The Minimum Performance Rule

When focusing on the promise which D has broken, we also need to bear in mind the minimum performance rule.

Re Thornett & Fehr v Yuills Ltd [1921] 1 KB 219 (DC)

D had agreed to sell to C 200 tons ‘5% more or less’ of beef tallow. In the event, D was only able to deliver 161 tons. C was awarded damages for the non-delivery of 29, and not 39, tons of tallow.

You could be forgiven for assuming that the damages would be calculated on D’s failure to deliver the balance of the stated figure of 200 tons, that is the missing 39 tons. In fact, the court held that C could only recover damages for non-delivery of 29 tons.

As Scrutton LJ put it in the Abrahams case, ‘a defendant is not liable in damages for not doing that which he is not bound to do’.

In the Thornett case, D could have lawfully performed the contract by delivering just 190 tons of tallow. While D had the right to deliver 200 tons (or 195 or 208 or any other quantity between 190 and 210 tons), he was under no duty to do so. His duty was to deliver any quantity between 190 and 210 tons. C had no right to insist on any particular figure within that range.

D would not have been liable for failing to deliver any greater quantity and so its liability in damages could not be based on any failure to deliver more than 190 tons.

The situation in the case of Lavarack v Woods was similar but slightly different.

Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 (CA)

C, who had been wrongfully dismissed from his employment with D, claimed damages for loss of salary for the final two years of the contractual term. Under the contract, C had the right to be paid ‘a salary at the rate of not less than £4,000 per annum’. However, the judge found that, had C not been dismissed, his annual salary for the final two years of the minimum term would have been increased to £5,000. A majority of the Court of Appeal held that the judge had been wrong to award a total of £10,000 as damages for loss of salary for the two years. In assessing damages, ‘the assumption to be made is that the defendant has performed or will perform his legal obligations under his contract with the plaintiff and nothing more’ ([1967] 1 QB 278 (Diplock LJ)). As such, C’s damages could not exceed £8,000.

In Lavarack, the judge found that, had the contract been performed, the defendant would have paid the claimant more than the defendant was obliged to. But the Court of Appeal held that this finding was irrelevant: damages were to be assessed on what the defendant had to do, not what it would have done.

A further variation of the minimum performance rule is illustrated by the facts and decision in the Rijn.

Santa Martha Baay Scheepvaart v Scanbulk A/S (the Rijn) [1981] 2 Lloyd's Rep 267 (Com Ct).

Charterers had wrongfully repudiated their time charter when the vessel was at a port outside the agreed re-delivery range. Mustill J held that the damages for the loss of hire were to be based on a notional final voyage in ballast to the nearest safe port within the redelivery range. In assessing damages, it had to be assumed that the defendant would have chosen the alternative which is ‘the least profitable to the plaintiff, and the least burthensome to the defendant’.

Consider also two more minimum performance cases:

Withers v General Theatre Corporation [1933] 2 KB 536 (CA)

The defendants had engaged W to perform at the London Palladium, while reserving their right to transfer his engagement to any of their other theatres in London or the provinces. After viewing a rehearsal, the defendants notified W that he would not be permitted to appear at the Palladium. According to Scrutton LJ, the damages could not exceed a basis calculated upon what would have been the most beneficial performance to the defendants, meaning presumably that the power to transfer would have been exercised at the earliest opportunity.

Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (the Mihalis Angelos) [1971] 1 QB 164 (CA)

The Court of Appeal rejected the owners’ claim that the charterers’ cancellation of the charterparty on grounds of force majeure amounted to a wrongful repudiation. Nevertheless, each member of the Court thought that, had the cancellation been wrongful, only nominal damages would have been recoverable. This was because the arbitrators had found that the vessel would not have been ready to load by the due date, and that the charterers would ‘beyond doubt’ have exercised their right to cancel.

Here the applicable principle is expressed as follows: ‘if the defendant has under the contract an option which would reduce or extinguish the loss, it will be assumed that he would exercise it’.

Mihalis Angelos [1971] 1 QB 164, 196 (Lord Denning MR).

Limits of the Minimum Performance Rule

It is clear that the rule does not apply to all choices which a defendant would have enjoyed had he performed the contract instead of repudiating it. It is said that the rule does not apply to a single obligation expressed in an indefinite way.

Abrahams v Herbert Reiach Ltd [1922] 1 KB 477 (CA)

The defendants had agreed to publish in book form certain articles written by the claimants. While the contract provided for a royalty of 4p for each book sold, it was silent as to various important matters such as the number of books to be published and the form publication was to take. By a majority, the Court of Appeal held that the minimum performance rule was not applicable to the claim for damages following the defendants’ refusal to proceed with publication. Damages were to be assessed on the basis of how the defendants would have exercised their discretion and were to comprise ‘a reasonable estimate’ of the sum that the claimants would have received had the defendants kept their promise.

The approach in the Abrahams case was adopted in Durham Tees v bmibaby:

Durham Tees Valley Airport Ltd v bmibaby Ltd [2010] EWCA Civ 485

C claimed damages for Ds breach of its contractual obligation to operate at least two aircraft from C’s airport. The Court of Appeal held that damages were to be assessed according to how D would actually have performed the obligation and were not to be limited to what would have been the minimum permissible level of performance.

Taking account of these various authorities, it seems that the scope of the minimum performance rule is as follows. The rule applies where:

The obligation provides for a minimum level of performance which D may exceed (eg, D shall deliver not less than x)

The obligation gives D a choice between alternative obligations (D shall do x or y)

D’s obligation is subject to an option enjoyed by D (D shall do x unless D elects to do y)

The rule does not apply where there is a single obligation expressed in an indefinite way and D has discretion as to level of performance (D shall do x).

The application of two further principles or rules may affect the position which the court will find C would have been in had the contract been performed. These are the net loss rule and the breach date rule.

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