s breach is substantial but not sufficiently fundamental to justify avoidance of the contract.[121] Moreover, if the seller has already dispatched the goods, art 71(2) allows them to prevent the goods being handed over to the buyer even where the buyer holds relevant documents.
Article 71(3) requires the innocent party to give immediate notice to the other party of the suspension and, interestingly, the innocent party must perform if ‘the other party provides adequate assurance of his performance’. This sub-section encourages communication between the parties to keep the contract on foot.[122] However, the assurance must not merely state that the party will perform, as proof is required to demonstrate that the apparent issue has been resolved.[123] If the other party does not provide any assurance, the innocent party may either continue with the suspension of its obligations or rely on art 72 to avoid the contract.[124]
Article 72(1) of the Convention allows a party to declare the contract avoided if ‘prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract’. Article 72(2) stipulates that ‘if time permits’ the innocent party should give reasonable notice to the other party in order to allow for the provision of assurances of performance. Article 72(3) clarifies that notice is not required where the other party has already declared that they will not perform their obligations. Unlike art 71 which simply requires the non-performance to ‘become apparent’, art 72 requires a ‘very high probability’ of occurrence, as it must be ‘clear’ that a ‘fundamental breach’, namely a breach allowing the contract to be terminated and damages to be sought, will occur.[125] Therefore, the non-performance ultimately must be ‘of such a nature as to constitute a fundamental breach giving rise to a repudiation of the contract’.[126] This would occur where, for example, the suspending party provides the other party with additional time to perform their contractual obligations but the other party does not perform within this given timeframe.[127] If the breach is not a ‘fundamental breach’ or there is an otherwise wrongful declaration of avoidance, the party declaring the contract avoided is obliged to accept performance by the other party and may even be considered to have repudiated the contract pursuant to art 72(1).[128]
Australian contract drafters have the option of relying on the common law or the Convention when drafting contracts for the international sale of goods. However, Professor Bruno Zeller points out that the Convention is often excluded mainly because the drafters are unfamiliar with the terms of the Convention.[129] This is unfortunate because the two-step approach adopted by the Convention is a logical means of overcoming the issues with the doctrine of anticipatory breach. Suspension of performance is the first step for an aggrieved party who suspects non-performance of the other party will lead to a breach of contract and damages is the appropriate remedy. Avoidance of the contract is the second step and requires a ‘fundamental breach’ where termination and damages are often the appropriate remedies. This framework encourages communication between the parties to keep the contract alive and consequently increases commercial certainty between the parties. It also avoids the unfairness that results from the executed contracts exception because this framework applies to both executed and executory contracts alike.[130] As Zeller notes, the Convention essentially ‘has already in 1980 introduced what is now called the modern rationale’ and ‘the policy decision in STX Mumbai is very close to the solution contained within the [Convention]’.[131]
VIII CONCLUSION
As Lord Mustill observed in relation to anticipatory breach, ‘the common law has never succeeded in finding a solution which is both theoretically sound and capable of producing sensible results in practice’.[132] This has certainly been the case with the courts’ response to anticipatory breach not only in Australia but also in the United Kingdom, United States and Singapore. The common law origins of the doctrine have inevitably created a sometimes convoluted and often contradictory set of legal principles in relation to the executed contracts exception, mitigation of loss and the ‘ready, willing and able’ principle. International instruments have attempted to provide clarity to this complex area of law but their effectiveness is limited by the refusal of countries such as the United Kingdom to ratify the Convention and the reluctance of contract drafters to rely on international law. The doctrine of anticipatory breach ultimately requires extensive revision and clarification by the courts in order to provide increased certainty to this presently highly uncertain area of law.
