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CONTRACT LAW

BREACH

When discussing breach of contract, it is helpful to bear in mind two distinctions: first, the difference between primary and secondary rights and obligations. Second, the difference between an actual and an anticipatory breach of contract. adopt the terminology used.

Primary and Secondary Rights and Duties

In a series of judgments Lord Diplock drew a distinction between primary and secondary rights and obligations. Primary obligations require each party to the contract ‘to procure that whatever he has promised will be done is done’.1 Thus ‘[e]ach promise that a promisor makes to a promisee by entering into a contract with him creates an obligation to perform it owed by the promisor as obligor to the promisee as obligee’.2 A general principle of English law is that the parties are ‘free to determine for themselves what primary obligations they will accept’.3 These obligations may be stated in express terms, but in practice, many are left to be incorporated by implication of law from the legal nature of the contract into which the parties are entering.4 Subject to some statutory exceptions, the parties are free to reject or modify primary obligations which would otherwise be so incorporated.5 An important characteristic of primary obligations6 is that they are ‘discharged by performance of the contract’.7 Failure to perform any primary obligation is invariably a breach of contract and, save for those ‘comparatively rare’8 cases where the court is able to enforce a primary obligation by specific performance, such a failure gives rise to substituted or secondary obligations on the party in default.9 Secondary obligations ‘arise by implication of law, generally common law, but sometimes statute’.10 The ‘most important’11 secondary obligation is that to pay monetary compensation or damages to the injured party. Lord Diplock labels this the ‘general secondary obligation’12. Subject to two exceptions, where there is a failure to perform any primary obligation the remaining primary obligations of both parties, in so far as they are not fully performed, remain unchanged.13

1 [1980] AC 827, 848.
2 [1973] AC 331, 347.
3 [1980] AC 827, 848.
4 Ibid.
5 Ibid.
6 Ie one which distinguishes then from secondary duties.
7 C Czarnikow Ltd v Koufos, the Heron II [1966] 2 QB 695, 730.
8 Ibid, 294.
9 Ibid. Cf George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd per Oliver LJ: ‘There is a presumption that any breach of the primary obligations of the contract will result in continuing secondary obligation [sic] on the party in breach to pay compensation for the breach’ [1983] QB 284, 304.
10 [1980] AC 827, 848-849.
11 C. Czarnikow Ltd v Koufos, the Heron II [1966] 2 QB 695, 730.
12 [1980] AC 827, 849.
13 Ibid.

These two exceptions are, first, where the “event resulting from the failure by one party to perform a primary obligation has the effect of depriving the other party of substantially the whole benefit which it was the intention of the parties that he should obtain from the contract” – what Lord Diplock terms a “fundamental breach”.1 The second is a breach of condition. In each case the breach entitles the party not in default to put an end to all primary obligations of both parties remaining unperformed.2 Where such an election is made there is generally substituted by implication of law3 for all the unperformed primary obligations of the party in default a secondary obligation to pay damages to the innocent party to compensate him for their non-performance in the future; Lord Diplock labels this the “anticipatory secondary obligation”.4

1 [1980] AC 827, 849.
2 Ibid.
3 Ibid.
4 Ibid.

However not all unperformed primary obligations are discharged upon such an election. The primary obligations of the party in breach are not always wholly substituted by secondary duties. For, ‘there may be exceptional primary obligations which continue to exist notwithstanding that the contract has been rescinded’.1 These duties which therefore can be said to survive rescission are ‘obligations that are ancillary to the main purpose of the contract’.2 They may be identified as being
‘expressed in terms which make it clear that it was the common intention of the parties that their primary obligation to continue to perform these promises should continue notwithstanding that their other primary obligations had come to an end’.3

1 Lep Air Services Ltd v Rolloswin Investments Ltd [1973] AC 331, 350.
2 Ibid.
3 Ibid.

Lord Diplock gives as an example of an ancillary duty a mutual undertaking to submit disputes arising under the contract to arbitration.1

1 Ibid. Lord Diplock’s analysis was not original. Its basis is clearly visible in this extract from Anson’s Law of Contract, 9th edn, (1899) 294:

‘If one of two parties to a contract breaks the obligation which the contract imposes, a new obligation will in every case arise, a right of action conferred upon the party injured by the breach. Besides this there are circumstances under which the breach will discharge the injured party from such performance as may still be due from him … By discharge we must understand, not merely the right to bring an action upon the contract because the other party has not fulfilled its terms, but the right to consider oneself exonerated from any further performance under the contract – the right to treat the legal relations arising from the contract as having come to an end, and given place to a new obligation, a right of action.’

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