Paul Bugden, Bugden + Co., London

ref:Geden Operations Ltd v Dry Bulk Handy Holdings Inc M/V “Bulk Uruguay”/ [2014] EWHC 885 (Comm) (28 March 2014), [2014] 2 Lloyd’s Rep 66 Popplewell J.

This case concerned an appeal pursuant to s.69 of the Arbitration Act 1996 against an award by three London maritime arbitrators. The source of the dispute was the right of the charterers to give voyage instructions to owners for the vessel to transit the Gulf of Aden (GOA), a well known area of piracy, for which additional war risk premium is payable.

The time charter did not on its proper construction provide for GOA transit consent from the Owners to be obtained by Charterers. However the Owners were disponent owners and their rights and obligations were not back to back in this respect with the position under the head charter where GOA transit consent was required.

In their dealings with Charterers Owners wrongly adopted the position that their consent to any GOA transit was required and Charterers treated the Owners’ wrongful insistence that their consent was necessary as a repudiatory breach, which they purported to accept as terminating the Charterparty.

The tribunal found that Owners’ conduct amounted to no more than an assertion that the Charterers required their permission in order to transit the GOA. It did not involve a refusal to comply with an order to transit the GOA. Nor did it follow from the fact that Owners required the head owners’ consent for any GOA transit that such consent would not be forthcoming at such time as the Charterers might have ordered the Vessel to transit the GOA, or that there would necessarily be some delay in complying with the Charterers’ orders to do so if and when they were given Had such an order been given, the Owners may well have been able to comply promptly with it. The Charterers’ case at its highest was that it was possible that on some occasions consent might not have been forthcoming, although this conclusion was essentially speculative.

As such the tribunal found for owners and held that the Charterers were liable in damages to the Owners for wrongfully throwing up the contract.

On appeal the award was upheld. The judge found that the tribunal had applied the right test. The three sets of circumstances giving rise to a discharge of contract are (1) renunciation by a party of his liabilities under it; (2) impossibility created by his own act; and (3) total or partial failure of performance. In the case of the first two, the renunciation may occur or impossibility be created either before or at the time for performance. In the case of the third, it can occur only at the time or during the course of performance. The third of these is the ordinary case of actual breach, and the first two state the two modes of anticipatory breach.

However here there had been no actual breach and the variant terms of the head charter as to GOA transit did not make compliance with the charter terms impossible. Nor was the tribunal’s finding, that the Owners’ insistence that their consent was required did not amount to a renunciation, a conclusion outside the range of permissible conclusions.

A renunciation can be made either by words or by conduct, provided it is clearly made. It is often put that the party renunciating must “evince an intention” not to go on with the contract. The intention can be evinced either by words or by conduct. The test of whether an intention is sufficiently evinced by conduct is whether the party renunciating has acted in such a way as to lead a reasonable person to the conclusion that he does not intend to fulfil his part of the contract.

Of the two modes, renunciation has established itself as the favourite. The disadvantage of the other is that the party who elects to treat impossibility as an anticipatory breach may be running a serious risk. Suppose, for example, that a man promises to marry a woman on a future date, or to execute a lease, or to deliver goods; and that before the day arrives he marries another, or executes the lease in favour of another, or delivers the goods to a third party. The aggrieved party may sue at once. “One reason alleged in support of such an action,” Campbell C.J. observed in Hochster v De la Tour, “is, that the defendant has, before the day, rendered it impossible for him to perform the contract at the day: but this does not necessarily follow; for, prior to the day fixed for doing the act, the first wife may have died, a surrender of the lease executed might be obtained, and the defendant might have repurchased the goods so as to be in a situation to sell and deliver them to the plaintiff.” But if the plaintiff treats the defendant’s conduct as amounting to renunciation and justifies his rescission on that ground, the defendant could not avail himself of this defence.