[1] Federal Commerce and Navigation Co Ltd v Molena Alpha lnc [1979] AC 757, 778 (per Lord Wilberforce); J W Carter, ‘The Embiricos Principle and the Law of Anticipatory Breach’ (1984) 47(4) The Modern Law Review 422, 423. [2] Stephen Waddams, ‘Anticipatory Breach’ (2011) 6 Journal of Business Law 641, 641 quoted in Cameron Meiring and Kenneth Yin, ‘Anticipatory breach and estoppel – Does estoppel provide a unified doctrine for relief in all cases of anticipatory breach?’ (2017) 44 Australian Bar Review 267, 296. [3] P Devlin, 'The Relation between Commercial Law and Commercial Practice' (1951) 14 Modern Law Review 249, 251 quoted in Anton Trichardt, ‘Breach by Anticipatory Repudiation’ (2015) Commercial Law Quarterly 3, 11. [4] Samuel Stoljar, ‘Some Problems of Anticipatory Breach’ (1974) 9 Melbourne University Law Review 355, 355; Hochster v De la Tour (1853) 118 ER 922; Frost v Knight (1872) LR 7 Ex 111. [5] Hochster v De la Tour (1853) 118 ER 922, 927. [6] Ibid. [7] Ibid. [8] Ibid. [9] Cort v The Ambergate, etc, Railway Coy (1851) 17 QB 127, 143-5 cited in Stoljar, above n 4, 357. [10] Hochster v De la Tour (1853) 118 ER 922, 927. [11] Ibid; Meiring and Yin, above n 2, 267. [12] Ibid. [13] Freeth v Burr (1874) LR 9 CP 208, 213 cited in Carter, above n 1, 423. [14] Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 cited in Ibid. [15] Trichardt, above n 3, 3. [16] Meiring and Yin, above n 2, 268. [17] Lee Aitken, ‘Continuing contractual conundrums: ‘Repudiating’ a contract, penalties, ‘good faith’ and the scope of the ‘legitimate interest’ principle in White & Carter (Councils)’ (2015) 40 Australian Bar Review 112, 112. [18] Trichardt, above n 3, 3. [19] See Universal Cargo Carriers Corp v Citati [1957] 2 QB 401, 436, 450; Ibid 4. [20] Ibid; see also J W Carter, Carter’s Breach of Contract (LexisNexis Butterworths, 2011) 298. [21] Ibid. [22] Lee Aitken, ‘Fundamental, and ‘anticipatory’ breach and the impact of ‘rescission’’ (2012) 36 Australian Bar Review 18, 20. [23] Ibid. [24] DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 433. [25] Foran v Wight (1989) 168 CLR 385, 402-3 (per Mason CJ), 451-2 (per Dawson J); Maree Chetwin, ‘The Unaccepted Repudiation and Legal Rights’ (2012) 29 Journal of Contract Law 231, 239. [26] Green v Sommerville (1979) 141 CLR 594 (per Mason J); Chetwin, above n 25, 241. [27] Carter, above n 20, 344. [28] Foran v Wight (1989) 168 CLR 385, 438 (per Deane J); Chetwin, above n 25, 243-4; Aitken, above n 22, 24. [29] Sharjade Pty Ltd v Commonwealth of Australia [2009] NSWCA 373 (26 November 2009); Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2011] HCA Trans 155 (10 June 2011) cited in Aitken, above n 22, 24; Rooney v ABB Grain Ltd [2010] FCA 1392 (14 December 2010) cited in Chetwin, above n 25, 243. [30] Sharjade Pty Ltd v Commonwealth of Australia [2009] NSWCA 373(26 November 2009) [141]-[145] (per Young JA); Aitken, above n 17, 114. [31] Aitken, above n 22, 25. [32] Meiring and Yin, above n 2, 268 [33] Ibid. [34] Ibid 275. [35] Foran v Wight (1989) 168 CLR 385, 386; Peter Turnbull and Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235, 246; Ibid 275-6. [36] Peter Turnbull and Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235. [37] Ibid. [38] Ibid 246-7. [39] Chetwin, above n 25, 233. [40] Aitken, above n 22, 25. [41] Carter, above n 20, 331-2. [42] Ibid; Chetwin, above n 25, 241-2. [43] Trichardt, above