Vitol SA v Norelf Ltd, The Santa Clare

Vitol SA v Norelf Ltd, The Santa Clare [1996] AC 800

[1996] 3 WLR 105; [1996] 3 All ER 193; [1996] 2 Lloyd’s Rep 225; [1996] CLC 1159; (1996) 15 Tr LR 347; (1996) 93(26) LSG 19; (1996) 146 NLJ 957; (1996) 140 SJLB 147

CONTRACT, REPUDIATION, SALE OF GOODS, GOODS REJECTED BEFORE DELIVERY, ANTICIPATORY BREACH, POSITION OF AGGRIEVED PARTY, FAILURE TO PEFORM A CONTRACT

Facts

The defendant buyers – Vitol (V), entered into a contract with the plaintiff sellers – Norelf (N) to purchase a cargo of propane at a price of $400 per tone. The cargo was to be shipped from Houston in the US and delivered between 1 and 7 March 1991. On 8 March, the buyers sent a telex to the sellers that they had been advised that the vessel would not complete loading until 9 March and accordingly, the cargo would not be delivered on time. In light of the breach of this condition, V wanted to reject the cargo and repudiate the contract. The vessel completed loading and neither party took any steps to perform the contract. On 15 March, N resold the propane at a price of  $170 per tone. The sellers claimed damages worth of $1m as they had to sell the propane at a loss. The arbitrator rejected the claim on grounds that the buyers’ rejection letter constituted an anticipatory breach of contract and the sellers’ failure to take any action to perform the contract constituted acceptance of the repudiation of the contract. The second part of the arbitrator’s decision was appealed and the appeal was dismissed at first instance. The sellers appealed to the Court of Appeal and the Court of Appeal allowed a further appeal. The sellers appealed and the buyers cross-appealed to the House of Lords.

Issues

(1) Can an aggrieved party accept repudiation of a contract merely by failing to perform its part of the contract?

(2) Is this a question of law or a question of fact?

Decision/Outcome

The appeal was allowed and the cross-appeal was dismissed.

(1) Whether an aggrieved party can accept repudiation of a contract merely by failing to perform its part of the contract is a question of law under s. 1(2) Arbitration Act 1979.

(2) When the contract was repudiated by the buyers, the sellers had a choice of either accepting the repudiation or affirming the contract.

(2) The sellers’ failure to perform the contract could not constitute acceptance of the buyers’ anticipatory repudiation of the contract as the failure did not evince a clear and unequivocal choice not to affirm the contract.