Since a man must be both ready and willing to perform, a profession by words or conduct of inability is by itself enough to constitute renunciation. But unwillingness and inability are often difficult to disentangle, and it is rarely necessary to make the attempt. Inability often lies at the root of unwillingness to perform. Willingness in this context does not mean cheerfulness; it means simply an intent to perform. To say: “I would like to but I cannot” negatives intent just as much as “I will not.”

The rationale for treating both renunciation and self induced impossibility as entitling the innocent party to treat the contract as at an end prior to the time for performance is the inevitability of non performance. Since the reason for the rule is that a party is allowed to anticipate an inevitable event and is not obliged to wait until it happens, anticipatory breaches are treated in the same way as actual breaches because they are bound to happen. In the case of self induced impossibility, this means actual inevitability. In the case of renunciation, it means legal inevitability, in the sense that the innocent party is entitled to treat as inevitably going to happen that which the contract breaker clearly conveys by words or conduct that he intends will happen.

Self induced impossibility is narrowly confined to those cases where breach is rendered inevitable. Save for possibilities which are so remote that in practice they can be ignored, what is required is inevitability. It is not sufficient if something is done which makes future performance unlikely, even very unlikely, still less that it renders performance uncertain. That is why renunciation is often a more favoured basis for invoking the doctrine of anticipatory breach.

A party is deemed to have incapacitated himself from performing his side of the contract, not only when he deliberately puts it out of his power to perform the contract, but also when by his own act or default circumstances arise which render him unable to perform his side of the contract or some essential part thereof.

Where conduct renders future performance merely uncertain, the self induced impossibility ground for putting an end to the contract does not arise. The innocent party must bring himself within the doctrine of renunciation. Conduct which renders future performance uncertain may in the circumstances of a particular case be such that a reasonable man would conclude that it evinced an intention not to perform when the time comes. Whether the conduct evinces such an intention is a question of fact in each case. Much will depend upon the degree of uncertainty, the nature of the contingency, in whom the contingency is vested, and a host of other circumstances peculiar to each case.

Words or conduct which give rise to the uncertainty of future performance, the contingency of which rests upon conduct of a third party, will not necessarily evince an intention not to be bound. If, for example, a person has a contractual obligation to be at a place at 9 am on a particular day, and says that he only intends to fulfil his obligation if the early train is running as usual, he is making clear that his future performance is dependent upon a contingency which is in the hands of another. But he is not ipso facto evincing an intention not to perform his obligation, and the rationale for the anticipatory breach rule does not require some legal deeming that he is. On the contrary, it requires the other contracting party to wait to see whether there is a breach when the time for performance arises, a breach which before that time is not inevitable.

The principle is no different where the uncertainty arises out of a discretion which falls to be exercised by a third party from that which arises from any contingency, whether it be within or outside the immediate control of the contracting party. Contractual performance is commonly subject to a host of uncertainties and contingencies. When the time for performance arises there may be a breach which arises from an unwillingness or inability to perform driven by factors which rest on decisions of third parties, such as that of a seller’s supplier up the chain, or other independent contingencies, such as an absence of goods available in the market to a seller who has assumed that contractual risk.

A party may lawfully assume an absolute obligation which he hopes to fulfil when the time for performance arrives. He is not in anticipatory breach by reason merely of there being an uncertainty whether his hopes will be fulfilled. A party who contracts to sell specific goods which he is negotiating to purchase is not in anticipatory breach because he has not yet concluded the negotiations with the supplier and secured the means of supply. He is no more in anticipatory breach if he has concluded his supply contract but it provides for performance by the supplier which is subject to contingencies. If the supply is subject to the supplier’s consent, which may or may not be forthcoming, that is but one example of where future performance is uncertain and depends upon a contingency outside the control of the contracting party. Similarly, a lessee who subleases a property from a future date in the hope and expectation that he will in the meantime obtain the landlord’s consent is not ipso facto in anticipatory breach the moment he enters into the sub lease, notwithstanding that his ability to perform depends upon the consent of the landlord.