Breach of Contract – Court Takes Commercial Approach

Making the right decisions in the immediate aftermath of a breach of contract is of critical importance and, at such knife-edge moments, legal advice is essential. That point could hardly have been more clearly made than by a High Court case concerning an abortive deal to ship 4,500 metric tonnes of biofuel.

An oil trader contracted to purchase the consignment from a manufacturer. However, the latter indicated that it would be unable to deliver the biofuel. The trader argued that this was a repudiatory breach of contract that it had accepted by failing to nominate a vessel to carry the cargo as it was required to do under the contract. It regarded this as pointless because the fuel it had contracted to buy did not exist. It claimed that the contract had, at that point, come to an end, although it did not send a formal termination notice until ten days later.

The manufacturer argued that the failure to nominate a vessel had not brought the contract to an end. The trader had failed to terminate the contract, or notify the manufacturer of its intention to do so, in good time. Those failures, it was submitted, relieved the manufacturer of its obligation to deliver the goods.

After the trader launched proceedings, the Court found that its silent failure to nominate a vessel was not a sufficiently clear and unequivocal act such as to terminate the contract. The contract had thus persisted until the termination notice was served.

However, the Court noted that the trader’s obligation to nominate a vessel was not a ‘condition precedent’ and would not in any event have served any purpose because both parties were aware that the proposed cargo did not exist. In those circumstances, the manufacturer was not relieved of liability for the cost of its breach of contract to the trader and was ordered to pay $351,830 in damages.

Says John Keeble “The manufacturer was unable to fulfil the contract and tried to avoid the liability by shifting the blame onto the trader. The court took a sensible commercial view and was unwilling to accept that the failure to book a ship for a cargo that didn’t exist was relevant to the supplier’s inability to meet its obligations.”