breach of contract: termination and … of contract: termination and other options ... terminate the...

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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

Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards

•  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 other party to continue to perform.

•  I f a contract is aff irmed, i t 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


•  Facts of White and Carter. No duty to be reasonable.

•  Exceptions to White and Carter: Common one 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


•  Affirm the contract and claim damages for the particular breach.

•  May also be necessary to claim specific performance or injunctive relief to compel the other party to continue to perform.

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CONTRACTUAL OR COMMON LAW TERMINATION?


•  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


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


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


•  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


•  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


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


§  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


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


Contract Date of Delivery

Possible delay

Alternative crude

Delay in shipment

Cannot deliver

1.  Unaccepted breach.

2.  What is the measure of damages?

3.  When did the duty to mitigate arise?

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THANK YOU


LEE SHIH Partner

[email protected]

www.leeshih.com

breach of contract: termination and … of contract: termination and other options ... terminate the...

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