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Discharge By Breach Notes

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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)
o 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)
o 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)
o 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 1

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 cargoowner 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)
o 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)
o 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?
o No -> Rayner v Hambros Bank

LoC required documents for "Coromandel groundnuts" but the B/L was for "machineshelled groundnut kernels"
o 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?
o 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?
o 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?
o 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

2 A party who gives a wrong reason for refusal does not deprive himself of a justification which in fact existed (Glencore Grain)
o 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?
o 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)
o 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
o 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!
o How is it different from estoppel?
 No requirement of a representation except for 1 3 --

 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?
o Why does it matter?
o If you say it's an intimation, then you're intimating that you accept the moment you take the documents showing the defect

If it's a reasonable time, then even 2-3 days after taking the documents, maybe you could still argue that you've not accepted the goods as far as this defect is concerned

4 READINGS

Unfair Contract Terms Act 1977 s. 26 and Sched. 1
S26 - International Supply Contracts
(Basically, UCTA does not apply to international sale contracts)
(1)The limits imposed by this Act on the extent to which a person may exclude or restrict liability by reference to a contract term do not apply to liability arising under such a contract as is described in subsection (3) below.
(2)The terms of such a contract are not subject to any requirement of reasonableness under section 3 ...: and nothing in Part 11 of this Act shall require the incorporation of the terms of such a contract to be fair and reasonable for them to have effect.
(3)Subject to subsection (4), that description of contract is one whose characteristics are the following—
(a)either it is a contract of sale of goods or it is one under or in pursuance of which the possession or ownership of goods passes; and
(b)it is made by parties whose places of business (or, if they have none, habitual residences) are in the territories of different States (the Channel Islands and the Isle of
Man being treated for this purpose as different States from the United Kingdom).
(4)A contract falls within subsection (3) above only if either—
(a)the goods in question are, at the time of the conclusion of the contract, in the course of carriage, or will be carried, from the territory of one State to the territory of another; or
(b)the acts constituting the offer and acceptance have been done in the territories of different States; or
(c)the contract provides for the goods to be delivered to the territory of a State other than that within whose territory those acts were done.
Schedule 1

2. Section 2(1) extends to—
(a)any contract of marine salvage or towage;
(b)any charterparty of a ship or hovercraft; and
(c)any contract for the carriage of goods by ship or hovercraft;
but subject to this sections 2, 3 and 7 do not extend to any such contract

3. Where goods are carried by ship or hovercraft in pursuance of a contract which either—
(a)specifies that as the means of carriage over part of the journey to be covered, or
(b)makes no provision as to the means of carriage and does not exclude that means,
then sections 2(2) and 3 do not... extend to the contract as it operates for and in relation to the carriage of the goods by that means.
NOTE S2(1): "A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence."
Sale of Goods Act 1979 ss. 11-15, 15A, 30, 31, 35, 35A
5 S11 - When condition to be treated as warranty
(2) Where a contract of sale is subject to a condition to be fulfilled by the seller, the buyer may waive the condition, or may elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated.
S12 - Implied term about title, etc
S13 - Sale by description
S14 - Implied terms about quality, fitness
S15 - Sale by sample
S15A - Modification of remedies for breach of condition in non-consumer cases
(1)Where in the case of a contract of sale—
(a)the buyer would, apart from this subsection, have the right to reject goods by reason of a breach on the part of the seller of a term implied by section 13, 14 or 15 above, but
(b)the breach is so slight that it would be unreasonable for him to reject them,
... the breach is not to be treated as a breach of condition but may be treated as a breach of warranty.
(2)This section applies unless a contrary intention appears in, or is to be implied from, the contract.
(3)It is for the seller to show that a breach fell within subsection (1)(b) above.
S30 - Delivery of wrong quantity
(1)Where the seller delivers to the buyer a quantity of goods less than he contracted to sell,
the buyer may reject them, but if the buyer accepts the goods so delivered he must pay for them at the contract rate.
(2)Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell,
the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole.
(2A)A buyer ... may not—
(a)where the seller delivers a quantity of goods less than he contracted to sell, reject the goods under subsection (1) above, or
(b)where the seller delivers a quantity of goods larger than he contracted to sell,
reject the whole under subsection (2) above,
if the shortfall or, as the case may be, excess is so slight that it would be unreasonable for him to do so.
(2B)It is for the seller to show that a shortfall or excess fell within subsection (2A) above.
(3)Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell and the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate.
S31 - Instalment deliveries

6 (1)Unless otherwise agreed, the buyer of goods is not bound to accept delivery of them by instalments.
(2)Where there is a contract for the sale of goods to be delivered by stated instalments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each case depending on the terms of the contract and the circumstances of the case whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated
S35 - Acceptance
(1)The buyer is deemed to have accepted the goods subject to subsection (2) below—
(a)when he intimates to the seller that he has accepted them, or
(b)when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.
(2)Where goods are delivered to the buyer, and he has not previously examined them, he is not deemed to have accepted them under subsection (1) above until he has had a reasonable opportunity of examining them for the purpose—
(a)of ascertaining whether they are in conformity with the contract, and
(b)in the case of a contract for sale by sample, of comparing the bulk with the sample.
(4)The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.
(5)The questions that are material in determining for the purposes of subsection (4) above whether a reasonable time has elapsed include whether the buyer has had a reasonable opportunity of examining the goods for the purpose mentioned in subsection (2) above.
(6)The buyer is not by virtue of this section deemed to have accepted the goods merely because—
(a)he asks for, or agrees to, their repair by or under an arrangement with the seller, or
(b)the goods are delivered to another under a sub-sale or other disposition.
(7)Where the contract is for the sale of goods making one or more commercial units, a buyer accepting any goods included in a unit is deemed to have accepted all the goods making the unit; and in this subsection " commercial unit " means a unit division of which would materially impair the value of the goods or the character of the unit.
S35A - Right of partial rejection
(i.e. buyer can accept some goods and reject the rest where there is non-conformity due to breach)
(1)If the buyer—
(a)has the right to reject the goods by reason of a breach on the part of the seller that affects some or all of them, but
(b)accepts some of the goods, including, where there are any goods unaffected by the breach, all such goods,
he does not by accepting them lose his right to reject the rest.
(2)In the case of a buyer having the right to reject an instalment of goods, subsection (1)
above applies as if references to the goods were references to the goods comprised in the instalment.
(3)For the purposes of subsection (1) above, goods are affected by a breach if by reason of the breach they are not in conformity with the contract.
(4)This section applies unless a contrary intention appears in, or is to be implied from, the contract.
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