In this High Court case, the court considered the position of a party who, faced with repudiation, chose to affirm the contract and claim LDs rather than accept repudiation and claim general damages. The case involved a contract for shipping containers of cotton to Bangladesh.  The carrier owned the containers and the seller of the cotton had 14 days to return these once put ashore, after which demurrage charges (a form of LDs) would be incurred at a daily rate. Whilst in transit the price of the cotton collapsed, and the buyer refused to collect it on arrival. Litigation commenced and an injunction was ordered freezing the cotton.  Neither the carrier nor the seller was allowed to deal with the containers. The seller was thus in breach of contract, and when it became clear that there was no realistic prospect of returning the containers, the seller was deemed to be in repudiatory breach, thus giving the carrier the right to terminate the contract. The carrier instead claimed the demurrage charges.  By the time of trial these stood at over GBP 1 million, over 10 times the value of the containers. The judge had to consider whether the carrier had any legitimate interest in keeping the contract alive and claiming the LDs.  He decided the carrier did not have an unfettered right to ignore the repudiation and claim the LDs indefinitely. In doing so, he invoked the principle of good faith, noting that it was well established in English law that, in the absence of very clear contrary language, a party must exercise an express contractual discretion in good faith for the purpose for which it was conferred, not arbitrarily, capriciously or irrationally. In most cases where a repudiatory breach has occurred, it will be impossible to keep the contract alive without the co-operation of the other party.   Where such co-operation is not required, it will only be appropriate to continue if it would not be wholly unreasonable to do so.

To view the full text of the decision please click here.