BetterLawNotes-5 (2)

CONTRACT LAW

However, while the injured party may terminate the contract following the other’s anticipatory breach, as a general rule, he does not have to: instead he may prefer to keep the contract alive and perform his side of it.

White & Carter (Councils) Ltd v McGregor [1962] AC 413

W & C agreed to advertise M’s business on litter bins which they supplied to local authorities for a period of three years. M sought to cancel the contract later that day but W & C insisted on continuing with the contract and began to place the advertisements on bins. The contract provided that in the event of any breach by M, all instalments for the three year period would immediately fall due. When W & C demanded payment of the first instalment M refused to pay and W & C then brought proceedings claiming the full contract price of £196 4s. Held: W & C were entitled to recover the contract price.

Subsequent case law shows that White & Carter is something of an exceptional case. Of particular significance in that case was the accelerated payments clause. In other cases, the innocent party is likely to be left to its claim in damages.

Hounslow LBC v Twickenham Garden Developments Ltd [1971] Ch 233

H entered into a contract with T for the construction of around 1,000 houses on a plot of 27 acres of land. Work was to be completed within four years. An 8-month strike affected the whole site and subsequently H’s architect wrote to T giving notice that T had failed to proceed with the works regularly and diligently and giving T 14 days to bring about an appreciable improvement. The following month, the architect notified H that there had been no improvement and H wrote to T terminating the contract. In response, T claimed that there was no basis for the termination notice and that the notice amounted to a wrongful repudiation of the contract which T did not accept. As such, T said that it was entitled to proceed with performance of the contract. H brought an action against T claiming (i) an injunction restraining T from trespassing on the site and (ii) damages for trespass. Megarry J dismissed the claim. He held that H had not shown that it had validly terminated the contract such that the court could safely grant the injunction sought.

Attica Sea Carriers v Ferrostaal Poseidon, The Puerto Buitrago [1976] 1 Lloyd’s Rep 250

A chartered the PB from F for a period of 17 months. After six months the PB developed engine trouble and was towed to Kiel for repairs. The estimated cost of repairs was $2m although the value of the repaired vessel would be only $1m. Under the terms of the charter A would have been liable for the cost of these repairs. A admitted liability for $400,000 of the repairs but purported to redeliver the PB to F in its unrepaired state and terminate the charter. F refused to accept re-delivery. Mocatta J held that A was bound to repair the vessel and was liable for hire in the meantime. The Court of Appeal reversed Mocatta J’s decision, holding that A’s purported re-delivery was effective and F was left to its remedy in damages.

Clea Shipping v Bulk Oil, The Alaskan Trader [1984] 1 All ER 129

B chartered the AT from C for a period of 24 months. After a year the AT developed serious engine trouble and it was clear that the repairs would take many months. B indicated that it had no further use for the AT. C, though, went ahead and repaired the vessel at a cost of $800,000. During the period of repairs no hire was due. On completion of the repairs B declined to give the vessel’s master any orders and so C anchored the AT with a full crew ready to sail for the remaining eight months of the charter. At the end of the period the vessel was sold for scrap. C argued that it was entitled to hire for the final eight-month period. Held: C had no legitimate claim for hire and was left to its remedy in damages.

Ocean Marine Navigation Ltd v Koch Carbon Inc, The Dynamic [2003] EWHC 1936 (Comm)

Simon J said (at [23]) that case law established the following exception to the general rule that the innocent party has an option whether or not to accept a repudiation:

‘i) The burden is on the contract breaker to show that the innocent party has no legitimate interest in performing the contract rather than claiming damages.

ii) This burden is not discharged merely by showing that the benefit to the other party is small in comparison to the loss to the contract breaker.

iii) The exception to the general rule applies only in extreme cases where damages would be an adequate remedy and where an election to keep the contract alive would be unreasonable.’

Geys v Societe Generale London Branch [2012] UKSC 63

Under the terms of his contract of employment, G was entitled to three months’ notice of dismissal. The contract also provided that the bank might make a payment in lieu of notice. On 29 November 2007, the bank dismissed G with immediate effect. On 18 December, the bank paid into G’s bank account a sum equivalent to the payment in lieu of notice to which G had been entitled. The bank then sent details of the payment to G which G did not see until 7 January 2008. On 2 January, G’s solicitors informed the bank that G was affirming the contract. On 4 January, the bank wrote to G informing him that he had been summarily dismissed and that the bank had made a payment in lieu of notice. G then brought a claim against the bank for wrongful dismissal, relying on the date of dismissal as being 6 January, the date on which according to the contract the bank’s letter of 4 January was deemed to have been delivered. G claimed that, on the basis he was employed by the bank until 6 January, he was entitled to a payment in lieu of notice of sum 5.5m euros greater than the amount to which he would have been entitled had his employment ended in November or December 2007.

The judge (Deputy Judge George Leggatt QC) held that G had been dismissed on 6 January 2008. The CA allowed the bank’s appeal and held that G had been dismissed on 18 December 2007. By a majority (Lord Sumption dissenting), the Supreme Court allowed G’s appeal and restored the decision of the judge.

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