Geden Operations Ltd -v- Dry Bulk Handy Holdings Inc [2014]

The correct test for anticipatory breach by renunciation when one party’s ability to perform rests entirely on the actions of an independent third party.

A dispute had arisen under a time charter because the disponent owners had said their ability to carry out their contractual obligations was entirely dependent on the head owners.

The charterers claimed that the disponent owners were in anticipatory breach of charter by renunciation. 

The NYPE time charter contained a BIMCO Piracy Clause which had been specifically amended by deletion of paragraphs (a) and (b), so that the vessel could transit the Gulf of Aden without the owner’s consent - in other words, she was “GOA OK”.

The charterers wanted to give instructions for the maiden voyage to pass through the GOA and asked the disponent owners about additional premium costs. In the correspondence that followed, the disponent owners advised that prior consent would have to be obtained from the head owners on each occasion that the charterers wanted to transit the GOA. The head owners’ usual position would be to refuse. That was the position in the disponent owners’ charterparty with the head owners, which was not back-to-back with the time charter between the disponent owners and the charterers. The charterers argued that the disponent owners were evincing an intention not to perform the charter. They treated this as an anticipatory breach by renunciation and purported to terminate the charterparty. The disponent owners, in turn, treated the termination itself as a repudiatory breach which they accepted.

In the original arbitration, the tribunal held that the disponent owners were not in anticipatory breach, that the charterers were not entitled to terminate and that the charterers’ termination was a repudiation that had been accepted by the disponent owners. The charterers appealed that decision under s.69 of the Arbitration Act 1996, i.e. that the arbitrators had made an error on a point of law.  

Poppelwell J pointed out that anticipatory breach occurs when non-performance is inevitable – or, in the case of renunciation, when the ‘contract-breaker’ conveys an intention not to perform. The test for renunciation is whether a reasonable man would conclude that the disponent owners, by words or conduct, had evinced an intention not to go on with the contract. Whether the contract-breaker’s words or conduct evince such an intention is a question of fact. In either event, the innocent party is not obliged to wait until the time for performance before treating the contract as breached and at an end.

That the two charterparties in this case were not back-to-back did not, of itself, mean the disponent owners had evinced an intention not to perform their contract, nor put it out of their power to do so. It was not inevitable that the head owners would refuse consent for GOA transit on every occasion. 

The arbitration tribunal had held that the head owners might or might not refuse and the disponent owners had not renounced the contract. That was not a question of law that was open to appeal, but a finding of fact.  As there was no error of law, the appeal to the court failed.

The charterers also argued that during negotiations they had made it plain to the disponent owners that the ability to transit the GOA without the head owner’s permission was a ‘deal breaker’. They said that the anticipated breach, which was a failure to comply promptly with a legitimate voyage instruction if and when made by the charterers, went to the root of the contract and allowed them to terminate.

The court again disagreed and confirmed that the correct approach was to identify the benefit which the charterers would have derived under the remainder of the charterparty and to assess whether the disponent owners’ conduct deprived them substantially of the whole of that benefit.

On the facts, the charterers would not have traded the vessel via the GOA in the foreseeable future knowing that consent would be required for GOA transit. They would avoid the risk of consent being refused. The principal benefit the charterers would be denied as a result of the disponent owners’ conduct was the opportunity in the longer term to market the vessel for sub-charter as “GOA OK”.  This competitive disadvantage did not deprive the charterer of substantially the whole benefit of the charterparty and there was therefore no anticipatory breach on the part of the owners.  Again, this was a finding of fact (not law) which was not open to appeal under s.69.