Breach of Contract
Breach of Contract
Breach of Contract
I. DEFINITION
Treitel’s definition does not tell us what a breach is or when a breach occurs. This, however, is a content question
and depends on the construction of the terms of the contract. Only general rule is that breach is of strict liability.
As laid out by Lord Diplock in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 (BBF 611):
Parties are free to determine what primary obligations they will accept
o Basic principle of common law of contract
o They can state these expressly in the contract itself, or leave them to be incorporated by implication
(what is often done; “in practice a commercial contract never states all the primary obligations of the
parties in full”)
Breaches of primary obligations (“every failure to perform a primary obligation is a breach of contract”)
o Give rise to substituted or secondary obligations on the defaulting party
By implication of common law, the “general secondary obligation” is to pay monetary
compensation (damages) to the aggrieved party for his loss sustained as a result of the
breach/for non-performance of his primary obligations
Apply even in the cases of the two exceptions
o In some cases, may entitle the aggrieved party to be relieved from further performance of his own
primary obligations
But the primary obligations of both parties so far as they have not yet been fully performed
remain unchanged, with two exceptions
o These two consequences also arise by implication of law; generally common law, but sometimes
statute
o Note that courts rarely enforce a primary obligation by decreeing specific performance
Two exceptions
1) Fundamental breach
Defaulting party’s failure to perform a primary obligation deprives aggrieved party of
substantially the whole benefit which both parties intended for him to obtain from the contract
Aggrieved party may elect to put an end to all primary obligations of both parties remaining
unperformed
2) Breach of condition
Where both parties have agreed (whether expressly or impliedly by law) that any failure by one
party to perform a particular primary obligation (“condition”) will entitle the other party to elect
to put an end to all primary obligations of both parties remaining unperformed
Irrespective of the gravity of the event that has in fact resulted from the breach
Effect of aggrieved party’s election to end both parties’ remaining primary obligations
o Anticipatory secondary obligations additional to the general secondary obligations (damages for non-
performance of primary obligations) arise by implication of law
The defaulting party’s remaining unperformed primary obligations are substituted for a
secondary obligation to pay monetary compensation (damages) to the aggrieved party, for his
losses from defaulting party’s non-performance in the future
These arise under contracts of all kinds, except to the extent that that it is excluded or modified
by the express words of the contract
Implication by common law in cases of fundamental breach
Implication by statute law in cases of breach of condition (except in the case of ‘deviation’ from
the contract voyage under a contract of carriage of goods by sea, where it arises by common
law)
o Aggrieved party’s unperformed primary obligations discharged
End of primary obligations in the two exceptions at the election of the aggrieved party have been referred
to as the “determination” or “rescission” of the contract, or “treating the contract as repudiated”
o The first two are misleading as it must be kept in mind that the unperformed primary obligations of
the party in default there are substituted by operation of law the secondary obligations
Ending of primary obligations leaves the parties in the relationship of a bailor and bailee, “in which they
owe to one another by operation of law fresh primary obligations of which the contract is the source; but
no such relationship is involved in the instant case”
Small Mac way of looking at it:
Breaches of primary obligations give rise to substituted secondary obligations, of which there are two
types
General secondary obligation
o Primary obligations of both parties, insofar as they have not yet been fully performed, remain
unchanged
o But breach gives rise to a secondary obligation to pay monetary compensation to aggrieved party for
the loss sustained by him in consequence of the breach
o Arises on breach of warranty
Anticipatory secondary obligation
o Arises where breach of a primary obligation entitles aggrieved party to elect to terminate
performance of the contract, and he so does elect (repudiatory breach)
o All primary obligations of both parties remaining unperformed at put to an end
o And are substituted by implication of law with a secondary obligation to pay monetary compensation
to the other party for the loss sustained by him in consequence of their non-performance
o Difference is that it enables damages to be assessed by reference to those obligations which would
have fallen due for performance at some time in the future
o Arises on breach of condition (and fundamental breach)
Can the defaulting party, notwithstanding his breach, enforce the aggrieved party’s obligations under the
contract?
1. ENTIRE CONTRACT/OBLIGATION
Cannot claim recovery for partial performance
Complete performance is required
Cutter v Powell (1795) 6 Term Rep 320 (BBF 556)
Facts Df delivered a note to intestate at Jamaica, stating that he would pay the intestate thirty
guineas ten days after arrival at Liverpool, “provided [the intestate] proceeds, continues
and does his duty as second mate in the said ship from hence to the port of Liverpool”.
Intestate set sail on the ship and proceeded to do his duty as second mate, but died before
the ship’s arrival at Liverpool.
Wife claimed for the payment.
Holding No recovery.
Ashhurst J:
The written contract speaks for itself. It is entire, and the Df’s promise depends on a
condition precedent to be performed by Pf, thus the condition must be performed fully
before Pf is entitled to receive anything under the contract.
Pf cannot recover on a quantum meruit (just sum for services provided) because she has no
right to desert the express contract. One “cannot relinquish or abide by it as it may suit his
advantage”
The intestate was bound by the terms of his contract to perform a given duty before he
could claim any payment from Df; a condition precedent which without performing, Df was
not liable
Even though the intestate was not to blame for failing to perform his part of the contract,
he still failed to perform the condition precedent and his wife is not entitled to recover
More of a case demonstrating what an entire contract is, rather than breach.
2. DIVISIBLE CONTRACT
Can lawfully claim a proportionate payment if divisible obligations of a contract are successfully fulfilled
3. SUBSTANTIVE PERFORMANCE
Part performance as well, no need for complete performance
BUT operates within the framework of an independent contract examined on its own terms; complements
entire obligations only (not divisible obligations)
Subject to set-off or counterclaim for defects that prevented the complete performance
Substantive performance claimable as long as breach does not go to the “root of the contract”:
Hoenig v Isaacs [1952] 1 TLR 1360
Facts Df employed Pf to decorate Df’s flat for £750 (lump-sum contract). Work was finished with
some defects in a bookcase and a wardrobe, which would cost £55 to rectify.
Df moved into the flat, but refused to pay the outstanding balance of the contract price.
Holding Denning LJ at 1367, as cited in Building & Estates v AM Connor (see above).
Not every breach will absolve the need to pay, but that does not mean the contractor is always
entitled to be paid.
But cannot claim for substantial performance if defect goes to root of the contract:
Bolton v Mahadeva [1972] 1 WLR 1009
Facts Pf agreed to install central heating in the Df’s house for a lump sum of £560. The system
gave off insufficient and uneven heat, and also gave off fumes.
Pf refused to correct the defects, which could be put right for about £174. Df refused to pay
anything.
Holding CA held that Pf was not entitled to recover, because there had been no substantial performance.
Balancing process:
Where amount of work not carried out under a lump sum contract was very minor in
relation to the whole contract, contractor may be entitled to be paid the lump sum subject
to a proper deduction for the uncompleted work
Must consider (1) nature of defects (2) proportion between the cost of rectifying them and
contract price
o CANNOT say that payment is claimable only if defects are so trifling they are covered
by the de minimis rule
o Cairns LJ: “… if the putting right of those defects is not something which can be done
by some slight amendment of the system, [no substantial performance]”
o Sachs LJ: “It is not merely that so very much of the work was shoddy, but it is the
general ineffectiveness of it for its primary purpose that leads me to that conclusion.”
(Looked at multiple factors, not just scale of defects: aggregate number of defects,
importance of some of them, how they prevented the installation from doing what
was intended)
Here, unlike the previous 2 cases, the central heating was practically unusable
Aggravating factor: Df informed Pf about defects but Pf refused to do anything about it
Treitel’s critique:
‘Cases such as Hoenig v Isaacs are sometimes explained on the ground that the claimant had “substantially”
performed an “entire contract”. It is submitted that the explanation is unsatisfactory since it is based on the
error that contracts, as opposed to particular obligations are, can be entire. The basis of Hoenig v Isaacs is that
the builder even if he was under an entire obligation as to the quantity of the work to be done, was under no
such obligation as to its quality. Defects of quality therefore fell to be considered under the general requirement
of substantial failure. To say that an obligation is entire means that it must be completely performed before
payment becomes due. Suppose a contract is made to carry goods from Melbourne to London and the freight is
payable on delivery in London. If the goods are carried only to Southampton, the carrier may have “substantially”
performed; but he is not entitled to the freight. In relation to “entire” obligations, there is no scope for any
doctrine of “substantial performance”.’
A contract is made up of qualitative and quantitative obligations
However, “substantive performance” only considers the quantitative obligation without considering
qualitative obligation
o BUT Bolton considers quality of the work done by multiple factors to decide on substantive
performance? Not just the scale and quantity
Thus, wrong to say that this “substantive performance” relates to the “entire contract”. In reality, only the
entire quantitative obligation has been “substantively performed” and there is no entire obligation with
regards to quality.
