Kaines (U.K.) Ltd v Osterreichische Warrenhandelsgesellschaft (formerly C.G.L. Handelsgesellschaft m.b.H.)

I will ask Lord Justice Bingham to give the first judgment.

At issue in this appeal is the measure of damages recoverable by a buyer against a defaulting seller whose anticipatory repudiation of a contract the buyer has accepted.

The relevant facts are very simple. On 3rd June 1987 the plaintiffs agreed to buy and the defendants to sell 600,000 barrels (plus or minus 5 per cent) of Brent crude oil for September 1987 lifting at a price of US$18.48 per barrel. The defendants repudiated the contract. At 17.28 hours on 18th June the plaintiffs accepted the defendants' repudiation. They issued their writ claiming damages for breach of contract in August 1987.

At the trial before Mr Justice Steyn the main issue was whether any contract between the parties had been made. The defendants challenged the existence of any contract binding upon them. In his judgment, given on 19th March 1990, the judge rejected that challenge and found a contract to the effect I have briefly summarised. There is no appeal against that part of his decision.

The issue on damages arises in this way. On 18th June 1987, the date on which the plaintiffs accepted the defendants' repudiation, the average price per barrel of Brent crude for September lifting was $18.72 (i.e. 24 cents per barrel above the contract price). On the following day it rose 2 cents to $18.74. Over the next few days the price fluctuated upwards and downwards. On 25th June there was an OPEC meeting which was liable to influence the price of crude oil one way or the other. On that day the price in a thin market dropped to $18.38. On the following day, 26th June, the price rose 38 cents to $18.76. A weekend then intervened. On 29th June the average price rose a further 47 cents to $19.23. On that date the plaintiffs bought in 600,000 barrels of the crude for September lifting at the higher price of $19.30.

Before the judge, and again on appeal, the defendants challenged the plaintiffs' assertion that they had bought in this substitute cargo on 29th June. The judge found that they had. There was evidence to support his conclusion, which reflected what the plaintiffs said at the time. Mr Jarvis Q.C., for the defendants, realistically acknowledged the difficulty of dislodging this conclusion, the correctness of which we have no reason to doubt.

At the outset of the hearing below the plaintiffs claimed as damages the difference between the contract price of $18.48 per barrel and the price of $19.30 at which they had bought in on 29th June. As the hearing advanced, however, the plaintiffs amended to add an alternative claim based on the difference between the contract price and the market price on 18th or 19th June. In putting forward this alternative claim the plaintiffs accepted that a Brent crude oil trader, acting reasonably and prudently, would have entered the market to make a substitute purchase contract on, or shortly after, accepting the defendants' repudiation. The plaintiffs thus accepted that the damages recoverable against the defendants could not be increased because the plaintiffs, perhaps speculating (unsuccessfully as it happened) on how prices would go, had chosen to wait before buying in.

The defendants contended that the plaintiffs could recover no more than nominal damages. Having adduced no evidence of the market price in September 1987 when performance was due, the plaintiffs could prove no substantial damage. It was unnecessary to consider what the position might have been had the plaintiffs bought in on 18th or 19th June. They had not done so, but had chosen to wait until 29th June. In so doing they failed to buy on 25th June when they could have bought and when the price had dipped below the contract price. Had the plaintiffs bought then they would have suffered no loss and they accordingly had no claim for substantial damages.

The learned judge took as his text a statement of principle by Professor Treitel in The Law of Contract 7th edition at page 742:

"Where the injured party does accept the breach, he can start his action before the time fixed for performance; but the principle of assessment by reference to that time applies even in this type of case. If the action comes to trial before the time fixed for performance, the damages will therefore necessarily be speculative, as they will be based on forecasts or guesses as to future market movements. But where the injured party accepts the breach, the principle of assessment by reference to the time fixed for performance is subject to an important qualification: his damages will be reduced if, after accepting the breach, he fails to take reasonable steps to mitigate his loss. Under this rule, the injured party may, and if there is a market generally will, be required to make a substitute contract; and his damages will be assessed by reference to the time when the contract should have been made. This will usually be the time of acceptance of the breach (or such reasonable time thereafter as may be allowed under the rules stated above)…"

This statement the judge regarded as uncontroversial, well-established and orthodox. Applying it he held:

The judge thus accepted the plaintiffs' alternative claim.

Given his factual conclusions, none of which can be effectively challenged, the learned judge's approach was in my opinion correct. If a seller repudiates a contract before the time for performance arrives the buyer on existing authority is entitled to accept that anticipatory repudiation, treat the contract as at an end and claim damages. The basic measure of damages is such sum as will put the buyer in the same position as if the seller had duly performed the contract. The prima facie measure is, therefore, the difference between the contract price and the market price at the time of contractual performance. The seller is, however, only liable for such part of the buyer's loss as is properly to be regarded as caused by the seller's breach. If the buyer fails to take reasonable steps to mitigate his loss consequent on the seller's breach, he is debarred from claiming any part of the damage which is due to his neglect to take such steps. The seller's breach is not causative of that additional loss and therefore not recoverable. These last propositions are, in my judgment, established by British Westinqhouse Electric and Manufacturing Co. Ltd v. Underground Electric Railways Company of London Ltd [1912] A.C. 673 at 689; Darbishire v. Warran [1963] 1 W.L.R. 1067 at 1075; The Elena d'Amico [1980] 1 L1. Rep. 75 at 87–90; and The Solholt [1983] 1 L1. Rep. 605 at 608.

Professor Treitel's statement of principle is, as I respectfully think, supported by cases such as Roper v. Johnson (1873) L.R. 8 C.P. 167; Roth & Co. v. Taysen Townsend & Co. (1895) Commercial Cases 240 and 306; Melachrino v. Nickoll & Knight [1920] 1 K.B. 693; Millett v. Van Heek & Co. [1920] 3 K.B. 535 and [1921] 2 K.B. 369, and Garnac Grain Co. Inc. v. Faure & Fairclough Ltd [1968] A.C. 1130. But none of these were cases of anticipatory repudiation in which there were findings (a) that the innocent party should have made a substitute contract, (b) that he failed to do so at the time he should, and (c) that after that time an opportunity to make a substitute contract arose which, if taken, would have reduced his loss. Counsel on both sides were unable to trace a case with these peculiar features. That being so, I do not think detailed discussion of the authorities I have mentioned is called...