n 3, 5. [44] Ibid. [45] Ibid. [46] Yihan Goh and Man Yip, ‘Rationalising Anticipatory Breach in Executed Contracts’ (2016) 75(1) Cambridge Law Journal 18, 18-19. [47] Ibid. [48] (1985) 157 CLR 17; Trichardt, above n 3, 9. [49] Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, 44. [50] (1939) 30 TasLR 111, 115; (1941) 65 CLR 1, 15. [51] A Farnsworth, Contracts (Aspen Publishers, 2004) 584 quoted in Trichardt, above n 3, 5. [52] Goh and Yip, above n 46, 19. [53] 252 F3d 911 (7th Cir, 2001) 915-16 quoted in Trichardt, above n 3, 5. [54] Ibid. [55] Goh and Yip, above n 46, 20. [56] Ibid. [57] Ibid. [58] Ibid. [59] Ibid. [60] [2015] SGCA 35 (24 July 2015). [61] Ibid [9]. [62] Ibid. [63] Ibid [16]. [64] Ibid [12]. [65] Ibid [14]. [66] Ibid. [67] Ibid. [68] Ibid [16]. [69] Ibid. [70] Ibid [39]-[40]. [71] Ibid. [72] Ibid [18]. [73] Ibid [16]-[18]. [74] Anselmo Reyes, ‘Anticipatory Breach in Charterparties’ (2018) 43 Tulane Maritime Law Journal 1, 2. [75] In re The STX Mumbai [2015] SGCA 35 (24 July 2015) [45], [51]-[53]; Ibid. [76] Ibid. [77] In re The STX Mumbai [2015] SGCA 35 (24 July 2015) [79], [85]. [78] Ibid [86]-[88]; Trichardt, above n 3, 11. [79] Reyes, above n 74, 3. [80] Ibid. [81] Trichardt, above n 3, 6-7. [82] Ibid; In re The STX Mumbai [2015] SGCA 35 (24 July 2015) [59]-[62]; Carter, above n 20, [7-80]-[7-81]; Qiao Liu, Anticipatory Breach (Hart Publishing, 2011) 164-167. [83] Goh and Yip, above n 46, 18-19. [84] In re The STX Mumbai [2015] SGCA 35 (24 July 2015) [45], [51]-[53]; Reyes, above n 74, 3. [85] American Law Institute, Restatement (Second) of Contracts (1979) §§ 243(3), 250-51. [86] Trichardt, above n 3, 8. [87] Ibid 9. [88] G Klass, Contract Law in the United States (Wolters Kluwer, 2012) 208 quoted in Ibid. [89] Trichardt, above n 3, 9; The STX Mumbai [2015] SGCA 35 (24 July 2015) [56]. [90] Pitts v Wetzel 498 SW 2d 27 (1973) 28 quoted in Trichardt, above n 3, 9. [91] Synge v Synge [1973] AC 331; The STX Mumbai [2015] SGCA 35 (24 July 2015) [54]; Carter, above n 20, [7-81]; Trichardt, above n 3, 8. [92] Golden Straight Corp v Nippon Yusen Kubishika Kaisha [2007] 2 AC 353, 376-77; Bunge SA v. Nidera BV [2015] UKSC 43 [23]. [93] Golden Straight Corp v Nippon Yusen Kubishika Kaisha [2007] 2 AC 353, 368. [94] Ibid 369. [95] Ibid 378-80; J W Carter and Elisabeth Peden, ‘Damages Following Termination for Repudiation: Taking Account of Later Events’ (2008) 24 Journal of Contract Law 145, 152-3. [96] Bunge SA v. Nidera BV [2015] UKSC 43 [37]. [97] Ibid [57]. [98] Ibid [21]-[23]. [99] W E D Davies, ‘Anticipatory Breach and Mitigation of Damages’ (1962) 5(5) University of Western Australia Law Review 576, 576. [100] See Leigh v Patterson (1818) 8 Taunt 540; 129 ER 493; Tredegar Iron and Coal Co Ltd v Hawthorn Bros & Co (1902) 18 TLR 716; Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130n at 1140 cited in Carter and Peden, above n 95, 150. [101] Davies, above n 99. [102] [1962] AC 413, 430; Davies, above n 99, 590. [103] White & Carter (Councils) Ltd v McGregor [1962] AC 413, 413. [104] Ibid. [105] Ibid. [106] Ibid 430; Aitken, above n 17, 116-117. [107] Ibid. [108] Ibid. [109] [2014] IEHC 117 [7] (per Hogan J). [110] Ibid [8]; White & Carter (Councils) Ltd v McGregor [1962] AC 413, 442 (per Lord Keith). [111] Ibid. [112] Browne v Irish Rail (No 2) [2014] IEHC 117 [9]-[10] (per Hogan J). [113] Stoljar, above n 4, 369. [114] United