Introduction

In The STX Mumbai [2015] SGCA 35, a five-member Court of Appeal sat to hear an admiralty case for the first time. The case involved a novel issue of an anticipatory breach of an executed contract. The significance of this case is two-fold: under what circumstances may legal action be brought before the credit period expires and also, whether insolvency of a parent company has an impact on its subsidiary, possibly disregarding the corporate veils.

The Appellant had supplied bunkers to the Respondent’s vessel. However, 2 days before the expiry of the payment period, the Appellant arrested the vessel on the basis of anticipatory breach on the part of the Respondent. In particular, the Appellant submitted that the Respondent could not meet its payment obligations due to the insolvency of its parent company.

The High Court struck out the in rem action, holding that the Respondent was not in anticipatory breach of the agreement. The High Court based its decision on the principle that without an acceleration clause bringing forward the time of payment, insolvency per se does not amount to a repudiation and that, in any event, the doctrine of anticipatory breach is not available in executed contracts (where the only outstanding obligation is payment).

However, the Court of Appeal overturned the decision, establishing that anticipatory breach does apply to executed contracts under Singapore law. In the circumstances, the Court of Appeal found an arguable connection between the parent company’s insolvency and the Respondent’s ability to make payment. Therefore, the Appellant’s action for anticipatory breach was not obviously unsustainable, and the striking out order was set aside.

This decision has been closely watched not just because of its significance to the shipping industry, but also its pronouncement on novel issues of contract law. The Appellant was successfully represented in the appeal by Leong Kah Wah, V Bala and Koh See Bin of Rajah & Tann Singapore LLP.

Brief Facts

The Appellant had, through STX Corporation, entered into an agreement (the “Contract”) for the supply of bunkers to the STX Mumbai (the “Vessel”), which was owned by the Respondent. Under the Contract, payment was to be made by the Respondent within 30 days.

Notably, the Appellant had also dealt with STX Corporation for the supply of bunkers to four other vessels. It was the Appellant’s understanding that all the vessels were part of a conglomerate of related companies, of which STX Pan Ocean was the parent.

A series of events soon led the Appellant to believe the Respondent would not be making payment within the contractual period. First, payment in relation to one of the other vessels had fallen due, and no payment had been received. Second, the Appellant learnt that STX Pan Ocean had filed for bankruptcy in South Korea.

The Appellant demanded immediate payment from the Respondent on 13 June 2013, before the contractual payment date of 16 June, which was a Sunday. On 14 June 2013, the preceding Friday, the Appellant issued a writ in rem and arrested the Vessel after the close of banking hours on the basis that the Respondent was in anticipatory breach of the Contract.

The Respondent applied successfully to the High Court to strike out the Appellant’s in rem action and to set aside the warrant of arrest for the Vessel, as well as for damages for wrongful arrest.

Holding of the Court of Appeal

Upon appeal, the Court of Appeal overturned the decision of the High Court, reinstating the in rem action. The Court also allowed the Appellant’s appeal against the setting aside of the arrest but reserved the question of wrongful arrest to the trial judge.

Anticipatory breach and executed contracts

One of the more significant parts of the Court of Appeal’s decision was how it would decide on anticipatory breach and its application to executed contracts. This is not an issue without controversy across different jurisdictions, and had yet to be decided in Singapore.

Although there were precedents in various jurisdictions such as the US, Canada and Australia suggesting that the doctrine of anticipatory breach is not available to executed contracts, the Appellant successfully convinced the Court of Appeal to depart from this position. The Court instead established the position in Singapore that anticipatory breach applies in both executed and executory contracts.

  1. Even if the claimant in a claim for anticipatory breach had already performed all of its obligations, a statement by the defendant that it would not perform its obligations when the time arrives would be a breach of a separate and implied promise that the defendant would not act in a manner so as to render the claimant’s performance an exercise in futility.
  2. Alternatively, such a statement may be said to be a present and actual breach of the defendant’s obligations under the contract, albeit notified in advance to the claimant.
  3. Such a position would be just and fair, as a claimant who has performed all its obligations should not be in a worse position than one which has yet to do so.

Therefore, the doctrine of anticipatory breach would be available to the Appellant in the present case.

Anticipatory breach and insolvency

The Appellant’s claim was for anticipatory breach, and relied on the improbability of remittance being received on the due date of 16 June (being a Sunday) and there being no sign of the transfer having been effected before the arrest, and also, the insolvency of STX Pan Ocean as the basis of such anticipatory breach. Again departing from the High Court’s decision, the Court of Appeal found that the Appellant’s case in this regard was not legally unsustainable.

On the probability of remittance being received on 16 June (Sunday), at the very least, it is arguable that given the time spent in effecting a US dollar remittance through the clearance banks, steps have to be taken by the Respondent ahead of 14 June in order for the funds to hit the Appellant’s account by 16 or even the 17 June. No evidence of such steps were presented by the Respondent and the Court accepted the argument that it was sufficient for the Appellant to anticipate the Respondent’s delayed/ failure to effect payment come the due date.

On the insolvency of the parent, although it is true that insolvency, in and of itself, cannot amount to anticipatory breach, whether or not anticipatory breach actually exists depends on the precise facts of each case and whether the insolvency – viewed in its proper context – justifies the claimant electing to treat itself as discharged from the contract.

On the facts of the present case, the Court of Appeal was satisfied by the Appellant’s evidence that there was some plausible connection between STX Pan Ocean and the Respondent such that it was possible that the former’s insolvency could well have made it impossible for the latter to make payment under the Contract. The Court of Appeal also stated that the liquidator might well have rejected the Appellant’s invoice as there was no benefit to the estate of the insolvent parent company to add to the liabilities where no security was created.

Therefore, the Appellant’s claim for anticipatory breach should not be struck out.

Concluding Words

The question of whether anticipatory breach applies to executed contracts is an important one, and has long been awaiting a definitive pronouncement by the Singapore Courts. A situation where one party has completed all its contractual obligations and is awaiting payment is not uncommon, and the rights of a party in such a scenario would vary greatly depending on how the topic is decided.

The Court of Appeal’s judgment in this case thus provides a welcome certainty to this issue. Parties who have performed their contractual obligations now know that they may still raise the claim based on anticipatory breach.

Contractual parties may also take guidance as to how they should approach the insolvency of a counterparty in terms of whether they are still bound by the contract in question. An overall view of the circumstances is necessary to determine whether or not the counterparty had evinced an intention not to perform its obligations. Weighing the circumstances and deciding as to whether an anticpatory breach exists is not an easy exercise. If possibly there was an express term in the Contract providing for termination of credit in the event of insolvency, including that of the parent, the Appellant may not have to be put through this litigation.