Treitel thus advocates examining the obligation to see if it is entire or not, rather than the contract.
4. RESTITUTIONARY CLAIM
Acceptance of partial performance: Quantum meruit (for services)/Quantum valebat (for goods)
i) A party (Pf) who has rendered some performance (inadequately, in breach of contract) is allowed to
recover a reasonable sum;
ii) Where there is evidence of a fresh contract to pay for the work done and;
iii) “The circumstances give an option to the aggrieved party (Df) to take or not to take the benefit of the
work done” i.e. freely accepted defaulting party’s partial performance or otherwise waived the need
for complete performance
Reduces the harshness of a contract
Basis
o Previously, acceptance of partial performance implied a fresh agreement to pay for the work done or
goods supplied. But possibly fictional.
o Today, rests on basis of unjust enrichment
AL Smith LJ:
Pf was found to have abandoned the contract
“The law is that, where there is a contract to do work for a lump sum, until the work is
completed the price of it cannot be recovered.”
Therefore, Pf could not recover on the original contract but was entitled to recover on
quantum meruit for the partial performance, if there is evidence of a fresh contract to pay
for this work already done
Sumpter v Hedges – mere fact that a person appears to have benefited from part performance does not
suffice to ground a claim in restitution
This is because unjust enrichment law allows objective benefits to be “subjectively devalued” by Df
However, where it can be shown that a recipient of part performance has gained a readily realizable
financial benefit or has been saved expenses which he must have incurred, there is some support for the
view that the part performer would be entitled to restitution
o Hain SS Co Ltd v Tate & Lyle Ltd (below)
o Miles v Wakefield
Except where parties have made it clear that the risk of non-completion is to be borne by the part-performer
even if there is such benefit
Hain SS Co Ltd v Tate & Lyle Ltd [1936] 2 All ER 597; 41 Com Cas 350
Dicta “Let me put a quite possible case: A steamer carrying a cargo of frozen meat from Australia to
England deviates by calling at a port outside the usual or permitted route: it is only the matter
of a few hours extra steaming: no trouble ensues except the trifling delay. The cargo is duly
delivered in England at the agreed port. The goods owner has had for all practical purposes the
benefit of all that his contract required; he has had the advantages, of the use of a valuable ship,
her crew, fuel, refrigeration and appliances, canal dues, port charges, stevedoring. The
shipowner may be technically a wrongdoer in the sense that he has once deviated, but
otherwise over a long period he has been performing the exacting and costly duties of a carrier
at sea. I cannot help thinking that epithets like "unlawful" and "unauthorised" are not apt to
describe such services; it may be that by the maritime law the relationship of carrier and goods
owner still continues despite the deviation, though subject to the modifications consequent on
the deviation. Nor can I help feeling that the court would not be slow to infer an obligation when
the goods are received at destination to pay, not indeed the contract freight, but a reasonable
remuneration”
Remarks If you can show that the recipient of the benefit cannot argue that he has received no benefit
from you, he has to pay for the benefit received.
Situations entitling an innocent party to terminate contract at common law, tabulated by Phang JA in RDC
Concrete v Sato Kogyo [2007] 4 SLR(R) 413 [113]:
Situation Circumstances in which termination is legally justified Relationship to other situations
I. EXPRESS REFERENCE to the right to terminate and what will entitle the innocent party to
terminate the contract
1 Express termination clause: The contractual term breached None – it operates independently
clearly states that, in the event of certain event or events of all other situations.
occurring, the innocent party is entitled to terminate the
contract. Situations 2, 3(a) and 3(b) (i.e.
situations in II below) are not
No breach required, but has the same effect as breach of relevant.
condition (in condition-warranty approach).
Commented [EL1]: “By words or conduct evinces an
II. NO EXPRESS REFERENCE to the right to terminate and what will entitle the innocent party to intention not to perform or expressly declares that he is or
terminate the contract will be unable to perform his obligations in some material
2 Repudiation: Party in breach, by words or conduct, None – it operates independently aspect. Short of an express refusal or declaration the test is
renounces the contract by clearly conveying of all other situations. to ascertain whether the action/actions of the [defaulting
(expressly/impliedly) to the innocent party that it will not party would lead] a reasonable person to conclude that he
perform (unwilling/unable) its contractual obligations at all. Situation 1 is not relevant. no longer intends to be bound by its provisions.” – M
Karthigesu JA (SGCA) in San International Pte Ltd v Keppel
Engineering Pte Ltd [1998] 3 SLR(R) 447 [20]
Quaere (inquiry) whether the innocent party can terminate Situations 3(a) and 3(b) are not
the contract if the party in breach deliberately chooses to relevant.
perform its part of the contract in a manner that amounts [95]: “… the preferable view … [is]
to a substantial breach. Courts have an open position on that whether or not the innocent
this. party is entitled to terminate …
depend[s], in the final analysis,
upon whether or not the tests
pursuant to [3(a) and 3(b)] are
satisfied and in the manner or
order proposed below.”
3(a) Condition-warranty approach: Party in breach has breached Apply this before 3(b).
a condition of the contract (as opposed to a warranty).
Situation 1, 2 are not relevant.
3(b) Hongkong Fir approach: Party in breach which has Only apply this after 3(a) AND if
committed a breach, the consequences of which will the term breached is not a
deprive the innocent party of substantially the whole condition.
benefit which it was intended that the innocent party
should obtain from the contract. Situation 1, 2 are not relevant.
Summary
Situation 1 Contract expressly provides for parties to terminate on occurrence of a certain event or
events. Event or events occur. (i.e. no breach required)
Situation 2 Defaulting party renounces the contract by conveying that it will not perform its contractual
obligations at all. Innocent party entitled to terminate if party in breach had breached a
condition, or substantially breached the contract when breaching a warranty. i.e. 3a or 3b
satisfied.
Situation 3a Defaulting party breaches a condition.
Situation 3b Defaulting party breaches a warranty and the consequences of which will deprive the
aggrieved party of substantially the whole benefit which it was intended that the aggrieved
party should obtain from the contract.
Situations are mutually exclusive save for the relationship between 3(a) and 3(b).
While distinct, depending on the facts of the case at hand, may conflict with each other (RDC v SK [90]) and
produce different/diametrically opposed results
o Where the term which is breached is classified as a warranty under the condition-warranty approach
(no termination under 3a) but where the consequences of the breach are so serious as to deprive the
innocent party of substantially the whole benefit that it was intended that the innocent party should
have (termination under 3b) – i.e. an “important warranty”?
o Where the term which is breached is classified as a condition under the condition-warranty approach
(termination under 3a) but where the consequences of the breach are not so serious as to deprive the
innocent party of substantially the whole benefit that it was intended that the innocent party should
have (no termination under 3b) – but unlikely, since a condition is a term the parties intend to be so
important that if breached would terminate the contract!! First situation is likely though
But both situations 3(a) and 3(b) have roles to play in the law. RDC v SK [109]: “… the condition-warranty
approach is, looked at in this light, itself a manifestation of fairness between the contracting parties – whilst
simultaneously achieving certainty and predictability, as far as the facts of the case at hand will allow. Further,
by integrating the Hongkong Fir approach with the condition-warranty approach, rather than discarding the
former out of hand, the aim of achieving fairness is further enhanced and,
indeed, maximised by extending the inquiry and looking at the seriousness of the consequences of the breach
even where the term breached is not a condition.”
In Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008], 4 RDC situations were affirmed. Furthered
RDC rule by laying down the factors relevant in ascertaining whether or not a term is a condition. (see
below)
In Sports Connection v Deuter Sports [2009], 4 RDC situations again affirmed, with a slight modification. In
the extremely limited exception “where the term itself states expressly (as well as clearly and
unambiguously) that any breach of it, regardless of the seriousness of the consequences that follow from
that breach, will NEVER entitle the innocent party to terminate the contract, then the court will give effect
to this particular type of term (viz, a warranty expressly intended by the parties)”
Problems
Allows parties to escape bad bargains so long as the term is a condition (regardless of amount of loss
suffered)
No concrete guidelines to ascertain “conditions” and “warranties”
Harsh and potentially unfair
But RDC argument that 3(a) gives effect to parties’ intentions, which is a manifestation of fairness
between the contracting parties; it is fair to hold parties to their original bargain.
Therefore
1) Nature of term breached?
2) Parties’ intentions for the term to be a condition?
Focus is on the nature of the term breached (RDC v SK [97]), and particularly, “whether the [parties’
intentions] were to designate that term as one that is so important that any breach, regardless of the actual
consequences … would entitle the innocent party to terminate the contract”. This is not to say that the
consequences are irrelevant as parties may have envisaged serious consequences.
o i.e. Whether it is a condition? Or not important enough for contract to ever be terminated by innocent
party, even if actual consequences are extremely serious (warranty)?
