Tọa đàm "Vi phạm hợp đồng trong hệ thống thông luật"

Tọa đàm “Vi phm hp đng trong h thng Thông lut”

Vào lúc 14h ngày 21/01/2013 tại Phòng A 901, Khoa Luật dân sự phối hợp với GS Eira Ruben (Đại học của Anh Quốc) tổ chức Tọa đàm về chủ đề “Vi phạm hợp đồng trong hệ thống Thông luật”. Trong buổi Tọa đàm, GS Eira Ruben đã trình bày thực trạng của Thông luật về vi phạm hợp đồng và tập trung vào chủ đề vi phạm hợp đồng trước thời hạn. Sau đó, nhiều chủ đề được thảo luận như xác định sự tồn tại và hệ quả pháp lý của vi phạm hợp đồng trước thời hạn hay vấn đề vi phạm cơ bản hợp đồng.

Được sự đồng ý của GS Eira Ruben, xin giới thiệu tới bạn đọc nội dung tham luận của GS về vi phạm hợp đồng trước thời hạn trong Thông luật:

 

“In this paper I wish to examine the case of White & Carter v McGregor[i].The reason is that this case goes to the heart of problems associated with anticipatory breach. Anticipatory breach is a doctrine very specific to the Common Law and a doctrine which does not exist in civil law jurisdictions. I shall first try to disentangle the reasons that drove their Lordships to take the decisions that they did in that case and then try and understand how the doctrine is dispensed with in French law.

 

A breach of contract can be either anticipatory or actual. An anticipatory breach occurs when before the time for performance the promissor either announces that he will not perform his obligation as required by the contract or disables himself from doing so. This definition was used in Hochster v De La Tour.[ii] On 12 April a courier was employed by the defendant to perform duties to begin on June 1. On 11 May, the defendant told the courier that he had changed his mind. On 22 May, the courier brought an action for damages and was successful. To recover damages before time of performance had arisen, there must have been a breach of contract by the defendant, and to justify the courier in not performing the contract, the term breached must have been a condition. The right of the innocent party to bring an action for damages before the time for performance has arisen benefits both parties. The innocent party is able to recover damages at an earlier point in time than if he was to wait for the “actual” breach. The party in breach is also advantaged because , as soon as he has exercised his election, the innocent party must mitigate his loss.

 

But, where a party commits an anticipatory breach of its obligation to pay a fixed sum at a future time, is the other party entitled to continue to perform the contract and then claim that sum when it falls due? This is the legal question arising under White & Carter v McGregor.  Lets look more closely at the case itself.

The pursuers ( this is a Scottish  case, we would say claimants) were a company supplying litter bins to local councils and were paid by businesses like the defender in return for displaying the latter’s advertisements on the bins. On 26 June 1957, when a three-year contract for displaying advertisements between the two parties was about to expire, the sales manager of the defender renewed it with the pursuers for a further term. On the same day the defender purported to cancel the deal, stating that the manager acted without valid authority. The pursuers nonetheless proceeded with the contract and had the defender’s advertisements displayed as contracted for. When the first few payments under the contract were not paid within the specified times, the pursuers brought a claim for the whole contract price pursuant to condition 8 of the contract, which provided that all of the defender’s future payments would accrue immediately upon a failure to make any payment in time. The claim was refused on two occasions in Scotland, only to be allowed on appeal to the House of Lords by a narrow 3 to 2 margin.

In upholding the pursuers’ claim, their Lordships in the majority adopted two distinct approaches. They all started from the general principle that the victim of an anticipatory breach had an unfettered option whether to accept it or not, and that it was under no duty to enforce its contractual rights in a reasonable way. [iii] Lord Hodson denied any room for an exception to the general principle and rejected any role for equity in this regard, [iv] Lord Reid ,however, admitted two grounds on which the general principle could be departed from.

First, the present case belonged to a small number of cases where the victim could perform its side of the contract without any co-operation from the contract- breaker; otherwise the claim would fail right away as the defender could not be compelled to co-operate. [v]

Secondly, the victim’s ability to earn the contract price might be restrained on the ground of ‘some general equitable principle or element of public policy’, where the contract-breaker should be able to show that the victim ‘has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages’. [vi]

The two judges in the minority, in contrast, relying as they did upon a range of different legal grounds, expressed a concern that the pursuers had engaged in an ‘unreasonable and oppressive’ course of action.

