Anticipatory Repudiation Describes a Declaration by a Promising Party

Anticipatory repudiation also called an anticipatory breach, is a term in the law of contracts that describes a declaration by the promising party to a contract, that he or she does not intend to live up to his or her obligations under the contract.

Anticipatory repudiation is a type of breach of contracts that occurs when the promisor indicates before the time for his performance that he is unwilling or unable to carry out of the contract. It generally is a breach that constitutes material of contracts that discharge the promisee from all the obligations that they are under.

To determine what the constitutes of anticipatory repudiation is, it is determined by the courts, they look for unequivocal statements or voluntary acts that are clearly indicating that the promisor cannot or will not perform his duties under the contract. This can take a form of an express statement by the promisor. The promisor does not to perform such actions; they are usually willing to sell third party property that the promisor was obligated to sell to the promise. An example of the text book was, ’’If Ross, who is obligated to convey real estate to Davis, conveys the property to some third person instead, Ross has repudiated the contract.

When anticipatory repudiation occurs, the promise is faced with several choices about things. Usually non breaching parties are justified withholding their own performance and for suing for the damages right away. If he is able to perform his part of the contract, the non breaching party is not obligated to do this, however if he chooses, he may wait until the time for performance in case the other party changes his mind and decides to perform.

Courts clarify law on anticipatory breach Case 1

Edwards Angell Palmer & Dodge

The case of SK Shipping (S) Pte Ltd v Petro export Ltd [2009]. In SK Shipping, the Commercial Court examined the law of anticipatory breach and provided useful guidance on when an anticipatory breach may arise. The court made it clear that only the innocent party is able to terminate a contract if it can show that the other party acted in a way to provide clear and absolute intention that it wouldn’t perform its obligations, and that also the other words or conducts from the party would be clean and absolute to a reasonable person taking into consideration of any circumstances that are included at the time. Additional to this, the innocent party must have a true and subjective belief that the other party will breach the contract. Once all these conditions are satisfied the innocent party then can take steps to terminate the contract and breach for its losses.

The facts of SK shipping for the case:

The claimant ship owner (S) claimed damages for the anticipatory breach of a charter party by the defendant charterer (D).

S argued that, following the charter party being agreed, it became clear to it that D had no intention to perform the charter party.

S submitted several facts that gave the impression that the charter party would not be performed. These included: slowing the vessel down while en route to its loading port; failure to carry out the relevant steps for loading of the cargo; and attempts by D to renegotiate the charter party, because no buyer for the cargo of goods could be found.

D argued that S had wrongfully treated the contract as repudiated while there were still days left to run on the charter party, and that none of its actions or words made it clear that it would not perform the charter party as agreed.

The decisions of SK shipping:

Flaux J took taking into account of the words and conduct of D over the course of the non performance and negotiations and of the charter party. D had evinced a clear and absolute intention not to perform the charter party. Flaux j explained that the matters in particular are the reasons that caused S to be concerned that D wouldn’t not perform. They failed to put to up the letter of credit, and the failure to return a signed copy of the charter party that would have entitled D to exemption from freight tax in Pakistan and the proposals for alternative charters. These were maters that provided a background to which D words and conduct were to be considered. Flaux J said that subjectively believed that D would not perform the chapter party and was therefore entitled to treat the contract as repudiated.

The judgment in SK Shipping refers to three sets of circumstances giving rise to a right to rescind a contract according to anticipatory breach. These are:

renunciation by a party of their liabilities under the contract;

impossibility of performing one’s obligations due to their own act; and

Total or partial failure of performance.

The first and second of these circumstances can occur before or at the time performance is due. The third can only occur once performance is due. In other words, the first two are capable of amounting to anticipatory breach, whereas the third is an actual breach of contract. It follows that there are two modes of anticipatory breach of contract. The first is a renunciation made by one party, either by words or conduct. The second is where the party has made it impossible for it to perform its obligations.

SK Shipping and the impacts

Following SK Shipping it should be clearer to contracting parties what they are able to treat as a demonstration of intention not to perform obligations under the contract. Parties should now be more aware that they need to show that:

they have considered the contextual circumstances as a whole in determining whether the other party’s words or conduct have shown a clear and absolute intention not to perform the contract; and

They carry a subjective belief that the other party really will breach the contract.

