Nitrate Corporation of Chile Ltd v Pansuiza Compania de Navegacion SA (Hermosa)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE DONALDSON,Re |
| Judgment Date | 03 March 1982 |
| Judgment citation (vLex) | [1982] EWCA Civ J0303-2 |
| Docket Number | 82/0097 |
| Court | Court of Appeal (Civil Division) |
| Date | 03 March 1982 |
[1982] EWCA Civ J0303-2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
(CIVIL DIVISION)
From: Mr Justice Mustill (Commercial Court, London)
Royal Courts of Justice,
Lord Justice Cumming-Bruce,
Lord Justice Donaldson
and
Lord Justice Oliver (Not Present).
82/0097
MR JOHN HOBHOUSE, Q.C. and MR BRUCE REYNOLDS (instructed by Messrs. Clyde & Co.) appeared on behalf of the Appellants (Plaintiffs) in the first action.
MR ADRIAN HAMILTON, Q.C. and MR S.M. TOMLINSON (instructed by Messrs. William A. Crump & Son) appeared on behalf of the Respondents (Defendants) in the first action and on behalf of the Appellants (Plaintiffs) in the second action.
MR ROGER BUCKLEY, Q.C. and MR T.N. YOUNG (instructed by Messrs. Richards Butler & Co.) appeared on behalf of the Respondents (Third Party) in the first action and the Respondents (Defendants) in the second action.
LORD JUSTICE DONALDSON (giving the judgment of the court):
On 31 July 1979, after an eight-day hearing in the Commercial Court, Mr Justice Mustill gave judgment in a complicated charterparty dispute. It was a reserved judgment which, despite masterly clarity and compression, remained of considerable length. Only one of his conclusions is under appeal. All those who are immediately concerned with the decision of this court are fully familiar with the relationship of the parties, the background facts and the terms of that judgment. In the circumstances we see no advantage and considerable disadvantage in trying to set the scene in my own words. For this purpose, and without prejudice to any conclusion as to the matters debated in this appeal, we prefer instead to incorporate Mr Justice Mustill's judgment by reference.
The appeal is by Nitrates. They accept the learned judge's decision that their cancellation of the sub-time charter dated 1 October 1974 (M.T.C. as time chartered owners to Nitrates as charterers) could not be justified on the basis of repudiatory breaches by M.T.C. However, they challenge a similar conclusion in relation to a renunciatory breach by M.T.C. Like the learned judge, we use the term "repudiatory" to indicate breaches of contract which have already occurred and are of a sufficiently serious character to entitle the party not in breach to treat the contract as being at an end. We use the term "renunciatory" to indicate conduct which, whether or not it amounts to an actual breach of contract, foreshadows a breach which would have this potentially dissolutive character. An alternative term, sometimes used, is "anticipatory" since the effect is to allow the injured party to anticipate a breach and act upon it before it occurs. What he is permitted to anticipate is either impossibility of future performance created by the prior conduct of the party treated as a defaulter or a future failure to perform foreshadowed by a prior declaration, by words or conduct, of an intention not to perform in the future. In the case of future impossibility, the law does not require the injured party to await the inevitable. In the case of notice of a future refusal to perform, the law allows the injured party to take the other party at his word and, so doing, to treat the future breach of contract as inevitable. The present appeal is concerned with the latter category.
The learned judge formulated the test to be applied as being "whether M.T.C. and the owners acted in such a way as to lead a reasonable person to conclude that they did not intend to fulfil their part of the contract", and referred to the judgment of Mr Justice Devlin in Universal Cargo Carriers v. Citati (1957) 2 Q.B. 401, 436, and Maple Flock Co. v. Universal Furniture Products (Wembley) Ltd. (1934) 1 K.B. 148, 157. Since Mr Justice Mustill gave judgment, the House of Lords has given judgment in Woodar Ltd. v. Wimpey Ltd. (1980) 1 W.L.R. 277. Whilst that decision is not directly in point it is useful for its review of the authorities. For present purposes we take from it the following propositions:
(a) Dissolution of a contract upon the basis of renunciation is a drastic conclusion which should only be held to arise in clear cases of a refusal to perform contractual obligations in a respect or respects going to the root of the contract.
