Where a party’s ability to perform is dependant on the actions of a third party, does that party’s inability to perform amount to an anticipatory breach? This question arose in a dispute between the disponent owners of the BULK URUGUAY (DBHH) and their time charterers, Geden1. The charter provided that the vessel could transit the Gulf of Aden (GOA) without DBHH’s consent. In fixture negotiations, Geden had indicated this was essential, because she could then be marketed as “GOA OK” and command a better hire rate. However, the head charter still required head owners’ express permission to transit the GOA.
Just before delivery, Geden indicated that the vessel was required to transit the GOA on her maiden voyage. DBHH therefore requested permission under the head charter which head owners granted for that voyage only, but also making clear that consent might not be given every time a request was made. Subsequently, DBHH informed Geden that whether in future they gave permission to transit the GOA would be dictated by whether or not head owners did so. Geden alleged DBHH were in anticipatory breach and terminated the charterparty. DBHH in turn accepted Geden’s termination as a repudiatory breach.
In arbitration, the tribunal found that GOA transit was not subject to DBHH’s consent under their charter with Geden, but that head owners’ consent was required under the head charter. They nevertheless held: (i) that DBHH had not shown an intention not to perform the charter, merely that they needed permission from head owners, and (ii) that, even if DBHH had unambiguously declared they could not comply with an order to transit the GOA, this did not substantially deprive Geden of the whole benefit of the contract, and was not therefore repudiatory. Charterers appealed, arguing that the arbitrators were wrong in law on both questions.
Geden argued that when DBHH made plain that their consent was dependent on what head owners decided, the fact that DBHH had put it out of their power to perform demonstrated their intention not to be bound by the charter.
The Court disagreed, stating that DBHH had not renounced the contract, since they had not said they would not go on with the charter. Neither had DBHH indicated categorically that they could not perform the charter, and just because there was uncertainty as to whether DBHH could perform in future, this did not amount to a repudiation, since a breach by DBHH was not inevitable. The judge noted that there were other types of contracts in which a party’s performance depended on the decisions of third parties (for example a seller’s supplier up the contractual chain), but it could not be suggested that assuming such obligations in these circumstances would put that party in anticipatory repudiatory breach.
Given the Court’s determination on the first issue, the second question did not need to be decided, but was nevertheless considered. The Court rejected Geden’s argument that a declaration by DBHH that they could not comply with a lawful voyage order to transit the GOA was repudiatory. The correct approach was (i) to identify the benefit Geden would have derived for the remainder of the charterparty if the vessel could have traded via the GOA, and (ii) whether Geden were deprived of substantially that whole benefit.
In fact, Geden were not deprived of the whole benefit - they could trade the vessel elsewhere and had only lost the opportunity to market the vessel as “GOA OK”, which Geden themselves had quantified at c.US$1,250 per day.
Both owners and charterers will welcome this important guidance on the effect of the actions of a third party on a party’s ability to perform, and which also provides a good illustration of the approach an English court will take in analysing a breach to decide whether or not it amounts to a repudiation of the contract.