In a recent English Court of Appeal case, Acre 1127 Ltd (In Liquidation) formerly known as Castle Galleries Limited (In Liquidation) v De Montfort Fine Art Ltd (1), the Court found that proof of a settled intention not to perform an agreement is material in the assessment of damages recoverable for repudiatory breach.
Usually, when a repudiatory breach is accepted, the innocent party is relieved from performance of his obligation under the contract. The innocent party is also relieved from proving that he was ready and willing at the date of the renunciation to perform the contract in accordance with its terms (2). However, the English Court of Appeal has held that proof of an intention by the innocent party not to perform is relevant in the assessment of damages.
Acre 1127 Ltd (In Liquidation) formerly known as Castle Galleries Limited (In Liquidation) v De Montfort Fine Art Ltd – the facts
This case concerned a claim by De Montfort Fine Art Limited (De Montfort) for damages for breach of a rolling Supply Agreement, requiring minimum quarterly purchases by Castle Galleries Limited (Castle) of contemporary commercial works of art from De Montfort. De Montfort alleged that it had terminated the Supply Agreement on account of its repudiatory breach by Castle. Castle, who denied the efficacy of the Supply Agreement until weeks before the trial, denied that it had been in breach thereof, and counterclaimed on the basis that, by service of its counterclaim, it had accepted the repudiatory conduct of De Montfort as terminating the Supply Agreement. De Montfort claimed its loss of profits in respect of three unperformed quarterly obligations, and also claimed damages for repudiation, effectively the profits lost over a further twelve month period which represented the contractual notice to terminate which Castle could permissibly have given. Castle claimed loss of profits over a comparable period together with consequential losses.
The High Court found in favour of De Montfort and dismissed the counterclaim, ruling that Castle was in repudiatory breach by failing and/or refusing to place minimum orders as provided for in the Supply Agreement. Castle, in these proceedings, appealed against that decision on various grounds. Castle contended it should be under no liability to De Montfort and/or that its counterclaim should succeed.
The Court of Appeal held that it was De Montfort who repudiated the agreement by its solicitors' letter, which indicated that De Montfort regarded itself as discharged from any further obligation by reason of its acceptance of Castle's alleged repudiatory breach. The Court found that there was, in fact, no repudiatory breach by Castle, and therefore De Montfort was itself in repudiatory breach of contract by indicating a clear refusal to perform. De Montfort's claim for damages for failure by Castle to place orders in the quarters that had accrued up to the date of De Montfort's solicitors' letter, purporting to terminate the agreement, succeeded. But De Montfort was not entitled to damages after the date of that letter.
More significantly, the Court also found that the Castle could not recover damages from De Montfort consequent upon De Montfort's repudiatory breach of the agreement, and dismissed Castle's appeal against the dismissal of its counterclaim.
The Court reached this conclusion because, in reality, Castle was neither ready nor willing to perform the contract itself, nor did it seek further performance of the contract from De Montfort. The Court compared the facts as being analogous to those discussed in Braithwaite v Foreign Hardwood Company (3), British and Beningtons Ltd v North Western Cachar Tea (4), and Cooper, Ewing & Co Ltd v Hamel & Horley Ltd (5) (Cooper's case). Those cases established the principle that a repudiating party has a defence to a claim for damages in respect of that breach by the innocent party if he can establish that, at the time of the repudiation, the innocent party was already irremediably disabled from performance, provided that that inability to perform on the part of the innocent party is not itself attributable to the repudiatory breach. The Court found that the same result must follow if it can be shown not that the innocent party was disabled from performance, but that he had no intention of performing. Castle's unwillingness to perform here was found not to be a consequence of the De Montfort's repudiatory breach, it long pre-dated it.
The Court referred with approval to Sankey J's remarks in Cooper's case at page 593:
"the true rule is that, although it is not necessarily obligatory for a man whose contract has been repudiated to go on with and complete it or to prove that he was always able and willing to complete in order to succeed in his action, it is none the less open to the party repudiating to show that the other was never in a position to complete and could not possibly have done so at any time; and if he can show this he is not liable in damages".
The Court applied this reasoning to the present case, finding that in answer to Castle's counterclaim, De Montfort was entitled to rely upon Castle's lack of readiness and willingness to perform, which was in no way induced by or consequent upon De Montfort's own repudiatory conduct.
The Court held that Castle's intention not to perform was relevant to the assessment of the damages recoverable consequent upon De Montfort's repudiatory breach. The Court cited Chitty on Contracts6, as support for this finding. Chitty notes that it is no defence to liability to show that, if the contract had not been renounced, the innocent party would not at the time fixed for performance have been able to perform it, but goes on to state "although proof of such inability to perform might possibly be material in the assessment of damages". In this instance, the Court found that proof of a settled intention not to perform must equally be material. Castle could not therefore recover loss of profit which was posited upon performance which the Court found would not have taken place.
This case is important as it shows that in cases where it can be established that a party's intention was not to perform, such intention will be relevant in the assessment of damages recoverable for repudiatory breach. We await with interest to see whether the Irish courts will follow the English Court of Appeal in relation to that aspect of the judgment.
The decision of the Court of Appeal on the question of who was in repudiatory breach, which reversed the finding of the High Court, also shows that parties need to be very careful to take advice before claiming that another party has repudiated the contract, as they might be held themselves to have repudiated it by their (or their solicitors') actions (7).