The “STX Mumbai” [2015] SGCA 35

The Singapore Court of Appeal in The “STX Mumbai” has clarified that, as a matter of legal principle, the doctrine of anticipatory breach does not apply only to executory contracts and is also available in respect of executed contracts.

Facts

The appellant supplied bunkers to the respondent’s vessel, the STX Mumbai (the “Vessel”), on terms which required payment to be made within 30 days from supply of the bunkers. Three days before payment was due, the appellant issued a letter of demand seeking immediate payment of the contract price by the close of the same business day. The appellant had done so because it had formed the view that the respondent would not be able to make payment when it fell due, owing to the poor financial health of the group of companies that the respondent appeared to be a part of and the insolvency of another company which was named as the “group owner” of the Vessel.

As the respondent did not make immediate payment as demanded, the appellant arrested the Vessel and commenced in rem proceedings against the respondent the next day. The appellant argued that it was entitled to do so as the bunker supply contract had been repudiated by reason of the respondent’s anticipatory breach, namely, it was clear that the respondent would not be making payment when due.

The respondent applied to strike out the in rem proceedings and was successful before both the Assistant Registrar and on appeal to the High Court. In particular, the High Court held that insolvency per se did not automatically amount to a repudiatory breach and, in any event, the company that was insolvent was a separate corporate entity from the respondent. By way of obiter dicta, the High Court further noted that the doctrine of anticipatory breach may be unavailable in respect of executed contracts (i.e. where one party had fully performed its obligation and the only outstanding obligation left was for payment to be made at a future date).

The appellant appealed to the Court of Appeal.

Issues on appeal

The primary question was whether the in rem proceedings were so plainly and obviously unsustainable as to warrant being struck out.

The main issues arising out of this were:

  • Whether the doctrine of anticipatory breach applied to an executed contract; and
  • If so, whether insolvency could be a basis for invoking the doctrine of anticipatory breach.

Does the doctrine of anticipatory breach apply to executed contracts

The Court of Appeal held that, as a matter of legal principle, the doctrine of anticipatory beach can be invoked regardless of whether a contract is executed or executory.

This is because there would, in the court’s view, be a breach of a separate, implied promise by the defendant to the effect that the defendant would not act in such a manner so as to render the plaintiff’s performance of its obligations towards completion of the contract an exercise in futility.

Alternatively, a more modern approach to the doctrine of anticipatory breach, which would avoid the artificiality surrounding the use of implied promises, would be to consider the very fact that the defendant has evinced a clear intention that it will not perform its obligations under the contract as amounting to an actual breach of contract, notwithstanding the fact that the time for the defendant’s performance has yet to arrive under the contract.

Invoking the doctrine due to insolvency

The Court of Appeal held that insolvency cannot, in and of itself, amount to an anticipatory breach. In this regard, the court noted that everything would ultimately turn on the precise facts of each case.

In the present case, there was an arguable connection between the respondent and the insolvent company and the appellant’s argument that it was virtually impossible for payment to have been made when due was not so plainly unmeritorious. Furthermore, where a contract was executed and all that remained was the payment obligation on the part of the insolvent party, there would be little incentive for the insolvent party’s liquidator to adopt the contract and make payment.

Ultimately, the court noted that the issue of whether the present contract had become impossible to perform by reason of insolvency could only be determined after the precise facts are adduced and established at trial. It was therefore inappropriate for the High Court to summarily strike out the appellant’s case.

Judgment

For the reasons set out above, the court allowed the appeal against the High Court’s decision to strike out the appellant’s claim and to set aside the warrant of arrest.

The case provides welcome clarification for admiralty and commercial lawyers that anticipatory breach applies to executed contracts. An innocent party which has performed its obligations would not have to wait until the time for performance by the counterparty had arrived before it could sue the other party and take steps to protect itself.

However, the question of when insolvency may form a basis for repudiation remains more uncertain. The Court of Appeal’s decision to allow the appeal was on the basis that the case was not so plainly and obviously unsustainable as to warrant being summarily struck out. It remains to be seen whether, after the proceedings conclude, the trial judge will find that there was indeed anticipatory breach by reason of insolvency and, if so, what broad principles can be gleaned from the factual matrix adduced and established at trial.