Losing the right to affirm – a new view on repudiatory breaches
Under English contract law, where there has been a repudiatory breach of contract, the innocent party has the right to either affirm or terminate the contract; as well as claim damages. Breaching a condition of the contract, or breaching a term that deprives the innocent party of substantially the entire benefit of the contract, is normally repudiatory. However, a recent decision from the Court of Appeal means it may no longer be as straight forward anymore.
MSC Mediterranean Shipping Co SA v Cottonex Anstalt  EWCA Civ 789
Cottonex engaged the services of MSC, a cargo carrier, to ship 35 containers of raw cotton to Bangladesh. Upon arrival in Bangladesh, the price of cotton had plummeted triggering a dispute between Cottonex and the consignee. Neither party accepted delivery of the 35 containers of cotton; therefore the containers remained at the port under the control of the customs authorities.
The agreement between Cottonex and MSC stated that Cottonex had 14 days of free use of the containers before a daily fee for failing to unload the containers (a “demurrage”), would become payable. Cottonex notified MSC that title had passed to the consignee and that any demurrage should be borne by the consignee.
After almost eight months, MSC sought to break the deadlock and offered to sell the containers to Cottonex, but attempts to negotiate were unsuccessful. MSC therefore sought to recover the liquidated damages owed for the continuing delay in returning the 35 shipping containers.
The High Court held that when Cottonex informed MSC that it no longer had legal title to the goods and therefore would be unable to redeliver the containers, MSC knew there was "no longer a realistic prospect of the containers being able to be redelivered, the delay had become so prolonged as to frustrate the commercial purpose of the adventure and the shipper was therefore in repudiatory breach."
As a result, MSC no longer had a legitimate interest in keeping the contract alive in the hope of future performance. To do so would be "wholly unreasonable… and in effect generate an unending stream of free income."
The Court of Appeal arrived at the same outcome but via different reasoning. It held that MSC offering to sell the containers to Cottonex was the clearest indication that the remaining commercial purpose of the adventure had been frustrated. Therefore, it was at this point that the contract was no longer capable of being performed. Accordingly, the choice between termination or affirmation of the contract was no longer available.
Whilst this decision relates to shipping contracts, the issues discussed could be relevant to all types of contract. This case limited the rights of the aggrieved party to prevent abuse of position by having an unlimited right to make an ongoing claim. The court also considered penalty clauses and stressed that a clause for the payment of demurrage at a daily rate, should not be regarded as a penalty clause simply because no time limit on liability had been agreed. MSC did not have an unfettered right to affirm the contract and recover demurrage indefinitely. A final takeaway point raised was the Court’s keenness to steer clear of a 'good faith' test as it believed it would be invoked as often to undermine as to support the terms in which the parties have reached agreement. Instead of arguing that it is unreasonable, the Court sought to develop the law along established lines, in this instance, frustration. It was noted that in the future there may be a need for a 'good faith' test in contract law, but this did not need to be established to provide an outcome in this instance.
This article was written by Freddie Spearman. For more information please contact Freddie on +44 (0)20 7427 6718 or email@example.com
2020: Influencer, 2021: Creative Director – what could go wrong?
Coded messages for landlords and tenants
“What does the code of practice mean for landlords and tenants? Read more here”
Jason Saiban writes for Food Manufacture on the food industry's climate change challenge
The key challenge will be how the environmental targets are actually met.
Grab the tail by the horns - Why is tail spend so critical in today’s outsourced portfolio?
It’s usually invisible, but in all likelihood, you’ve got tail spend.
Mark Hill writes for In-House Community Magazine on solutions templating, a new priority for in-house legal teams
Removing the burden from legal teams, contract managers and administrators.
Olivia Crane quoted by SoGlos on the increasing issue of cyber fraud being faced by businesses in Gloucestershire
Cyber fraud has cost Gloucestershire businesses around £369,800 in the last 13 months.
Tattoos, athletes and image rights
Campaigns featuring athletes often include visible tattoos and a number of recent legal cases demonstrate the issues that may arise.
Food Sector steps up on climate goals
Blue Sky Linking
Daniel looks at Sky's recent success in obtaining interim protection from infringement of their broadcast rights
Don’t Gamble on Bingo Ads, Warns ASA
The ASA has issued a reminder to advertisers that bingo adverts will be treated as gambling ads for the purpose of standards regulation.
Recording Phone Calls: Don’t take Consent for Granted
What if an interviewee who is being called and interviewed “live” does not actually know he/she is on live television?
Continuing Progress in the Sphere of Inclusive and Non-Discriminatory Advertising
The latest developments from the ASA, CAP and BCAP relating to the advertising regulators’ attempts to tackle discrimination in advertising.
eCommerce and the Post-Brexit State of Play
Key UK and EU legislation governing how online platforms deal with consumers and their business users.
UK and EU launch two-pronged attack into whether Facebook is abusing a dominant market position
The CMA and the European Commission have said that they intend to work together closely as their respective investigations develop.
Jason Saiban and Caroline Swain among contributors to the ICLG Guide on Digital Business Laws and Regulations in the UK
An overview of the laws and regulations for digital businesses operating in the UK.
Draft Online Safety Bill: Regulating the online world
On 12 May 2021, the UK government published the draft Online Safety Bill...
Counterfeit goods – online platforms and luxury brands take a new collaborative approach
Online retail has been increasing for the best part of a decade due to a shift in consumer behaviour.
Charles Russell Speechlys proud to sponsor the ‘Outstanding Achievement’ award at the final Sunday Times Virgin Fast Track 100 awards
The awards celebrated the successes of Britain’s 100 private companies with the fastest-growing sales.
New foreign ownership rules take effect on 1 June 2021
Trade Marks - what is bad faith?
In any legal dispute, the term ‘bad faith’ is often banded about.