There appeared to be two distinct lines of reasoning. First, the pursuers were in effect ‘claiming a kind of inverted specific performance’, [vii] whilst specific performance could not be decreed in the present case because damages would be an adequate remedy.

According to English law, the contract in White & Carter was clearly not one in respect of which specific performance was available. It can thus be said that the pursuers’ claim for the contract price, if permitted, would achieve what a claim for specific performance would not achieve, and would therefore defeat the policing reasons that necessitated the rejection of the latter claim. Secondly, the minority also argued that the pursuers in carrying on performance contravened a duty to mitigate their losses. Lord Keith, in addition, raised a few other points in support of his decision, including, inter alia, automatic termination and an analogy with a contract of personal service.

A hypothetical example relied upon by counsel for the defender, adverted to by their Lordships, well illustrated their differences in opinion. A company commissioned an expert to write a report and, before he could incur any expenses, repudiated the contract. Was the expert entitled to proceed to finish the report and claim the agreed remuneration? Whilst Lord Reid left the matter open by saying that it ‘might be’ that the company could show a lack of ‘legitimate interest’ on the expert’s part, it was said to be ‘strange’  or ‘startling’, by Lord Morton and Lord Keith respectively, that an affirmative answer would be given.

The decision in White & Carter has proved to be an extremely controversial one.    There has been, for example, some uncertainty as to whether Lord Reid’s two qualifications formed part of the ratio of the case. The other two majority judges did not endorse the qualifications. In this respect, they should therefore be regarded as dicta only. Yet, it can of course be said that without Lord Reid there would be no majority.  Therefore, the qualifications are better seen as part of the ratio. In any event, having been repeatedly adopted or applied by lower courts including the Court of Appeal, they are now incontrovertibly seen as an integral component of the White & Carter principle. Nevertheless, the decision in White & Carter, albeit constantly followed, has been   both criticised as ‘grotesque’[viii] and defended as ‘both legally and logically inevitable’. [ix]

The decision has been attacked on both procedural and substantive grounds:

1) on the ground that it was unfair to the respondent in that it saddled him with a performance he did not want

2) it has also been argued that it leads to a result which is economically inefficient in that performance was a waste

3) the rule has been limited in subsequent cases by being narrowly interpreted: the rule does not apply where the innocent party is dependent upon the cooperation of the party in breach in order to be able to continue with performance

4) and if the innocent party has no legitimate interest in performance of the contract

Was White & Carter correctly decided, in terms of both legal principle and its application to the facts? Should any of their Lordships’ speeches, especially that of Lord Reid, be regarded as embodying the most appropriate approach to future like cases? In order to answer this question I will look at the critical issue raised by the case and the competing values and policies underpinning it.

 

IDENTIFYING THE ISSUE

The legal issue posed in a factual situation akin to White & Carter has been variously stated. In general, it can be put in three different ways.

First, the issue has been seen as one relating to the availability of an option to keep the contract alive. [x]There is a theory that, where a contract is or is analogous to a contract of personal service, it should automatically come to an end once an anticipatory breach is communicated.

Secondly, there have been suggestions that White & Carter was concerned not with the victim’s option, but with its ability to resort to a claim for the contract price.  As Sachs LJ succinctly put it, ‘it is the range of remedies that is limited, not the right to elect’. [xi] Thus,‘[t]he court is not exercising a dispensing power; nor is it rewriting an improvident contract. It is simply refusing a certain kind of relief.’ [xii]

Thirdly, it can be argued that the real issue concerns whether, and to what extent, a party is allowed, in the face of an anticipatory breach by the other party, to persist in a wasteful performance. [xiii] In other words, it is on this third view the appropriateness of the continuance of performance, rather than the freedom to continue with the contract or the availability of a claim for the contract price, that sits at the distinctive core of the White & Carter principle. The above three formulations of the issue in White & Carter have obvious connections. If an anticipatory breach automatically terminates the contract, thereby giving rise to a right to claim damages only, the other two formulations would be irrelevant. The ability to claim the contract price, albeit distinct from the appropriateness of continuing performance, depends in large part on the latter. It will be shown below that these three formulations must be either rejected or substantially improved.