(b) The refusal must not only be clear, but must be absolute. Where a party declares his intention to act or refrain from acting in a particular way on the basis of a particular appreciation of his obligations, either as a matter of fact or of law, the declaration gives rise to a right of dissolution only if in all the circumstances it is clear that it is not conditional upon his present appreciation of his obligations proving correct when the time for performance arrives.
(c) What does or does not amount to a sufficient refusal is to be judged in the light of whether a reasonable person in the position of the party claiming to be freed from the contract would regard the refusal as being clear and absolute?
One further proposition must be added, although it is not gleaned from or confirmed by the decision in Woodar's case, namely, that
(d) the conduct relied upon is to be considered as at the time when it is treated as terminating the contract, in the light of the then existing circumstances. These circumstances will include the history of the transaction or relationship. Later events are irrelevant, save to the extent that they may point to matters which the parties should have considered as hypothetical possibilities at the relevant time.
In the instant case the renunciatory conduct relied upon was an evinced unwillingness or inability by M.T.C. to maintain the vessel in an efficient and seaworthy state which, on 29 August 1975, was treated by Nitrates as terminating the contractual relationship. That relationship was not one between shipowner and time charterer, but was expressly between time chartered owner and time charterers. This does not in any way reduce the obligations of M.T.C, but it does import, as a surrounding circumstance of which account would be taken by the reasonable time charterer, that M.T.C, despite the use of best endeavours, might encounter practical difficulties in obtaining information and fulfilling its obligations. M.T.C, having given an initial warranty of seaworthiness and undertaken a continuing obligation to maintain in a seaworthy state, would be responsible for a state of affairs produced by the action or inaction of the actual owners. However, the owners will not, without more, be M.T.C's agents to renounce their time charter with Nitrates. For example, if the owners had expressly and firmly refused to repair the collision damage and M.T.C. had promptly taken steps to compel the owners to do so, there might well have been an unaccepted renunciation of the head charter by the owners, but no renunciation by M.T.C. of this charter.
We can state this in a more generalised form. As we have said, renunciatory or anticipatory breaches of contract can take two quite distinct forms. In one case the party in default announces that he will not perform the contract (breach by evinced intention). In the other he takes action which will in due course make it impossible for him to perform (breach by impossibility). Where there is a main contract (Nitrates—M.T.C.) and a subcontract (M.T.C.—owners), declarations of intent by the subcontractor are res inter alios acta so far as concerns breach by evinced intent of the main contract. Their only relevance to the main contract is whether they produce breach by impossibility. In most cases they will not, if only because the main contractor will be able to engage a new subcontractor. However, where the subcontractor is irreplaceable, because the main contract expressly or impliedly requires his employment (in the present case M.T.C. had no right to substitute another vessel) the subcontractor's evinced intention not to perform may produce breach of the main contract by impossibility of performance but will only do so if it is impossible to compel the subcontractor to perform.
Against this background we turn to the facts.
The "Hermosa" was a bulk carrier with seven holds and about 17,500 tons deadweight carrying capacity. She had been built in 1957 and so was some 17 years old at the time of the events with which we are concerned. She was classed with the American Bureau of Shipping. So far as the papers revealed, she was first time chartered to Nitrate in October 1973, the time chartered owners being Greenwich Marine Incorporated, a company which, like M.T.C, was a member of the Tradax Group. The charter of 1 October 1974 was in direct continuation of that earlier charter. The only relevance of this is that apparently Nitrates had no cause to complain of the vessel's seaworthiness during that charter or, indeed, during the first voyage under the later charter. The second voyage, carrying nitrates and iodine from Tocopilla to Terneuzen was, however, an unmitigated disaster. Water had entered the vessel through sheared and corroded pipes and ill-fitting and corroded hatches in such volume that she was 2 ft. lower in the water than she should have been and was unable to enter port. The draft scale suggests that she had taken on something of the order of 1700 tons of water. Cargo damage amounted to U.S.$1,375,000 and cargo underwriters increased the scale of premium charged to Nitrates and expressly refused to insure any further cargoes carried on the Hermosa.
Between 31 January and 27 March 1975 the Hermosa was off hire whilst repairs were effected at...
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