SUMMARY OF PART TWO Issues to consider when deciding to terminate - - PowerPoint PPT Presentation

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BREACH OF CONTRACT: TERMINATION AND OTHER OPTIONS

10 December 2013 - LEE SHIH

SKRINE

ADVOCATES & SOLICITORS

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SUMMARY OF PART TWO

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• Issues to consider when deciding to terminate
• Contractual or common law termination?

Impact on remedy.

• Mitigation: When does this duty arise?
• Measure of damages.
• Available market or not.

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AFFIRM OR TERMINATE?

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OPTION 1: AFFIRM THE CONTRACT

• Affirm the contract and claim damages for

the particular breach.

• May also be necessary to claim specific

performance or injunctive relief to compel the

• ther party to continue to perform.
• If a contract is affirmed, it cannot

subsequently be terminated in respect of the same breach leading to the affirmation.

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UNACCEPTED REPUDIATION, CONTRACT CONTINUES

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UNACCEPTED REPUDIATION, CONTRACT CONTINUES

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• Facts of White and Carter. No duty to be

reasonable.

• Exceptions to White and Carter: Common
• ne is where the other side’s cooperation is

required before claimant can complete performance.

• E.g. Hounslow London and time charterparty

situation.

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OPTION 2: TERMINATE THE CONTRACT

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• Affirm the contract and claim damages for

the particular breach.

• May also be necessary to claim specific

performance or injunctive relief to compel the

• ther party to continue to perform.

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CONTRACTUAL OR COMMON LAW TERMINATION?

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• Facts may provide option to either exercise

contractual right to terminate or there has been a repudiatory breach which can be accepted.

• Important to know which right is being

exercised.

• Legal strategy: has impact on type of

damages which could be claimed.

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RECAP: BREACH

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EVENT TEST REMEDIES

Termination clause triggered Repudiatory breach Check on express classification in the contract 1. Breach of condition 2. Serious breach of intermediate term 3. Refusal to perform

• Contract may provide

calculation of damages.

• “Loss of bargain” damages

may not be claimable if not repudiatory breach.

• Where repudiation accepted,

damages can be claimed for losses to date and “loss of bargain.”

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DIFFERENT ASSESSMENT OF DAMAGES

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Example: Financings v Baldock [1963] 2 QB 104

• Hire-purchase of lorry – RM1,100. RM100

downpayment and 10 payments of RM100.

• Driver paid RM100 downpayment and did not pay for

two months (RM200).

• Triggered termination clause in contract.
• Lorry repossessed and sold for only RM200.
• What is the “loss of bargain”? RM1,100 – RM100 –

RM200 = RM800.

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DIFFERENT ASSESSMENT OF DAMAGES

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• Damages for breaches up to termination: RM200
• But also, the loss of bargain: RM800
• Failure to pay for two months, not a repudiatory

breach.

• Termination clause had been triggered.
• Could only claim the RM200 and not the RM800.

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MITIGATION

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• Principle: innocent party cannot recover damages for

any part of loss which could reasonably have been avoided.

• So despite the breach, the innocent party must act

reasonably and must take steps in the ordinary course of business but not required to take commercially risky conduct.

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MITIGATION: EXAMPLE

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Facts: Bulkhaul v Rhodia [2008] EWCA Civ 1452

• B leased out tanks to R store chemicals for a 10-year
• period. Halfway, R purported to terminate the contract

(repudiatory breach) and B accepted the repudiation.

• Damages: B wanted unpaid rental for the remaining

period of the 10-year term.

• B left the tanks as they were.
• Issue of mitigation: Could B have sold these tanks or

leased out these tanks?

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MITIGATION: EXAMPLE

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§ R provided these facts:

• 1. The chemicals were still being produced and

transported in other parts of the world.

• 2. During course of litigation, R had found other

potential purchasers of the tanks and introduced them to B.

• 3. Tanks had 5-6 more years of shelf life remaining

at time of termination.

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MEASURE OF DAMAGES: SALE OF GOODS

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• Seller’s breach: non-delivery.
• Normal measure of damages: If there is available

market, market price of goods at contracted time of delivery – contract price.

• Reasoning behind this: Innocent buyer would have

had to go out into the market to buy equivalent goods at that price.

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MEASURE OF DAMAGES: SALE OF GOODS

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• 1. Contract price: 100MT of CPO at RM200,000 to be

delivered on 1 February 2014.

• 2. By 31 January 2014, Seller says cannot deliver. Is in

breach.

• 3. Market price of CPO on 1 February 2014 for 100MT

is now RM500,000.00.

• 4. Measure of damages: RM500,000 – RM200,000 =

RM300,000.00.

Scenario 1

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MEASURE OF DAMAGES: SALE OF GOODS

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• 1. Contract price: 100MT of CPO at RM200,000 to be delivered
• n 1 February 2014.
• 2. By 30 December 2013, Seller says cannot deliver. Is in
• breach. Buyer accepts the repudiation.
• 3. Market price of CPO on 30 December 2013: RM600,000.00.
• 4. Market price of CPO on 1 February 2014: RM500,000.00.
• 5. Measure of damages: RM500,000 – RM200,000 =

RM300,000.00.

Scenario 2

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NO AVAILABLE MARKET

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MEASURE OF DAMAGES: SALE OF GOODS

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• 1. Consequential losses.
• 2. Loss of user profits.
• 3. Expenses made necessary e.g. purchasing more expensive

substitute goods.

• 4. Compensation paid to a sub-buyer.

No Available Market

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Case study: Boscan Legal

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Case study: Boscan Legal

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Contract Date of Delivery Possible delay Alternative crude Delay in shipment Cannot deliver

• 1. Unaccepted breach.
• 2. What is the measure
• f damages?
• 3. When did the duty to

mitigate arise?

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THANK YOU

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LEE SHIH Partner LS@skrine.com www.leeshih.com