 

Automatic termination

Should a contract be kept alive? This question stems from a debate as to whether a contract of personal service forms an exception to the general rule that an anticipatory breach does not automatically terminate the contract but merely vests in the victim a power to terminate. Two opposing views exist. [xiv] One, usually dubbed the ‘elective (or acceptance) view’, treats a contract of personal service as no different from other types of contracts. The other, usually dubbed the ‘unilateral (or automatic termination) view’, excludes such a contract from the general rule.       The ‘elective view’ seems the preferred option.This formulation assumes that the unilateral view is tenable in at least some cases. If that view is based on the fact that a wrongful dismissal destroys the victim’s status as an employee and thus prevents him   claiming wages,  [xv] then a contract of personal service should be regarded as sui generis in this respect. However, if the unilateral view is founded on a more general basis, this would open the door to an enquiry into whether an anticipatory breach in a given case is such that it would automatically terminate the contract and thus terminate any hope of the victim claiming the contract price. Two such general arguments emerge.

The first argument is that, where an employee is wrongfully dismissed, since s/he is generally not entitled to specific relief, [xvi]including a claim for unearned wages, [xvii] the wrongful dismissal must have automatically terminated the contract, leaving the employee with a claim for damages only. This argument can be extended to other types of contracts. Accordingly, whether an anticipatory breach automatically terminates the contract would depend on the availability of specific relief. Where specific relief is not available to the victim, the contract is automatically terminated and the victim has no option to keep it alive.The logic of this argument is evidently flawed. The subsistence of a contract is a necessary, but not sufficient, reason for seeking specific relief. Conversely, even where specific relief is unavailable, the victim may still have ‘good reasons’ to keep the contract alive.[xviii] An option to preserve the contract following an anticipatory breach is thus not, as Shaw LJ once suggested, ‘an empty formality’. [xix]

The second argument in support of the unilateral view is that automatic termination is a result of the seriousness of an anticipatory breach. This is one possible interpretation of the assertion that a wrongful dismissal, if it destroys the relationship of trust and confidence between the parties, would automatically terminate the contract. More generally, Lord Denning once observed that, whilst certain actual breaches might automatically terminate the contract, no anticipatory breach could have such an effect. [xx] Part of his Lordship’s observation is explicable on the ground that an actual breach might be so serious that it should be treated in the same way as a frustrating event, [xxi] it is arguable that the same could be said of an anticipatory breach, such as where it renders further performance of the contract impossible. If the seller under a contract for the sale of a unique painting burns it to ashes, it does not seem to matter whether the incident happens before or after the time for delivery. There are several responses to this argument.

First, not only is it hard to discern any rational basis for linking the seriousness of a breach with the legal effect of automatic termination, but it also seems to contradict established authority to regard frustration cases a[xxii]s resting upon a more stringent test of seriousness than that applied in termination for breach cases. [xxiii]In this respect, a breach of contract is in sharp contrast to a frustrating event, which automatically terminates a contract so that neither party can profit from the event by holding the other to a fundamentally different undertaking. [xxiv]

The reason why automatic termination for breach of contract is not the correct response is because of the need to protect the victim by putting the matter into his hands, to prevent the contract-breaker from taking advantage of its own wrong, and a desire to preserve a deal  . [xxv] This is reinforced by the fact that an anticipatory breach is a retractable wrong. It would deny the contract-breaker an opportunity of undoing the wrong if the breach is treated automatically as terminating the contract.   The fact that a degree of co-operation is required for most contracts to be performed does not derogate from the root principle that the victim has an option whether or not to accept a repudiation. Thirdly, the ‘impossibility’ cases are commonly solved by holding the victim to have impliedly accepted the anticipatory breach, as such an acceptance should be ‘easily infer[red]’ where any other interpretation would be ‘meaningless’. [xxvi]

All in all, the ‘unilateral view’ was rightly condemned by Templeman LJ as ‘contrary to principle, unsupported by authority . . . and undesirable in practice’.  What lies between a contract of personal service and other types of contract is ‘a difference in procedure, not in principle’. [xxvii]

The first formulation of the issue in White & Carter v McGregor is both false and illogical and must thus be rejected. It is false because it should be accepted that the victim of an anticipatory breach has an option whether or not to terminate the contract. It is illogical because if the victim decides not to terminate the contract, it does not necessarily follow that it is entitled to the contract price.

