#17366 - Discharge By Breach - Shipping and International Trade

DISCHARGE BY BREACH

SUMMARY

Conditions, Innominate Terms, Warranties

Definitions

• This distinction only matters if performance of the contract is not yet complete

  • If performance is complete, you can only ever get damages

• Innominate term

  • There must be deprivation of substantially the whole benefit to warrant termination (Hongkong Fir)

Examples

Contracts of sale

• Implied term that goods will match description

  • i.e. thickness of wood in Arcos v Renaasen

  • HL held that there was a right to reject

  • But HL also held that this is subject to a de minimis exception

• Buyer’s duty to give notice of readiness to load

  • Condition (Bunge v Tradax)

  • There was emphasis on the interdependency between the buyer’s and seller’s obligations

  • It was only after buyer gave notice of readiness, that seller could discharge their own obligation to nominate a port

  • Bunge v Tradax is the counterweight to Hongkong Fir -> emphasised the importance of certainty in the international sale context

Contract of carriage

• Seaworthiness clause

  • Innominate term (Hongkong Fir)

  • CA thought that this was subject to frequent and trivial breaches

  • Innominate term analysis particularly suited to terms that can be breached in very trivial and very serious ways

• Duty to care for cargo and duty to provide cargo with reasonable dispatch

  • Both innominate terms

• Expected ready to load clause

  • Condition (Mihalis Angelos)

• Voyage charterer’s obligation to load within laytime

  • Innominate term

  • NOTE: Universal Cargo Carriers v Citati called it a warranty, but that was before acceptance of the innominate term category

• Time charterer’s obligation to pay hire

  • Innominate term (Spar Shipping)

  • Despite time clauses being subject to a general presumption of being a condition, this does not apply to payment clauses

  • Breaches of this term can range from trivial to grave -> very indicative that an innominate term analysis is warranted

  • The CA made clear that parties are free to stipulate that punctual payment is a condition

  • They also made clear that the presence of a withdrawal clause alone does not mean that the term is a condition

• Cargoworthiness

  • Case dealing with this is Stanton v Richardson

    • Pumps worked for normal cargo, but didn’t work for wet sugar

    • In those circumstances, cargo-owner could refuse to load

    • But that’s a case of cargo-worthiness

    • In that situation, it is right for the cargo-owner to refuse to load

  • But if it’s a general problem with the ship, we wouldn’t normally expect the cargo-owner to be able to refuse to load

    • They have to load the goods and hope for the best – if things go wrong they can sue for damages

  • If shipowner just refuses to solve the problem ->repudiatory breach, can terminate

    • If it’s clear that shipowner cannot solve the problem in a reasonable time

Contracts involved in the operation of a banker’s commercial credit

• Buyer’s duty to ensure opening of credit

  • It’s a condition (Trans Trust)

  • It’s also a condition precedent to the seller’s obligation to deliver goods (so faced with this obligation, the seller has no obligation to deliver goods, can call contract off and sue for damages) (Trans Trust)

  • It’s also possible that this a condition precedent to the contract coming into existence at all (buyer tried to argue this in Trans Trust), but unlikely to work

• Buyer’s duty to open a credit that conforms with the sale contract

  • Also a condition (Glencore Grain)

• If the seller presents documents to the bank that are not in strict conformity with the terms of the LoC, is the seller entitled to payment?

  • No -> Rayner v Hambros Bank

  • LoC required documents for “Coromandel groundnuts” but the B/L was for “machine-shelled groundnut kernels”

  • Bank can’t be expected to know whether there’s any difference or not – especially an overseas branch

  • Bank is also exposed to a lot of risk here – so they’re entitled to be picky

• Obviously not a breach of contract here by the seller – it just means he’s not entitled to get money from the bank

• If seller does not tender conforming documents, bank does not pay, can the seller sue the buyer?

  • General rule is yes -> LoC is only conditional payment

  • It’s just like writing a cheque that’s bounced

  • Very unfortunate result is that sometimes the buyer has to pay twice: once to the bank and once more to the seller (ED & F Man)

• What are the exceptions?

  • 1) Where the seller expressly or impliedly agrees that he will look to the bank for payment to the exclusion of the buyer

    • The mere fact of agreement to a LoC is not sufficient (ED & F Man), but if the seller has gone out of the way to stipulate this, then he cannot later sue the buyer

• Is the buyer in breach if the bank doesn’t pay?