Atkin LJ: “It appears to me to be clear that the stipulation in the contract that there shall be 21/2
dozen tins in a case is part of the description of the goods. There is, therefore, an implied
condition that the goods when tendered shall correspond with the description. That condition
was broken, and there was a right to reject”.
Lord Atkin:
Simple question is whether the goods when shipped complied with the implied condition
that they should correspond with the description (SGA s 13)
Disagreed that only “substantial” compliance with contract needed to be found by a
tribunal of fact. There is no “margin”.
If written contract specifies conditions of weight, measurement etc, these conditions must
be complied with. “A ton does not mean about a ton, or a yard about a yard.”
If the seller wants a margin he must stipulate for it, or it must be recognised trade usage.
This was not found in the present case.
Weakness of traditional approach: In re Moore and Arcos have been criticised on the ground that the goods
tendered in both cases were perfectly suitable for the buyer’s purpose in both cases, suggesting that the buyers
rejected the goods tendered because their market price had fallen and the buyers wanted to get out of a bad
bargain.
4. Mercantile transactions
Centres on importance placed on certainty and predictability in the context of
mercantile transactions
Courts more likely to classify contractual terms as conditions in such contracts,
especially where they relate to timing (Bunge and The Mihalis Angelos)
The conclusion to be drawn from these cases is that a term of a contract will be held to be a
condition:
(i) if it is expressly so provided by statute;
(ii) if it has been so categorised as the result of previous judicial decision (although it
has been said that some of the decisions on this matter are excessively technical
and are open to re-examination by the House of Lords);
(iii) if it is so designated in the contract or if the consequences of its breach, that is,
the right of the innocent party to treat himself as discharged, are provided for
expressly in the contract; or
(iv) if the nature of the contract or the subject-matter or the circumstances of the
case lead to the conclusion that the parties must, by necessary implication, have
intended that the innocent party would be discharged from further performance
of his obligations in the event that the term was not fully and precisely complied
with.
CLASSIFICATION
1. By construction of contract:
Bentsen v Taylor [1893] 2 QB 274 at 280-281
Holding Bowen LJ:
Matter of construction as to whether a promise is a warranty (breach only sounds in
damages) or condition (breach gives right to terminate)
o “… that kind of promise the performance of which is made a condition precedent to
all further demands under the contract by the person who made the promise against
the other party - a promise the failure to perform which gives to the opposite party
the right to say that he will no longer be bound by the contract”
Question is to be decided by looking at the contract in the light of the surrounding
circumstances and deciding which classification will best further the intention of the
parties, as gathered from the contract itself
First thing to ask is: To what extent does the truth of what is promised be likely to affect
the substance and foundation of the adventure which the contract is intended to carry out
Not looking at the effect of the breach which has taken place, but the effect likely to be
produced on the foundation of the adventure by the breach of the promise
Remarks In Singapore, adoption of this analysis by statute in the sale of goods context.
SGA, s 11(2): “Whether a stipulation in a contract of sale is a condition, the breach of which may
give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may
give rise to a claim for damages but not to a right to reject the goods and treat the contract as
repudiated, depends in each case on the construction of the contract; and a stipulation may
be a condition, though called a warranty in the contract.”
2. By statute:
Always mention SGA when question involves sale of goods.
Warranties
s 61(1) – In this Act, unless the context otherwise requires — "warranty" means an agreement with
reference to goods which are the subject of a contract of sale, but collateral to the main purpose of such
contract, the breach of which gives rise to a claim for damages, but not to a right to reject the goods and
treat the contract as repudiated.
12(2) – In a contract of sale, other than one to which subsection (3) applies, there is also an implied warranty that
—
(a) the goods are free, and will remain free until the time when the property is to pass, from any charge or
encumbrance not disclosed or known to the buyer before the contract is made; and
(b) the buyer will enjoy quiet possession of the goods except so far as it may be disturbed by the owner or other
person entitled to the benefit of any charge or encumbrance so disclosed or known.
12(3) – This subsection applies to a contract of sale in the case of which there appears from the contract or is
to be inferred from its circumstances an intention that the seller should transfer only such title as he or a third
person may have.
12(4) – In a contract to which subsection (3) applies, there is an implied warranty that all charges or
encumbrances known to the seller and not known to the buyer have been disclosed to the buyer before the
contract is made.
12(5) – In a contract to which subsection (3) applies, there is also an implied warranty that none of the
following will disturb the buyer’s quiet possession of the goods, namely —
(a) the seller;
(b) in a case where the parties to the contract intend that the seller should transfer only such title as a third
person may have, that person;
(c) anyone claiming through or under the seller or that third person otherwise than under a charge or
encumbrance disclosed or known to the buyer before the contract is made.”
Conditions
Whether condition is to be treated as a warranty, Section 11 SGA:
“11(1). Where a contract of sale is subject to a condition to be fulfilled by the seller, the buyer may waive the
condition, or may elect to treat the breach of the condition as a breach of warranty and not as a ground for
treating the contract as repudiated
11(2). Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to
treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but
not to a right to reject the goods and treat the contract as repudiated, depends in each case on the
construction of the contract; and a stipulation may be a condition, though called a warranty in the contract”.
Section 13(1) (goods will correspond with description) – Where there is a contract for the sale of goods by
description, there is an implied condition that the goods will correspond with the description.
Section 14(2) (goods of satisfactory quality) – Where the seller sells goods in the course of a business, there is
an implied condition that the goods supplied under the contract are of satisfactory quality.
(2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable
person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and
all the other relevant circumstances.
(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following
(among others) are in appropriate cases aspects of the quality of goods:
(a) fitness for all the purposes for which goods of the kind in question are commonly supplied;
(b) appearance and finish;
(c) freedom from minor defects;
(d) safety; and
(e) durability.
(2C) The condition implied by subsection (2) does not extend to any matter making the quality of goods
unsatisfactory —
(a) which is specifically drawn to the buyer’s attention before the contract is made;
(b) where the buyer examines the goods before the contract is made, which that examination ought
to reveal; or
(c) in the case of a contract for sale by sample, which would have been apparent on a reasonable
examination of the sample.
Section 14(3) (goods reasonably fit for buyer’s particular, disclosed, purpose) – Where the seller sells goods in
the course of a business and the buyer, expressly or by implication, makes known —
(a) to the seller; or
(b) where the purchase price or part of it is payable by instalments and the goods were previously
sold by a creditbroker to the seller, to that credit-broker,
any particular purpose for which the goods are being bought, there is an implied condition that the goods
supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which
such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that
it is unreasonable for him to rely, on the skill or judgment of the seller or credit-broker.
Section 15(2) (bulk of goods will correspond with sample in quality) – In the case of a contract for sale by
sample, there is an implied condition —
(a) that the bulk will correspond with the sample in quality;
(b) (Deleted by Act 43/96)
(c) that the goods will be free from any defect, making their quality unsatisfactory, which would not
be apparent on reasonable examination of the sample.
Restricting non-consumer buyer’s right to unreasonably reject goods for slight breach, Section 15A SGA:
“15A(1). Where in the case of a contract of sale —
(a) the buyer would, apart from this subsection, have the right to reject goods by reason of a breach
on the part of the seller of a condition implied by section 13, 14 or 15; but
(b) the breach is so slight that it would be unreasonable for the buyer to reject them,
then, if the buyer does not deal as consumer, the breach is not to be treated as a breach of condition but may
be treated as a breach of warranty.
15A(2). This section applies unless a contrary intention appears in, or is to be implied from, the contract.
15A(3). It is for the seller to show that a breach fell within subsection (1)(b)”.
i.e. Remedies for breach of condition in non-consumer cases modified
Cehave N.V. v. Bremer Handelsgesellschaft m.b.H. (The “Hansa Nord”) [1976] Q.B. 44
Facts Two contracts were made for 6000tons of citrus pulp pellets.
Clause 7 provided that ‘shipment to be made in good condition’.
The buyers paid the price, obtained the shipping documents but when the goods were
discharged at the destination port, part of shipment had been damaged by overheating.
Buyers rejected the whole shipment and when sellers refused to refund the price, buyers
applied to court, who ordered shipment to be sold.
Shipment was bought for 30% of original contract price by third party, who sold it to buyers
for the same price. Buyers used it for the same purpose.
Holding Held that since the whole cargo was used for its intended purpose, there was no fundamental
breach. Buyers’ only remedy was in damages because the term was an intermediate stipulation,
and they were not entitled to reject, and goods were of “merchantable quality” within s 14(2)
of UK SGA.
3. By judicial precedent:
Bunge Corporation v Tradax Export SA [1981] 1 WLR 711 (BBF 576)
Facts The sellers were required, by 30 June 1975, to load the goods on board a ship at a single
United States Gulf port nominated by them.
