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  • Overview

    MSC -v- Cottonex [2016] EWCA Civ 789

    It has long been settled law that a repudiatory breach of contract (or termination of contract) does not automatically discharge the parties from performance of their remaining primary obligations. Rather, it gives the innocent party a choice between treating those obligations as discharged or affirming the contract in order to wait to see whether the guilty party performs its obligations when the time comes.

    The Court of Appeal has recently reviewed this important principle in a recent case. 

    The original dispute arose out of a contract for the sale of 35 containers of cotton. Cottonex, the shippers, (c) contracted with MSC (m) as carrier for various shipments from Bandar Abbas and Jebel Ali to buyers (b) in Chittagong.

    Subsequent to the contract the price of raw cotton fell significantly moving the market against the buyers. Citing issues with the bills of lading, the containers were rejected by buyers and remained at the port. 

    The containers were owned by M and pursuant to their contract of carriage with C a failure to return them within 14 days gave rise to container demurrage charges.

    In circumstances where C refused to accept that they had title to the goods and where the consignee buyers refused to take delivery the containers simply remained at the port incurring demurrage charges.

    The carrier was unable to dispose of the contents because the containers were under the control of customs authorities who refused to release the containers without an order from the local court. No party was prepared to apply for such an order.  

    Months later C wrote to M indicating they did not have title to the goods and could not re-deliver. Four months later in February 2012 an attempt was made to break the deadlock whereby M offered to sell the containers to C to resolve matters, a deal which broke down.

    M eventually issued proceedings for the outstanding charges.

    The main issue on appeal was whether or not the charges continued to run until the containers were returned to the carrier in lieu of which they could, in principle, run indefinitely (as argued by the carrier) or whether the carrier’s right to claim demurrage came to an end as soon as the contracts had been repudiated. If the latter the Court had to consider the point at which the contract had been repudiated.  

    The Court of Appeal rejected the carrier’s argument that demurrage could continue to run indefinitely.

    The Court took the view that the commercial purpose of the contract had been frustrated and the containers lost. That point was in February 2012 when the carrier attempted to sell the containers to S and the negotiation broke down. There was no reasonable prospect of the containers being redelivered thereafter.

    The Court indicated that it was not possible for M to affirm the contract since the contracts had automatically come to an end in February 2012.

    The Court accordingly held that M was entitled to recover the charges incurred from 14 days after delivery to Chittagong through to February 2012. At that point the containers were held to be lost and damages were payable by reference to the value of the containers on that date.

    The principle that a contract can automatically terminate by breach of contract in certain circumstances is significant and would appear to modify the well established principle that repudiation does not bring a contract to an end unless it is accepted by the innocent party. 

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