Fercometal v Mediterranean

Fercometal SARL v Mediterranean Shipping Co. SA [1989] AC 788

The effect of a wrongful repudiation of contract.

Facts

Charterers entered into an agreement with ship owners for a cargo in the vessel ‘Simona.’ A clause of the agreement allowed the charterers the option of termination if the vessel was not ready to load by 9 July 1982. The charterers gave notice to cancel the contract prematurely, thus repudiating the contract. The owners did not accept the repudiation and continued loading the vessel, tendering a notice of readiness on 8 July. However, the vessel was not ready. The owners claimed for damages for wrongful repudiation.

Issues

The question arose as to (1) the effect of the wrongful repudiation on the obligations of the innocent party and (2) whether the charterers lost their right to terminate the contract by their prior repudiation.

Decision/Outcome

Firstly, the Court held that one party’s wrongful repudiation and failure to perform a contract does not have the legal effect of terminating the contract. In the case of wrongful repudiation by one party, the non-repudiating party has the option of either accepting the repudiation or affirming the contract by continuing to fulfil their obligations. If the innocent party affirms the contract, he must continue to tender performance thereof. On the facts, after the charterer’s wrongful repudiation, the vessel owners affirmed the continuance of the contract, yet failed to fulfil their obligations by tendering the vessel ready to load on time. Secondly, an unaccepted wrongful repudiation does not cancel a contractual right of termination. Thus, the charterers’ unaccepted repudiation does not effect their right of termination if the vessel is not ready by 9 July. As the owners continued to affirm the existence of the contract and failed to tender the ready vessel on 9 July, the charterers are able to exercise their contractual right of termination under the existing contractual clause with no damages.

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