The contract further provided that the buyers should give the sellers “at least 15
consecutive days’ notice of probable readiness of vessel(s) and of the approximate quantity
required to be loaded.”
The buyers did not give notice until 17 June, by which time less than 15 days of the loading
period remained.
The sellers declared the buyers to be in default and claimed damages for the repudiation
of the contract on the ground that the term as to notice was a condition.
Holding HL held that clause was a condition. Sellers entitled to terminate and claim damages.
HL held that Hong Kong Fir analysis unsuitable for breach of time clauses as there is only
one consequence – to be late. The present was a mercantile contract “totally different in
character”.
Cannot apply Hongkong Fir analysis because
o This would “fatally remove” the “most indispensable quality of mercantile contracts”,
certainty (because it would make it difficult or impossible to know whether seller
could provide goods after a delay)
o Despite late notifications/delay, would confine the seller to only a remedy in damages,
which is difficult to quantify
Time clauses are normally conditions and in order for a term to be classified as a condition,
it was NOT NECESSARY that breach would always deprive the innocent party of substantially
the whole benefit of the contract.
o Precedents on the similar time terms and predominant commercial parties favour its
classification as a condition
o Obligations of seller and buyer interdependent (the sellers would not know which port
to go to, where to deliver the goods until buyer gave seller notice)
o Place a great burden upon seller if seller is required to prove that there is a serious
consequence (because time needed to ready goods varies) which is why Court said that
parties have provided for a clear space and time.
Remarks How useful is Bunges as a precedent?
Per McCardie J: “In ordinary commercial contracts for the sale of goods the rule clearly is that
time is prima facie of the essence with respect to delivery.”
In this case
Df had waived the condition that the good should be delivered by 15 November by way of
their letters (even though letters were written after 15 November). Thus Df debarred from
asserting that the condition was still operative and binding and insist on original terms.
Df estopped from saying that period for delivery expired on 15 November or from asserting
that contract ceased to be valid on that date. Letter and conduct had led Pf to believe that
contract was still subsisting and Pf had acted on that belief at serious expense to himself.
Letters imply a new agreement that the contract period should be extended beyond 15
Novermber. Delivery may take place within a reasonable time of which notice is to be given
by the buyer to the seller.
Lord Reid
Condition has acquired a precise legal meaning but it is frequently used with a less
stringent meaning by laymen
But courts are seeking parties’ intention as disclosed by the contract as a whole, therefore …
“Use of the word ‘condition; is an indication - even a strong indication - of such an intention
but it is by no means conclusive. The fact that a particular construction leads to a very
unreasonable result must be a relevant consideration. The more unreasonable the result,
the more unlikely it is that the parties can have intended it, and even if they do intend it
the more necessary it is that they shall make that intention abundantly clear.”
This case
o Pf claimed that cl 7 stands alone (not subject to the 60 days waiting period in cl 11)
because it is expressly described as a condition
o But Pf’s claim that cl 7 stands alone would give very unreasonable results (“failure to
make even one visit entitle them to terminate the contract however blameless
Wickman might be”)
o If cl 7 is read with cl 11, then the unreasonableness disappears. The word “condition”
would make any breach of cl 7 a material breach, allowing Pf to effect cl 11 and Df to
respond. This would be a reasonable and possible construction of the contract
o Thus, Lord Reid found that cl 7 was not a condition because it would have had an
unreasonable result (also said draftsman was unskilled and should not place too much
importance on natural meaning)
How do you remedy past events? Lord Reid concluded that breach could be remedied by
prevent future recurrence.
Therefore, although under certain special circumstances express wording may not be conclusive, this factor is
probably the strongest and therefore most useful guidelines, and that in most situations, the court would
probably find that the express wording accurately reflects the intention of the contracting parties, despite
the Schuler case.
But pre-RDC legal position that reconciled both condition-warranty and Hongkong Fir:
HL decision in Bunge suggests (particularly Lord Roskill) a hybrid approach
1) Lord Scarman: “Upon the true construction of a stipulation and its contract, is the stipulation a condition,
innominate term or only a warranty? … Unless the contract makes it clear by express provision or necessary
implication arising from its nature, purpose and circumstances that the stipulation is a condition or only a
warranty, it is an innominate term which remedy depends on the nature, consequences and effect of the
breach. (717) Courts must first determine if the term is a condition. BUT this is rejected because the
reference to the notion of a “warranty” would be a wholesale application of the condition-warranty
approach, making it extremely difficult to apply the Hongkong Fir test thereafter.
2) Lord Roskill: The Hongkong Fir approach cannot be considered as the sole test for the relative importance
of terms for the purpose of rescission. (725-726) … While recognizing the modern approach and not being
overready to construe terms as conditions unless the contract clearly requires the court to do so, none the
less the basic principles of construction for determining whether or not a particular term is a condition
remains as before, always bearing in mind on the one hand the need for certainty and on the other the
desirability of not, when legitimate, allowing rescission where the breach complained of is highly technical
and where damages would clearly be an adequate remedy.
Hongkong Fir approach Condition-warranty approach
Focus is on the event that constitutes the breach Focus is on the nature of the term itself
of contract; nature and consequences that result
from the breach
RDC: “…an intermediate term is defined as one which is neither a condition nor a warranty simply because
a breach of it could give rise to either very substantial or to very trivial consequences.”
A breach of an intermediate or innominate term does not automatically give an aggrieved party the right to
terminate; whether such right arises depends on the seriousness of the consequences
Thus, where an intermediate term has been breached, the aggrieved party has a right to terminate only if
such breach deprives the aggrieved party of “substantially the whole benefit which it was the intention
of the parties as expressed in the contract that he should obtain as the consideration for performing those
undertakings” (Lord Diplock in Hong Kong Fir)
o Lord Wilberforce citing support for the less stringent interpretation of “condition” in Schuler at 262: It
is not necessary for parties to a contract, when stipulating a condition, to spell out the consequences
of breach: these are inherent in the (assumedly deliberate) use of the word: Suisse Atlantique Société
d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361 , 422, per Lord
Upjohn.
BEFORE RDC
Existence of innominate terms:
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha [1962] 2 QB 26 (BBF 567)
Facts Contract for hire of vessel for 24 months.
Seaworthy clause: ship to be “fitted in every way for ordinary cargo service”.
Ship was unseaworthy (engine was old and operation needed supervision, but engine room
under-staffed, and workers were inefficient).
As a result, repairs had to be carried out on the way to Osaka (30 days off-hire), and after
the ship’s arrival there, it took a further 15 weeks for repairs to be carried out on the engine.
This left a total of 17 months during which she could be available to charterers. There had
been a steep fall in freight rates since the date of the charter, and the charterers purported
to terminate.
At first instance, Salmon J held that the ship was unseaworthy but that the charterers were
not entitled to terminate the charter on account of the seaworthiness of the ship. The
charterers appealed to the Court of Appeal.
Holding The seaworthiness of the vessel was not a condition.
Sellers LJ:
“It would be unthinkable that all the relatively trivial matters which have been held to be
unseaworthiness could be regarded as conditions of a contract or conditions precedent to
a charterer’s liability and justify in themselves a cancellation or refusal to perform on the
part of the charterer.”
But went on to conclude that clause was a warranty, not condition
Dismissed the appeal
Upjohn LJ:
Contrary to common sense to suppose that parties contemplated that the charterer should
be entitled to treat contract terminated for trifling breaches such as missing nails, anchors
not on board etc.
Open to parties to a contract to make it clear either expressly or by necessary implication
that a particular stipulation is to be regarded as a condition which goes to the root of the
contract. This is matter to be determined on interpretation of the contract.
However, where on true construction of the contract, parties did not make this particular
stipulation a condition, it is unsound and misleading to simply conclude that it is therefore
a warranty and damages are a sufficient remedy.
Remedies open to the innocent party for a breach of a stipulation which is not a condition
should depend entirely upon the nature of the breach and its foreseeable consequences.
Question then is does the breach go to the root of the contract or make further
performance impossible? If yes, party can treat the contract as at an end (fundamental
breach); if not, his claim sounds only in damages. (see above)
On construction, clause was not a condition. Similarly, unseaworthiness, although serious,
did not go to the root of the contract.
Dismissed the appeal
*Lord Diplock:
Where an event occurs the occurrence of which neither the parties nor Parliament have
expressly stated will discharge one of the parties from further performance of his
undertaking, the test is: does the occurrence of the event deprive the party who has
further undertakings still to perform of substantially the whole benefit which it was the
intention of the parties as expressed in the contract that he should obtain as the
consideration for performing those undertakings?
“There are, however, many contractual undertakings of a more complex character which
cannot be categorised as being "conditions" or "warranties," … Of such undertakings all that
can be predicated is that some breaches will and others will not give rise to an event which
will deprive the party not in default of substantially the whole benefit which it was intended
that he should obtain from the contract … the legal consequences of a breach of such an
undertaking, unless provided for expressly in the contract, depend upon the nature of the
event to which the breach gives rise and do not follow automatically from a prior
classification of the undertaking as a "condition" or a "warranty."