Nations Convention on Contracts for the International Sale of Goods, opened for signature 11 April 1980, 1489 UNTS 58 (entered into force I January 1988). [115] Peter Riznik, ‘Some Aspects of Loss Mitigation in International Sale of Goods’ (2010) 14 Vindobona Journal of International Commercial Law and Arbitration 267, 271. [116] Ibid 272. [117] Ibid 273-274. [118] Ibid 279. [119] Ibid. [120] Bruno Zeller, ‘The doctrine of anticipatory repudiation: the international context’ (2016) Commercial Law Quarterly 3, 4. [121] Ibid. [122] Ibid. [123] Ibid. [124] Ibid. [125] Ibid 5. [126] Ibid. [127] Ibid 7. [128] Mercédeh Azeredo da Silveira, ‘Anticipatory Breach under the United Nations Convention on Contracts for the International Sale of Goods’ (2005) 2 Nordic Journal of Commercial Law <https://cisgw3.law.pace.edu/cisg/biblio/azeredo.html#*>. [129] Zeller, above n 120, 3. [130] Ibid 7. [131] Ibid. [132] Lord Mustill, ‘The Golden Victory – Some Reflections’ (2008) 124 LQR 569, 571 quoted in Ibid 3.
REFERENCE LIST
A Articles/Books/Reports
Aitken, Lee, ‘Continuing contractual conundrums: ‘Repudiating’ a contract, penalties, ‘good faith’ and the scope of the ‘legitimate interest’ principle in White & Carter (Councils)’ (2015) 40 Australian Bar Review 112
Aitken, Lee, ‘Fundamental, and ‘anticipatory’ breach and the impact of ‘rescission’’ (2012) 36 Australian Bar Review 18
Azeredo da Silveira, Mercédeh, ‘Anticipatory Breach under the United Nations Convention on Contracts for the International Sale of Goods’ (2005) 2 Nordic Journal of Commercial Law<https://cisgw3.law.pace.edu/cisg/biblio/azeredo.html#*>
Carter, J W, Carter’s Breach of Contract (LexisNexis Butterworths, 2011)
Carter, J W and Elisabeth Peden, ‘Damages Following Termination for Repudiation: Taking Account of Later Events’ (2008) 24 Journal of Contract Law 145
Carter, J W, ‘The Embiricos Principle and the Law of Anticipatory Breach’ (1984) 47(4) The Modern Law Review 422
Chetwin, Maree, ‘The Unaccepted Repudiation and Legal Rights’ (2012) 29 Journal of Contract Law 231
Davies, W E D, ‘Anticipatory Breach and Mitigation of Damages’ (1962) 5(5) University of Western Australia Law Review 576
Goh, Yihan and Man Yip, ‘Rationalising Anticipatory Breach in Executed Contracts’ (2016) 75(1) Cambridge Law Journal 18
Liu, Qiao, Anticipatory Breach (Hart Publishing, 2011)
Meiring, Cameron and Kenneth Yin, ‘Anticipatory breach and estoppel – Does estoppel provide a unified doctrine for relief in all cases of anticipatory breach?’ (2017) 44 Australian Bar Review 267
Reyes, Anselmo, ‘Anticipatory Breach in Charterparties’ (2018) 43 Tulane Maritime Law Journal 1
Riznik, Peter, ‘Some Aspects of Loss Mitigation in International Sale of Goods’ (2010) 14 Vindobona Journal of International Commercial Law and Arbitration 267
Stoljar, Samuel, ‘Some Problems of Anticipatory Breach’ (1974) 9 Melbourne University Law Review 355
Trichardt, Anton, ‘Breach by Anticipatory Repudiation’ (2015) Commercial Law Quarterly 3
Zeller, Bruno, ‘The doctrine of anticipatory repudiation: the international context’ (2016) Commercial Law Quarterly 3
B Legislation
American Law Institute, Restatement (Second) of Contracts (1979)
C Other
United Nations Convention on Contracts for the International Sale of Goods, opened for signature 11 April 1980, 1489 UNTS 58 (entered into force I January 1988)
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