SK shipping had broken the rules of the contract so then they lost the court case.

Case 2 Applicable law and arbitration

This law case was held in Stockholm, Sweden, but in English. It was constructed according to the laws of Sweden. The article did not include personal details about the claimants, for EG; there sex or nationality.

The law case is about Claimants that considered themselves justified in invoking anticipatory breach on the part of the Respondent and that the withholding of the payment of the Last Shipment was decided on this basis. The question is then, whether the Claimant was justified in withholding this payment and, if not, whether the Respondent because hereof was justified in suspending further of the deliveries of the concentrate.

The law case is between Swedish Act on International sales and the Vienna Convention, they were both companies of metal tradesmen. There was an issue between both acts. Therefore the CISG started to invest potentially the prejudiced party that was a right to suspend or to terminate avoiding in the parlance of the contract. The CISG are United Nations Convention on Contracts for the International Sale of Goods. In the contract it was noted that for a party to suspend or to terminate the performance they must give immediate or a reasonable notice of the suspension or termination. And the only situation where this can be dispensed was in an event to where the other party has declared that they will not perform the obligations. The facts that according to its own statement which has not been disputed by the Respondent, one will have to assume that there is an ipso facto avoidance of the Agreement at this point in time on the part of the Claimant rather than a suspension of performance So, it had been incumbent upon the Claimant of CISG to give notice to the Respondent regarding its intent to declare the Agreement avoided and to issue a subsequent declaration of avoidance.

The case occurred when the Claimant avoided an agreement letter on the 23 of January 1995. This was not within a reasonable time after the circumstance giving right to avoidance had occurred and therefore inconsequential.

When CISG was involved it was clear that party X wasn’t going to commit a fundamental breach of the contract. There was a witness statement dealing with the events on the 16th of December 1993 meeting. The whole problem was about when a meeting held by

Mr. [X[ addresses these some specificity In Mr. [XJ ‘s written witness statement, which is in essential respects confirmed in his examination at the final hearing it appears that Mr. [Y] representing the Respondent at the meeting only expressed his wish to discontinue deliveries to the Claimant and that in the face of Mr. [Z]’s objection the Parties agreed to continue negotiations early 1994 as at this particular moment concentrate market price for 1994 was not yet fixed. In the opinion of the Sole Arbitrator this outcome of the meeting hardly constituted any alarming development in the Parties’ relationship tantamount to any clear indication of anticipatory breach. And in fact, further negotiations did take place not only on 10 March and 14 April 1994, but also on subsequent occasions throughout 1994. At no time is there any mention from either of the Parties of an avoidance of the Agreement throughout 1994 but, on the contrary a request for performance of the Agreement was directed to the Respondent in the Claimant’s letter of 10 May 1994.

The case was presented in court but there was no agreement until 23rd of January 1995. There was no substitute transactions undertaken prior to after this time.

However, it remains to be explored whether or not damages cannot be awarded on the basis of the fundamental provisions relating to. Based on the assumption which has to be made in the absence of a declaration of avoidance from either party if based on this assumption the Claimant’s purchase of [metal] concentrate in substitute transactions may be looked upon as a measure undertaken to mitigate damages.

This assumption would appear to obtain support by the fact that the Claimant in fact did go ahead and procure (metal) concentrate in substitute transactions exposing itself to financial risk which would not based on reasonable commercial judgement have been undertaken in the absence of their economic viability.

The party who argued that the aggrieved party has not taken appropriate steps to prevent unnecessary damage from occurring which carries the burden of proof for his allegation in this regard. In this arbitration it has not been argued that there would have been any alternative course of action open for the Claimant which would have produced a less costly outcome than the one actually chosen by the Claimant.

In view hereof the Sole Arbitrator must consider that any relevant difference between the price agreed by the Parties according to the Agreement and the price achieved in substitute transactions must he relevant for purposes of establishing the damages suffered by the Claimant.

Notes;

The underlined paragraphs were taken from the article