Here, scope of “unseaworthiness” was very large. Solution is hence not to consider whether
clause was a condition or warranty, but rather to consider the effects.
Trial judge therefore rightly considered the relevant factors, i.e., whether Df had taken
steps to remedy the delays due to incompetence of engine-room staff and repairing of
engine, before concluding that Pf was NOT deprived of substantially the whole benefit it
was intended that he should obtain
Dismissed the appeal
Remarks Essentially, term could have been broken in a trivial or fundamental manner. Distinction
between consequences of condition and warranty was too stark.
Must judge the contract holistically with reference to the whole benefit of the contract. Just
because it is substantial doesn’t mean it is a substantial to the whole.
Contracts are made to be performed and not to be avoided according to the winds of
market fluctuation. Courts generally prefer interpretation which will be conducive to
contract performance.
Lord Denning:
Clause was not expressly classified by parties as a condition and neither was there any
authority under common law to suggest that it was. Thus, CA concluded that it was an
innominate term.
Small-scale deviations from contractual standard (as was the case here, since buyer used
for original purpose in the end) should be met by a price allowance. Buyers should not have
a right to reject the whole cargo unless the deficiency was serious and substantial.
Roskill LJ:
Court should not be over ready, unless required by statute or authority to find that a term
is a condition.
Contracts are made to be performed and not to be avoided according to the whims of
market fluctuations. Where there is free choice between two possible constructions, Court
should prefer the one that will ensure performance.
Ormrod LJ:
“the stipulation in cl 7 that the goods were to be shipped in good condition was not a condition …
on the facts of this case the breach did not go to the root of the contract, and that consequently,
the buyers were not entitled to reject the goods”
Note: Motive for wanting to terminate here was because original contract price was £100k but
had dropped to £86k when goods arrived. Buyers were trying to get out of a bad bargain.
Innominate term but ALLOWED to terminate. Renunciation or repudiatory breach going to “root of contract”,
depriving charterers of substantially the whole benefit of the contract:
Federal Commerce and Navigation v Molena Alpha Inc (The “Nanfri”) [1979] AC 757
Facts Charter party contract. Payments not timely made.
Owners of vessel announced threatened breach; instructed masters to issue “claused” bills
of lading instead of bills with “freight pre-paid”.
Term breached not a “condition”; innominate term.
Holding Since the signing of the pre-paid bills was essential to the charterers’ trade, the owners’
instruction constituted an anticipatory breach of contract which in the circumstances
amounted to a repudiatory breach.
This was because the threatened breach went to the “root of contract” and would
effectively deprive charterers of substantially the whole benefit of the contract (serious
consequences – charterer would suffer severe commercial embarrassment and be out of
business).
Also a case showing that where a party performs in a manner that is not consistent with the
terms of the contract, it is no defence for that party to show that he acted in good faith.
*Rare occasion where Court held that breach of innominate term gave rise to right to terminate.
AFTER RDC
The RDC case envisages a 2 stage test:
1) Term is not a ‘condition’ or an ‘expressly intended warranty’
o If it is, innocent party can elect to treat contract as discharged, regardless of nature of consequences
of breach.
o Hongkong Fir approach can be applied only if the older “condition-warranty” approach is applied in
the modified manner (inquiry is only as to whether the term concerned is a condition). If the term
considered is not a condition, it is automatically a warranty, leaving no room for the Hongkong Fir
approach to apply.
2) Ascertaining consequences of the breach
o Sufficiently serious so as to ‘deprive [innocent party] of substantially the whole benefit it was
intended to obtain from the contract’? i.e. terminate the contract. A factual inquiry by the
court/largely dependent on factual matrix. (Sports Connection at [62])
3(a) not applicable: Not a condition; time was not “of the essence” in the contract. Looking
at the contract as a whole, found that parties did not intend any breach of the Terms of
Payment clause (regardless of the seriousness of the consequences flowing from the
breach) would entitle the aggrieved party to terminate the contract without more ([54])
o Note that a party cannot unilaterally vary the terms of the contract by turning what
was previously a non-essential term into an essential term ([56])
o i.e. could not have given notice to make time a condition in respect of a breach of a
non-essential term. Therefore party giving notice can only terminate when the failure
of the other party to comply with the terms of the notice goes to the root of the
contract and substantially deprives … etc
o This failure to comply is evidence of repudiatory breach, but not breach per se
Turning to Situation 3(b), clear that failure by Df to pay arrears due did not deprive Pf of
substantially the whole benefit of the contract that it was intended that the Pf should obtain
Locally in HC:
*Cousins Scott William v The Royal Bank of Scotland plc [2010] SGHC 73
Facts Pf was employed by Df.
Employment terminated, Pf signed redundancy agreement.
A clause in the Redundancy Agreement stated that Pf agreed to observe confidentiality
obligations which he undertook when he joined the Df.
Thereafter, Pf proceeded to send two emails containing confidential documents to his
personal email. Df discovered and summarily dismissed him.
Df rescinded Redundancy Agreement because of the breach. Pf sued.
Holding [61]-[65] Steven Chong JC:
Inquiry for whether breach had deprived Df of substantial benefit of the agreement is
focused on actual loss, not potential loss of the breach. Wait and see approach as laid out
in RDC
Pf did not substantially breach the agreement, and his breach did not deprive the Df of
substantially the whole benefit of the agreement
His actions caused no loss to the Df since he subsequently deleted the two emails when
instructed to do so by Df
The breach was not repudiatory in nature so as to entitle Df to terminate the agreement;
only entitles him to damages
“Whether a breach of a confidentiality cl can amount to a repudiatory breach of a
redundancy agreement can only be answered by reference to the terms of the agreement
and the effect of the breach.”
Court applied the situations set out in RDC Concrete (note – focus for this case in Situation 3(b)):
1) No express provision for the right of termination: Df’s submitted that the right of
termination under the employment contract was incorporated into the Redundancy
Agreement because the Redundancy Agreement referred to the confidentiality obligation
under the employment contract. Court held that a mere acknowledgement of the
continued observance of the obligation is insufficient, because there is no “clear and
explicit incorporation”.
2) No renouncement
3) a – No condition: The purpose of the Redundancy Agreement was to secure the
termination of the employment contract. There was no reference to the confidentiality
obligation in the covering letter enclosing the agreement. As such, acknowledgement of the
obligation cannot be characterised as a condition.
b – see above.
Sembcorp Marine Ltd v PPL Holdings Pte Ltd and another and another appeal [2013] SGCA 43
Facts Parties were joint venture partners who each owned half of PPL Shipyard. Main case was
about disputed terms affecting Df’s board influence and executive control over PPL
Shipyard
But Pf also submitted that Df breached an obligation of confidentiality under the Joint
Venture Agreement as a result of its director’s disclosure of PPL Shipyard’s accounts to the
third party
Issue: Did the breach justify termination of the joint venture agreement?
Holding Sundaresh Menon CJ at [136]-[138]:
The clause was not “so important that any breach, regardless of the actual consequences
of such a breach, would entitle the innocent party to terminate the contract” (RDC [97])
i.e. Not a condition, 3a does not apply
o No intention evinced by either party that breach of confidentiality clause would have
entitled termination even if the information had not been circulated
Nor would an alleged breach have “given rise to an event which will deprive the party not
in default of substantially the whole benefit which it was intended that he should obtain
from the contract” (RDC [99]) i.e. 3b does not apply
o Even if such a breach would have occasioned the destruction of the relationship of
trust and confidence between the parties (which formed the basis of the parties’
joint venture), this would have to be predicated on the factual premise that there
was a wilful and deliberate disclosure of such confidential information by a party.
But there was no such finding
o Only a failure by Df to instruct its employees, which would not have deprived …
whole benefit i.e. mere failure =/= wilful and deliberate disclosure
Example: RDC v Sato Kogyo and its express termination clause at [8]
“In the event that your supply is unable to meet LTA’s requirements, or you are unable to continue your
supply, Sato Kogyo (S) Pte Ltd reserves the right to terminate your contract and retain and use both the
retention sum and any outstanding payment due to you to seek for alternative source of supply. In
addition, Sato Kogyo (S) Pte Ltd also reserves the right to seek from you any direct cost incurred due to
your non-compliance.”
Clause in question:
‘If the contractor: 23.2.1 commits a breach of any of its obligations under the Contract; … the
Council may, without prejudice to any accrued rights or remedies under the Contract, terminate
the Contractor's employment under the Contract by notice in writing having immediate effect’.
