The English High Court has provided a restatement of the law regarding the renunciation of a contract. The Court confirmed that where a party seeks to rely on renunciation to terminate a contract (and seek damages for non-performance), he or she must show both that he or she subjectively believes that the words and conduct of the other party demonstrate an intention not to perform, and that those words and conduct objectively demonstrate the same intention.

The claimant (a shipowning company) was hired by the defendant (an oil trading company) to transport some of the defendant’s produce. The dispute concerned whether the claimant could terminate the charter for anticipatory breach by the defendant. The relevant facts are lengthy. It suffices to note that the defendant had sent the claimant several emails, which were carefully worded so as to suggest a strong likelihood that the contract would not be performed, without (the defendant hoped) amounting to an anticipatory breach.

At the trial, the defendant accepted that objectively its words and conduct had demonstrated a clear intention not to perform the contract. However, the defendant claimed that subjectively the claimant did not consider that the words and conduct amounted to such an intention; and that in such a case, the claimant could not rely on renunciation to terminate the contract.

The claimant countered that to make the right to accept a renunciation as terminating a contract conditional on the subjective belief of a corporate entity would create practical issues, namely that it would be difficult to ascertain exactly what that belief was. Further, it would be contrary to the "objective theory" of contract law.

Judge Flaux noted that the issues raised by the claimant would be no more difficult to solve here than in any other case (and there are many) where the Court is concerned with the state of mind of a corporate entity. He rejected the claimant’s submission regarding the objective theory of contract law, and drew an analogy with misrepresentation (where the innocent party must have subjectively believed the misrepresentation). Flaux J also considered relevant case-law, and noted that it agreed with the defendant’s stance - where a party seeks to rely on renunciation to terminate a contract, he or she must show both that he or she subjectively believes that the words and conduct of the other party demonstrate an intention not to perform, and that those words and conduct objectively demonstrate the same intention.

Flaux J found, however, that at the relevant time, the claimant did in fact consider that the defendant's words and conduct demonstrated the intention to renounce the contract. Accordingly, it could rely on the renunciation to terminate the contract and claim damages for non-performance. The cases Flaux J considered date from 1893 and 1992 and so the confirmation of the law is timely.

Case: SK Shipping (S) PTE Ltd v Petroexport Ltd [2009] EWHC 2974 (Comm)