  • It seems the analysis is that they are -> they have promised to pay in a certain way, through the LoC mechanism, and that mechanism has failed

• But if they end up paying anyway, there might not be any damages flowing from that breach

Refusal to Perform/Rejection

• A party who gives a wrong reason for refusal does not deprive himself of a justification which in fact existed (Glencore Grain)

  • QUAL 1: if the point not taken is one which could have been put right, the general rule will not apply

  • QUAL 2: waiver and estoppel

  • QUAL 3: acceptance

Promissory estoppel, election, acceptance

• What is the difference between termination for breach and rejection?

  • Rejection of goods does not necessarily bring sale contract to an end – it does not end the seller’s obligations to deliver conforming goods - the seller could later tender conforming goods

  • Rejection is a form of repudiation (Kwei Tek Chao?)

• Promissory estoppel

  • Promise/representation not to enforce legal rights (e.g. to terminate)

  • When is required for that estoppel to take effect?

    • Reliance by the party in breach, that would make it inequitable for the innocent party to go back on his promise

    • In the context of a sale contract, this occurs most commonly in not trying to retender conforming goods

• Election

  • A decision whether or not to exercise your right (between affirmation and termination), and then communicating that decision to the other party

  • So you’re not promising anything, you’re just saying this is what you’re doing

  • No reliance needed

  • What do you need to know?

    • Need to be aware of at least the facts that give rise to the right of terminate

    • You might even need to be aware of the right to terminate itself

• NOTE: theoretically, estoppel is only suspensory, so if the reliance by the breaching party is reversible, it is possible for the innocent party to go back on his promise

  • He is only estopped from going back on his promise as long as it is inequitable to do so

  • But in most cases, the reliance won’t be reversible

  • At a theoretical level, the difference is that an election is permanent while estoppel is temporary

• Acceptance

  • Acceptance is a doctrine limited to the sale of goods context

  • It’s a statutory doctrine set out in the SGA

  • You lose the right to reject

  • If you accept goods, you have thereby lost the right to reject

  • When are you deemed to have accepted goods?

    • S35 – three ways you can accept

    • 1) Intimate to seller

    • 2) Do an act which is inconsistent with the ownership of the seller

    • 3) Retain the goods for a reasonable time without intimation of rejection

  • Different from election

    • No knowledge required

    • You can accept without knowing of your right to reject

    • Also no communication required for 2 and 3!

  • How is it different from estoppel?

    • No requirement of a representation except for 1

    • No need for reliance as well

• What we’re interested in is how these doctrines operate in a documentary sale context, especially where there’s a defect in goods which is apparent from the documents

  • Suppose that the buyer has noticed a discrepancy but has taken them up anyway

  • Can you reject the goods later for the same defect?

    • NO – this is an election case

    • You’re showing that you’re electing not to take up the goods on the grounds of that defect

    • Thus it’s clear that you have lost the right to reject the goods later for that same defect

  • What about a case where a defect in the goods is revealed by the documents, but you don’t notice it?

    • You have lost the right to reject (Panchaud)

    • KH: that case concerned a certificate of quality, but what if it’s a less impt document?

    • Peel: the defect has to be detectable from a shipping document- > something that is contractually required to be tendered under the contract of sale

  • This can’t be election

    • No knowledge

  • Why can’t it be estoppel?

    • No reliance

    • The only way to show reliance is to say that: if you had told us earlier, we could have found substitute goods that did conform with the contract shipment period and then tendered conforming documents?

• There are difficulties in transposing the acceptance analysis into a documentary sale context

  • But that might seem a better explanation of Panchaud than either election or estoppel

  • The idea is that taking up the documents is acceptance, and thus you’ve lost the right to reject the goods

  • You’re not accepting the goods per se, you still have your subsequent right to reject, but you’re accepting the goods as regards this particular defect

  • NOTE: This is supported by Glencore Grain! Which also analysed Panchaud as a case of acceptance

    • The deemed acceptance under s 35 is based simply on the buyer's retention of the goods which have been delivered to him and his failure to intimate to the seller that he has rejected them

• If this is a form of acceptance, then which form of acceptance is it?

  • Why does it matter?

  • If you say...