‘If the Contractor's employment is terminated as provided in Condition … 23.2 and is not
reinstated, the Council shall: 23.3.1 cease to be under any obligation to make further payment
until the costs, loss and/or damage resulting from or arising out of the termination of the
Contractor's employment shall have been calculated and provided such calculation shows a
sum or sums due to the Contractor…’
Holding Hale LJ:
“The notion that this term would entitle the council to terminate a contract such as this at
any time for any breach of any term flies in the face of commercial common sense”
o “The difficulty with that argument is that this is a classic example of an innominate
term: one which can be broken in so many different ways and with such varying
consequences that the parties cannot be taken to have intended that any breach
should entitle the innocent party to terminate the whole contract.”
o “The problem with the council's argument in this case is that clause 23.2.1 does not
characterise any particular term as a condition or indicate which terms are to be
considered so important that any breach will justify termination. It appears to visit
the same draconian consequences upon any breach, however small, of any
obligation, however small.”
i.e. Giving effect to the express termination clause would be unfair, unreasonable
Judge should have first considered which terms had been broken and whether they were
such important terms as to give rise to a right to terminate
Decision
Non-competition clause was not a condition
Parties had no intention of treating it as a condition inasmuch as any breach of it, regardless
of seriousness of the consequences of the breach concerned, would entitle Df to terminate
the distributorship agreement (3a)
Df had always known throughout that Pf was selling competing products and had
acquiesced to it
Rather, central aim and focus of the clause was to encourage and incentivise Pf to reach
the purchase target
Court went on to consider if Df has been deprived of substantially the whole benefit it was
intended that it should obtain from the distributorship agreement, assessing the actual
consequences of the breach of the non-competition clause (3b)
Consequences were two-fold – amount of purchases by Pf dropped from over US$1m to
US$788k and objectives of “market penetration” and “high quality brand positioning”
possibly compromised
On the facts, Court held that there was no substantial deprivation of benefit on either
ground
An owner who only had the right to terminate a hire-purchase contract pursuant to an express
termination clause was entitled only to outstanding hire charges which had already accrued prior
to the termination date, and not to the loss of the entire bargain comprising future hire charges
Max Media FZ LLC v Nimbus Media Pte Ltd [2010] 2 SLR 677, [2010] SGHC 30 at [35]:
Andrew Ang J: “Currently, where a contract is terminated pursuant to an express provision alone, ie, under
Situation 1, damages for loss of bargain may be recoverable only if there is a concurrent repudiatory breach
under common law: see Lord Nicholls' speech in Lombard ([31] supra) at 546 which was reaffirmed by the
Court of Appeal in Sports Connection at [55] (see also Tan Wee Fong v Denieru Tatsu F&B Holdings (S) Pte Ltd
[2009] SGHC 290 at [31]-[35]). On the other hand, without a repudiatory breach under common law, the
innocent party may not claim for damages arising after the contract's termination (see generally Financings
([31] supra)), although it will still be entitled to recover damages in respect of the loss it suffered at or before
the date of termination. But if Situation 1 is substantially the same as Situation 3(a), then this bifurcated
principle would make no sense. It is artificial to ask what is the nature of a term under common law where
there is within the contract an express provision stating that the breach of that term would give the
innocent party the right to terminate. This quandary was also recognised in Brian R Opeskin's article,
"Damages for Breach of Contract Terminated under Express Terms" [1990] LQR 106 (Apr) 293”.
Invocation of express termination clause is effective for termination under common law too:
Stocznia Gdynia v Gearbulk Holdings [2009] EWCA Civ 75, [2009] 3 WLR 677 esp [44-45]
Facts Contract for sale of ship; seller committing common law repudiatory breach by non-delivery.
Contract contained express termination clause.
Purchaser’s letter gave notice to terminate invoking express termination clause.
Holding Held, notice effective to terminate both for common law repudiation and under express
termination clause; purchaser entitled to damages for loss of bargain.
Moore-Bick LJ:
“It must be borne in mind that all that is required for acceptance of a repudiation at common law
is for the injured party to communicate clearly and unequivocally his intention to treat the contract
as discharged: see Vitol SA v Norelf Ltd [1996] AC 800, 810 g -811 b, per Lord Steyn.
If the contract and the general law provide the injured party with alternative rights which have
different consequences, as was held to be the case in the Dalkia case [2006] 1 Lloyd’s Rep 599, he
will necessarily have to elect between them and the precise terms in which he informs the other
party of his decision will be significant, but where the contract provides a right to terminate which
corresponds to a right under the general law (because the breach goes to the root of the contract
or the parties have agreed that it should be treated as doing so) no election is necessary.
In such cases it is sufficient for the injured party simply to make it clear that he is treating the
contract as discharged: see the Dalkia case [2006] 1 Lloyd’s Rep 599, para 143, per Clarke J. If he
gives a bad reason for doing so, his action is none the less effective if the circumstances support it.
That, as I understand it, is what Rix LJ was saying in Stocznia Gdanska SA v Latvian Shipping Co
[2002] 2 Lloyd’s Rep 436, para 32, with which I respectfully agree.
In the present case the parties accept, and indeed the arbitrator has found, that the breaches on
the part of the yard which entitled Gearbulk to terminate the contracts were in each case sufficient
to amount to a repudiation. I accept Mr Dunning's submission that in its letters of 7 November
2003 and 4 August 2004 Gearbulk purported to terminate the contract pursuant to article 10.1(b)
and (c) and not under the general law, but each of the letters made it clear that it was treating
the contract as discharged and in those circumstances each was sufficient to amount to an
acceptance of the yard's repudiation.
In its letter of 30 November 2004 Gearbulk sought to rely on both. Mr Dunning said that letter was
equivocal as between reliance on the terms of the contract and reliance on the general law.
Perhaps it was, but it was quite unequivocal as to Gearbulk's intention to treat the contract as
discharged and that was all that was necessary".
Summary
English position: Whether aggrieved party who elects to terminate a contract for breach can claim damages
for the loss of the entire bargain depends on whether he only had express contractual right or concurrent
right in common law. E.g. Breach of condition, repudiatory breach of an intermediate term going to the root
of the contract by depriving the aggrieved party of substantially the entire benefit of the contract
Adapted in Singapore (see above cases)
o Not entitled to loss of entire bargain if only had express termination clause to rely on (Financings)
o If had concurrent right in common law, then entitled (Lombard)
o Where an aggrieved party has a right to terminate pursuant to an express termination clause as well
as a concurrent common law right to terminate, his invocation of the express termination clause may
also be effective as a termination for common law repudiation; thus entitling him to damages for the
loss of the entire bargain (Stocznia Gdynia).
VIII. AGGRIEVED PARTY’S ELECTION TO TERMINATE [SITUATION 3(A) and 3(B)]
A breach of contract, even a repudiatory one, does not itself bring the contract to an end; rather it confers
on the aggrieved party a right of election
Aggrieved party must choose whether
1) To accept the repudiation, terminate the contract, and sue for damages; or
2) To affirm the contract and continue with performance (keep the contract alive)
Method of acceptance:
If the aggrieved party chooses to accept the repudiation and terminate the contract, he must generally
notify the defaulting party of his choice; mere silence is generally insufficient to amount to acceptance of
repudiation
Lord Steyn in Vitol SA v Norelf Ltd [1996] AC 810 at 810: “An Act of acceptance of a repudiation requires no
particular form: a communication does not have to be couched in the language of acceptance. It is sufficient
that the communication or conduct clearly and unequivocally conveys to the repudiating party that the
aggrieved party is treating the contract as at an end”.
The law does not require an injured party to snatch at a repudiation and he does not automatically lose his
right to treat the contract as discharged merely by calling on the other to reconsider his position and
recognise his obligation (Yukong Line v Rendsberg Investments [1996] 2 Lloyd’s Rep 604 (Moore-Bick J))
However, if the aggrieved party elects to affirm the contract, he loses his right to terminate; the right of
election, once exercised, is not revocable
The general rule is that an election to affirm must be unequivocal. The aggrieved party will not be held to
have affirmed unless he had knowledge of the facts giving rise to the breach; and it has been suggested
that he must also know of his right to choose between affirmation and termination.
Although there is authority that a party will not be held to have elected to affirm unless he knew not only
of the breach but also of his right to terminate (Peyman v Lanjani [1985] Ch 457), he might nonetheless be
estopped (regardless of his knowledge of his right) from denying affirmation if the other party acts on his
apparent affirmation (The Hannah Blumenthal [1983] 1 All ER 34).
