Prioritising Proof over Speculation: Resolving the Prospective Inability Problem in Contract Damages
| Published date | 01 July 2023 |
| Author | David Winterton |
| Date | 01 July 2023 |
| DOI | http://doi.org/10.1111/1468-2230.12783 |
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Modern Law Review
DOI:10.1111/1468-2230.12783
THE
MODERN LAW REVIEW
Volume86July 2023No. 4
Prioritising Proof over Speculation: Resolving the
Prospective Inability Problem in Contract Damages
David Winterton∗
Where one contracting party accepts the other party’s repudiation should the former party’s
entitlement to substantial damages depend upon proof of its future ability to perform? The rel-
evant case law is notoriously complex,and the question remains unsettled. This article identies
the reasons for this complexity and uncertainty and proposes a way forward. It is rst estab-
lished, consistently withthe decisionin Bunge vNidera, that whenthe parties’ obligationsare
dependent or concurrent the innocent party’s ability to perform in the post-termination period
must be relevant to any damages assessment.Next, the critical question of which party should
be allocated the burden of proving the innocent party’s future ability (or inability) to perform is
confronted.It is argued that, subject to two specied exceptions,considerations of both principle
and practicality favour the law’s adoption of a rebuttable presumption that the innocent party
would have performed its remaining obligations.
INTRODUCTION
One party to an ongoing contract (the promisor) commits a repudiatory breach,
giving the other party (the promisee) a common law power to terminate.The
promisee exercises that power and is discharged from any further obligation
to perform or to remain ready, willing,and able to perform,1and claims ‘loss
of bargain damages’.2In order to recover such damages,must the promisee
prove that it would have been able to perform any remaining obligations? This
∗Senior Lecturer, University ofSydneyLaw School. Ithankthetwoanonymous refereesfortheir
valuable comments as well as the following people for helpful comments on earlier drafts:Lord Bur-
rows, Justice of theSupreme Cour t, Professor Paul Davies, MichaelDimarco, Jordan English, Denis
Harley, LexMcDonald, Professor EdwinPeel, Tim Pilkington, ScottRalston, DrNick Tiverios,
Charlie Ward and Dr Fred Wilmot-Smith. Any errors remain my own.
1Whether it is an election to terminate the contract or the failure of a condition precedent to the
promisee’sduty to perform that discharges the promisee from further performance is contentious.
For discussion, seeJohn Carter, ‘Dischargeas theBasis forTermination for Breachof Contract’
(2012) 128 LQR 283 and Jordan English,‘The Nature of Promissory Conditions’ (2021) 137
LQR 630.
2This phrase denotes an award aiming to quantify the valueof the perfor mance that the promisee
has not received.Such an award must be distinguished from one for ‘consequential loss’ or ‘lost
© 2022TheAuthors.The Modern Law Review published by John Wiley & Sons Ltd on behalf of Modern Law Review Limited.
(2023) 86(4) MLR 843–871
This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits
use and distribution in any medium, provided the original work is properly cited,the use is non-commercial and no modications or
adaptations are made.
Prioritising Proof over Speculation
question,hereafter descr ibed as ‘the prospective inability problem’,3hasstrongly
divided opinion.
The decision of the English High Court in Flame SA vGlory Wealth Shipping
PTE Ltd4(The Glory Wealth) isakey sourceof controversy. There, following
a shipowner’s acceptance of the charterer’s ‘actual repudiatory breach’,5Te a r e
J considered the status of the innocent shipowner’s claim for the dierence
between the contract rate,and prevailing market rate,of hire of the ship,as-
sessed at the date of termination, summed over the remainder of the charter.
His Lordship’s obiter conclusion6was that the shipowner’sentitlement to such an
award depended on that party establishing its ability to perform (or to have per-
formed)7itsremainingcontractualobligations. Thatconclusionhasprovoked
forceful criticism,8and qualied support.9
The HouseofLords’ decisioninGolden Strait Corporation vNippon Yusen
Kubishika Kaisha10 (The Golden Victory), and the Supreme Court’s subsequent
armation of that decision in the context of ‘an anticipatory breach of a one-
o contract of sale’ in Bunge vNidera11 (Bunge), arealsocentral featuresof
the current doctrinal landscape. The combined eect of those decisions is that
the promisee’s prima facie entitlement to an award, assessed by reference to the
dierence between the contract price and the prevailingmarket pr ice at the date
of termination (summed over the remainder of the performance period if the
contract is ongoing), will be reduced upon demonstration that, if the contract
had continued,a supervening event would in fact have prevented some or all
of the performance being received.12 Crucially, however, it hasbeen obser ved
that both decisions ‘proceed on the basis that the promisor must prove the later
event and its impact on damages’.13 It will be argued below that this approach
should similarly be adopted when the supervening fact alleged to impact upon
prots’, which attempts to quantify the not too remote, consequential balance-sheet deteriora-
tion suered by the promisee that can be causally attributed to the breach (or repudiation).Each
kind of award constitutes a distinct attempt to put the promisee into ‘the same situation … as
B. For recent recognitionofthisdistinction, seeUpside Property Group Pty Ltd vTe k i n[2017]
NSWCA 336 at [10], [12] and [35] per Meagher JA.
3See Michael Lloyd,‘Ready and Willing to Perform: The Problem of Prospective Inability in the
Law of Contract’ (1974) 37 MLR 121.
4Flame SA vGlory Wealth Shipping PTE Ltd [2013] 2 Lloyd’s Rep 653, [2014] 2 WLR 1405,
5ibid at [3].
6The conclusion was obiter because Teare J also held that the arbitration panel’s nding that the
claimant shipowner would have been able to perform its prospective contractual obligations
should not be disturbed,meaning that Teare J’sdecision on this issue did not aect the outcome.
7The due date for performance of the relevant unperformed obligations for which damages are
claimed may have passed by the time of assessment.
8See for example Edwin Peel,‘Desideratum or pr inciple:the “compensatory principle” revisited’
(2015) 131 LQR 29 and John Carter and Wayne Courtney, ‘“Ready and willing to perform”:
discharge forbreach anddamages’ [2020] LMCLQ251.
9 See David McLauchlan, ‘Repudiatory Breach,Prospective Inability and The Golden Victory’
[2015] JBL 530.
10 Golden Strait Corporation vNippon Yusen Kubishika Kaisha [2007] 2 AC 353.
11See Bunge SA vNidera BV [2015] UKSC 43 at [83] per Lord Toulson.
12See ibid at [21] per Lord Sumption.
13See CarterandCourtney, n8 above, 270 (emphasisadded).
844 © 2022TheAuthors.The Modern Law Review published by John Wiley & Sons Ltd on behalf of Modern Law Review Limited.
(2023) 86(4) MLR 843–871
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