Election is to be contrasted with equitable estoppel (Lord Goff in Motor Oil Hellas (Corinth) Refineries v Shipping
Corp of India (The “Kanchenjunga”) [1990] 1 Lloyd’s Rep 391 at 399):
Election Equitable estoppel
See Hughes v Metropolitan Railway Co
(1877) 2 App Cas 439 for the definition of
principle of equitable estoppel
Definition But in the context of a contract, the On the other hand, equitable estoppel
principle of election applies when a state of requires an unequivocal representation by
affairs comes into existence in which one one party that he will not insist upon his
party becomes entitled to exercise a right, legal rights against the other party, and such
and has to choose whether to exercise the reliance by the representee as will render it
right or not inequitable for the representor to go back
on his representation
Knowledge This election has generally to be an No question of any particular knowledge of
informed choice (made with facts giving the representor
rise to the right)
Exception to the rule that an election to affirm, once exercised, is irrevocable – cases of “continuing
repudiatory” conduct by the defaulting party: The aggrieved party who has elected to affirm the contract
after the first breach may be able to treat the continuing non-performance as a fresh act of repudiation
(Johnson v Agnew [1980] AC 367; Safehaven v Springbok (1998) 71 P&CR 59). Although there cannot be
acceptance of the breach once a repudiation has been spent, an aggrieved party may be able to terminate
a contract (notwithstanding earlier affirmation) if continued refusal of the defaulting party amounts to
further repudiatory conduct.
Given that election is generally irrevocable, aggrieved party may be put in a difficult situation – reluctant to
terminate or affirm hastily.
Therefore, third option: The party has a reasonable period of time in which to decide whether to terminate
or affirm
Effects of termination:
Once repudiation is accepted, contract is terminated prospectively rather than retrospectively. Both parties
are discharged from their future primary obligations under the contract, but rights accrued prior to
termination remain intact (Photo Production v Securicor Transport [1980] AC 827)
To this extent, different from rescission ab initio which purports to unwind a contract retrospectively
In fact, it is possible for some clauses in a contract to survive its termination, e.g.:
o Arbitration clauses (Heyman v Darwins Ltd [1942] AC 256)
o Confidentiality clauses (Campbell v Frisbee [2002] EWCA Civ 1374)
Once terminated, contract cannot be revived even by parties’ agreement. Such an agreement will instead
be a new contract. (i.e. election to terminate is irrevocable)
Orix Capital v Personal Representative(s) of the Estate of Lim Chor Pee, Deceased and Others [2009] SGHC 201
Facts Pf leased photocopiers to Df, Df breached once and accepted repudiation of contract by Pf.
Parties reinstated under another agreement later, payments not made, Pf sued Df for sums due.
Holding Claim allowed. Reinstatement of dead contract not possible, instead, new contract formed.
Can one party terminate when both parties have been in breach?
Situation 2 (Repudiation) – only can terminate if following prerequisites are BOTH satisfied:
(a) Terminating party’s own breach was still continuing when it purported to treat the other party as having
repudiated
(b) The two breaches are dependent such that the terminating party’s prior breach prevented it from claiming
that the other party had now repudiated the contract
Alliance Concrete Singapore Pte Ltd v Comfort Resources Pte Ltd [2009] SGCA 34
Facts Df bought sand from Pf. Contract required minimum order and prompt payment. Df consistently
under-ordered and paid late. Pf wanted to terminate.
Holding No termination.
Phang JA citing Jet Holding v Cooper Cameron (Singapore) Pte Ltd [2006] 3 SLR(R) 769 at [98]-
[99] which affirmed approach in English CA decision of State Trading Corporation of India Ltd v
M Golodetz Ltd:
Makes no difference that both parties had committed breaches and that the breaches were
breaches of condition
If A is entitled to treat B as having wrongfully repudiated the contract between them and
does so, then it does not avail B to point to A’s past breaches of contract, whatever their
nature
A breach by A would only assist B if it was still continuing when A purported to treat B as
having repudiated the contract AND if B can show that A, being in breach of an obligation
in the nature of a condition precedent, was therefore not entitled to rely on B’s breach as
repudiation
Renunciation = repudiation then can terminate (Sit 2): Commented [EL2]: Renunciation: Party communicates
Karthigesu JA in San International v Keppel Engineering [1998] 3 SLR(R) 447 at [20]: intention not to perform
o A renunciation of contract occurs when one party by words or conduct evinces an intention not to Repudiation: Non-performance of all contractual obligations
perform or expressly declares that he is or will be unable to perform his obligations in some i.e. goes to the root of the contract = fundamental breach
material respect. Sit 2: Anticipatory breach that is fundamental/repudiatory =
o Short of an express refusal or declaration the test is to ascertain whether the action or actions of the can terminate
Sit 3b: Breach of an innominate term that is
party in default are such as to lead a reasonable person to conclude that he no longer intends to be
fundamental/repudiatory = can terminate
bound by its provisions
o The party in default may intend in fact to fulfil the contract but may be determined to do so only in a
manner substantially inconsistent with his obligations, or may refuse to perform the contract unless
the other party complies with certain conditions not required by its terms
Principle reaffirmed in Econ Piling v GTE Construction [2009] SGHC 213 at [30] by Judith Prakash J; contract
in that case was renounced as evidenced by conduct
Anticipatory breach?
Renunciation at or after time of performance = actual breach
Renunciation before time fixed for performance = anticipatory breach (focus here is on this, since actual
breach is covered by Situations 3A and 3B)
Aggrieved party has a choice to accept or affirm because in a wholly executory contract, parties do not
just have right to performance but ALSO right to maintenance of contractual relations (Anson)
o Cf Hochester: Nature of such contracts is that parties ‘impliedly promise that in the meantime neither
will do anything to the prejudice of the other inconsistent with the relation’
Not every anticipatory breach entitles the innocent party to termination. In order to do so, an anticipatory
breach must be repudiatory - either a breach of condition or breach of an innominate term which
deprives the other party of substantially the whole benefit of the contract
Renunciation occurs when one party, by words or conduct, evinces an intention not to perform part or the
entire contract:
Hochster v De la Tour (1853) 2 El & Bl 678
Facts Employment contract repudiated by employer before specified date of engagement
12 April: Df contracted for Pf to be his courier on a trip on 1 June.
11 May: Df informed Pf he had changed his mind, did not require Pf’s services.
22 May: Pf sued Df
Issue:
i) Whether employee may sue for damages immediately, without waiting until specified
date for performance.
ii) Whether employee must himself remain ready and willing to perform until specified
date.
Holding Pf could sue for damages immediately. Did not have to wait until specified date for performance.
Followed in:
Frost v Knight (1871-72) LR Ex 111
Facts Df promised to marry Pf on death of his dad (who had objected to marriage)
Df broke engagement while dad was still alive.
Pf brought action for breach of promise to marry (NB: promise of marriage was legally
enforceable then)
Holding Cockburn CJ gave judgement for Pf; could sue even though dad was still alive
AP has ‘inchoate right’ to performance of bargain. This becomes complete when it is time
for performance.
In the meantime, AP retains ‘right to have the contract kept open as a subsisting and
effective contract’ because its ‘unimpaired and unimpeached efficacy may be essential to
his interests’, in allowing him to decide how best to deal with his accrued rights.
However, an anticipatory breach does not always give the aggrieved party the right to terminate the contract.
Such a right only arises if the anticipatory breach amounts to a repudiation.
When the anticipatory breach concerns a contractual term, e.g. a condition, but the consequences don’t pass
the test of discharging breach as in Hongkong Fir:
RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd and another appeal [2007] 4 SLR 413 (see Frustration, FM cl)
Facts RDC (appellant) was to supply concrete to SK (respondent) but frequent failure to supply
concrete (due to shortages of raw materials and plant breakdowns) forced Pf to purchase
cement at a higher price from another supplier to make up. Df pleaded force majeure
clauses.
Holding Rejected the suggestion that where a party deliberately chooses to perform its part of
the contract only in a substantially inconsistent manner, innocent’s party termination in
justified. i.e. Cannot terminate if anticipatory breach that is not fundamental??
Instead Court thought that in such a case, whether the innocent party can terminate the
contract would depend on whether 3(a) and 3(b) tests are satisfied. [95]
But left open the possibility of the argument that a defaulting party who chooses to
perform the contract in a manner substantially inconsistent with its contractual
obligations is in substance and effect renouncing the contract concerned. [96] i.e. The
anticipatory breach is actually repudiation??
Chua Chay Lee v Premier Properties Ltd [2000] 2 SLR(R) 464, [2000] SGCA 34
Facts Df was property developer who acquired 24 apartments en bloc
Pf owned one of the apartments and opted to exchange old apartment for new one
Agreement provided (1) banker’s guarantee (2) 33 month time limit (3) liquidated
damages at 10% per annum on banker’s guarantee
The issue before this court was whether the appellants were entitled to terminate the
contract on 11 May 1999.
The sub-issues arising from this issue were (a) whether the projected completion date
of one year was realistic; (b) whether the appellants were entitled to terminate the
contract on the ground of a delay of one year; and (c) whether the developer's conduct
justified the appellants' termination.
Holding Alleged anticipatory breach on respondents’ part
But appeal dismissed because here, 12 months delay was not repudiation
Note assessment of period of delay sufficient to constitute frustration is a question of
fact. Not whether there is “reasonable period of time” for performance
Chua Chay Lee cf Universal Cargo Carriers Corporation v Citati [1957] 2 QB 402
Coram: Devlin J
The shipowners had cancelled a voyage charter-party because no cargo had been provided. The court
asked what delay could lead to a claim for a repudiatory breach of a contract.
Devlin J said: ‘This case gives rise to a difficult question. How long is a ship obliged to remain on
demurrage, and what are the rights of the owner if the charterer detains her too long?
Translated into the terms of general contract law, the question is: Where time is not of the essence of the
contract – in other words, when delay is only a breach of warranty – how long must the delay last before
the aggrieved party is entitled to throw up the contract?
The theoretical answer is not in doubt. The aggrieved party is relieved from his obligations when the delay
becomes so long as to go to the root of the contract and amount to a repudiation of it. The difficulty lies in
the application, for it is hard to say where fact ends and law begins.
The best solution will be found, I think, by a judge who does not try to draw too many nice distinctions
between fact and law, but who, having some familiarity both with the legal principle and with commercial
matters and the extent to which delay affects maritime business, exercises them both in a common-sense
way.
This is the sort of solution which, upon the supposition that it was acceptable to business men, the
commercial court was created to provide.’ and ‘But a party to a contract may not purchase indefinite
delay by paying damages .. When the delay becomes so prolonged that the breach assumes a character so
grave as to go to the root of the contract, the aggrieved party is entitled to rescind. What is the yardstick
by which this length of delay is to be measured? Those considered in the arbitration can now be reduced
to two’ (as in the present appeal) ‘first, the conception of a reasonable time, and secondly, such delay as
would frustrate the charter-party . . In my opinion the second has been settled as the correct one by a
long line of authorities’.
Note that local decision finds that delay sufficient for breach is a question of fact, not law. But in this case, ship
is a transportation vehicle. Every minute lost is money lost for the ship company. But in Chua Chay Lee, time
was not of the essence.
Yes:
The “STX Mumbai” [2015] SGCA 35
Facts Appellant agreed to supply bunkers to respondent’s vessel (STX Mumbai) and required
payment to be made within 30 days
The bunkers were duly supplied (executed contract; all that remained was payment),
but appellant demanded immediate payment of the contract price 3 days before the
due date
Appellant felt this demand was justified by circumstances which “demonstrated that
payment would not be forthcoming when it fell due under the contract” i.e.
respondent’s group of companies’ poor financial health
Claimed respondent anticipatorily repudiated contract by evincing a clear intention to
renounce it by refusing to comply with appellant’s demand OR that it was impossible
for them to have paid when due date arrived
Focused on the latter in the appeal case
Holding Dismissed respondent’s appeal.
BUT
Alternative justification: Pf’s right is premised on Df’s breach of a separate (albeit implied)
promise – that Df would not prevent Pf from performing its contractual obligations,
which simultaneously constitute the conditions precedent to Pf’s entitlement of Df’s
performance of obligations of the same contract
In this case, if the Pf has performed all obligations under the contract then there is
nothing that Df would actually prevent by its repudiation of obligations (albeit in advance)
under the contract
Then, there is no basis upon which the Pf is allowed to sue the Df for anticipatory breach
Essentially there is no breach of the separate and implied promise, since Df would not
prevent Pf from performing its obligations in order to obtain the benefit of Df’s
performance
Refined approach
While it is true there is no actual breach of the separate promise, even in such a situation,
Df is nevertheless in anticipatory breach if it states, in advance, that it will not perform
its contractual obligations when the time for the actual performance arrives
i.e By conduct, evinced a clear intention not to perform contractual obligations
Actual breach has occurred in substance (even if time for performance has not yet
arrived)
Df is not prejudiced because conduct clearly evinces intention to breach obligations,
albeit notified in advance to Pf
This would be an actual breach of another separate and implied promise by Df that it
would not act in such a manner so as to render the Pf’s performance of its obligations
towards the completion of the contract futile
This is the same general purpose and rationale underlying the application of the doctrine
of anticipatory breach to executory contracts; would not matter whether contract was
executed or executory
Is also just and fair, logical and coherent – a Pf who had performed all contractual
obligations (i.e. an executed contract) cannot possibly be in a worse position than if they
had yet to perform (although it is able and willing)
But better to understand it using the ‘Df’s conduct’ approach rather than the ‘implied
promise’ approach
Performance inconsistent with contractual obligations? Relevance of bona fide beliefs (good faith)?
Vaswani v Italian Motors [1996] 1 WLR 270 (Lord Woolf)
Facts Car sellers Df demanded that buyer Pf pay a sum of money more than what he was
obliged to pay under the contract (Ferrari car, price variation clause), genuinely believing
that this was the amount due (although it was not)
When Pf did not pay, Df treated as repudiation and suspended Pf’s deposit
Pf sued
Holding Df did not repudiate contract.
There was no conduct by Dfs that was totally inconsistent with the continuance of the
contract.
o Although in this case Df did indicate to Pf that he should pay a sum which was
excessive or the deposit would be forfeit, Df did not go further to say that it would
be purposeless to pay the correct sum.
o Buyer in difficult position when faced with threatened non-performance by seller
o If he refuses to pay when faced with an erroneous but good faith demand by the
seller, he may not be able to show that the seller has repudiated the contract
o To be safe, he must go further and tender performance of the sum which he believes
is the sum due and thereby hope to persuade the Court that, when the seller
refused to accept that performance, he thereby repudiated the contract
Demonstrates Courts’ reluctance to conclude that a party who has acted in good faith
has repudiated the contract.
Not easy to reconcile with the principle that bad faith is not required for establishing a
breach of contract (strict liability).
Therefore,
It is not a repudiation for a party to put forward in good faith his genuine interpretation of what the
contract requires of him (Woodar Investment v Wimpey Construction [1980] 1 WLR 277)
But where that party performs in a manner inconsistent with the terms of the contract, it is no defence for
the him to show that he had acted in good faith (Federal Commerce & Navigation v Molena Alpha (The
“Nanfri”)).
In other words, the reconciliation proceeds by distinguishing between actual breach and anticipatory
breach. Where the breach is anticipatory only and comprises the assertion that of an interpretation of the
contract which turns out to have been erroneous, the courts are slow to infer that there has been a
repudiatory breach.
Were the law otherwise, it would be difficult to conduct negotiations, prior to the time of performance,
about the meaning of a contract without running the risk of repudiating the contract.
But, when it comes to the time of performance, and a party performs inconsistently with the terms of the
contract, he should not be allowed to rely on his own good faith, but mistaken, interpretation to say that
his breach had not been repudiatory.
Acceptance of repudiation can be immediate; do not have to wait for date performance is due:
Hochster v De la Tour (1853) 2 El & Bl 678, 118 ER 922
Holding
Vitol SA v Norelf Ltd (The “Santa Clara”) [1996] 3 WLR 105 esp 113-114
(Lord Steyn)
Facts
Holding 1) “Where a party has repudiated a contract the aggrieved party has an election to accept
the repudiation or affirm the contract, he must generally communicate his decision to
the breaching party [citing the Fercometal case].
2) An act of acceptance of a repudiation requires no particular form: a communication does
not have to be couched in the language of acceptance. It is sufficient that the
communication or conduct clearly and unequivocally conveys to the repudiating party
that that aggrieved party is treating the contract as at an end.
3) … the aggrieved party need not personally, or by an agent, notify the repudiating party
of his election to treat the contract as at an end. It is sufficient that the fact of the election
comes to the repudiating party's attention, e.g. notification by an unauthorised broker
or other intermediary may be sufficient
4) … A failure to perform may sometimes signify to a repudiating party an election by the
aggrieved party to treat the contract as at an end....
5) [Failure to perform does not always constitute acceptance, but] … our law does in
exceptional cases recognize acceptance of an offer by silence. [All depends on the
particular contractual relationship and circumstances, whether mere failure to perform
suffices]
6) ... Similarly, in the different field of repudiation, a failure to perform may sometimes be
given a colour by special circumstances and may only be explicable to a reasonable
person in the position of the repudiating party as an election to accept the repudiation.”
Limitations:
1) It cannot apply retrospectively to accrued debts (which can be sued for even after
acceptance of repudiation)
2) Does not apply where innocent party cannot reasonably perform his obligation without
the cooperation of the contract-breaker (if so, only remedy is damages and not the full
contract price)
3) Cannot apply when innocent party is legally obliged/under a practical compulsion to
complete performance of the contract in question, and other contracts entered into
based on the contract in question
o Because the doctrine was conceived in the context of the innocent party rejecting
the repudiation by the other party and exercising his right to complete performance
when the former has a legitimate interest to protec