 

Availability of specific relief

The second formulation of the issue in White & Carter postulates that an enquiry should be had whether a claim for the contract price is available to the victim of an anticipatory breach. This formulation has two dimensions.

First, the contract price, as a debt, is payable only if all conditions precedent are fulfilled and the duty to pay it has arisen. A vital key to understanding the issue in White & Carter is the distinction between a claim in debt and a claim in damages. A claim in debt is a claim that the debtor owes to the creditor a sum of money. Such a claim is not subject to the requirement that the creditor must have mitigated his loss. Either the debtor owes the sum of money to the creditor or he does not. A claim in damages is an unliquidated claim to be compensated for the loss that the innocent party has suffered as a result of breach of contract. In this case there is a duty to mitigate loss.

The co-operation qualification is testimony to this point. In most cases, the victim’s performance is necessary for the contractual debt to accrue and without the contract-breaker’s co-operation no such performance is possible. A typical example is that of a wrongfully dismissed employee who cannot claim future wages because he needs the employer’s co-operation to earn the wages and is incapable of doing so by simply presenting his services to the employer. [xxviii]The issue is thus sometimes transformed into one of whether the contract in question, such as a charterparty, should be treated as analogous to a contract of personal service in this respect. However, the clearance of the co- operation hurdle is not sufficient for the claim to be allowed. The legitimate interest qualification, which does not concern the fulfillment of a condition precedent to the payment of the contract price, must also be satisfied. Indeed, the White & Carter principle is not concerned with the accrual of a contractual debt as such. Its distinctiveness lies in a different question: is it appropriate to allow the victim to go on and fulfill all the conditions precedent to the payment of the contract price, thereby putting itself in a position to claim an accrued debt?

Secondly, there were suggestions that a claim for the contract price was not only a claim in debt, but should also be treated as a form of specific performance[xxix]As noted earlier, one of the grounds on which the minority rejected the claim in White & Carter was that it might outflank and undermine the court’s jurisdiction over the sanctioning of specific performance. None of the judges in that case, however, treated the claim as analogous to a claim for specific performance.  Nevertheless, the minority’s argument was later relied upon by some English courts to draw the analogy and consequently the adequacy of damages was accepted as a principal test for ‘legitimate interest’. It is thus well established that where a payment falls due before an anticipatory breach is committed it is recoverable irrespective of whether or not the breach is accepted. [xxx] The courts have no discretion to encumber the victim’s entitlement to the contract price. Admittedly, Lord Reid’s legitimate interest qualification confers on the courts an equitable jurisdiction to constrain the accrual of that entitlement.

The legitimate interest criterion must be distinguished from the equitable doctrine of specific performance in two important respects. First, the focus and scope of the legitimate interest qualification is demonstrably distinct from that of the courts’ more general jurisdiction to grant an order of specific performance.  The factors that mould the equitable jurisdiction to decree specific performance, such as the preservation of personal liberty and the impracticability of supervision, have no role in the White & Carter principle.  Secondly, in contrast to the equitable doctrine of specific performance, the legitimate interest qualification does not concern the appropriateness of a certain remedy at all. The issue in White & Carter is not whether the victim, having fulfilled all the conditions precedent, should be awarded the contract price, but whether it should be allowed to fulfill those conditions in the first place, or, whether its conduct in fulfillment of those conditions should be regarded as inappropriate and thus incapable of giving rise to an entitlement to the contract price. Thus the courts exercise discretion over not the availability of a claim in debt, but the appropriateness of the victim’s conduct in bringing the debt to maturity. The legitimate interest qualification involves a legal exercise preceding the determination of appropriate remedies. In short, the White & Carter principle is not concerned with the appropriateness of a claim for the contract price, whether it is seen as a claim in debt or a claim for specific performance, but with the appropriateness of the victim’s continuing performance. It is for this reason that the second formulation must be rejected.

 

Wasteful performance

The issue in White & Carter does not lie in whether the victim of an anticipatory breach may keep the contract alive or, if it continues and completes its perfor- mance, it is entitled to the contract price. Instead, the third formulation asserts that it is the wastefulness of the victim’s continuing performance that goes to he heart of the White & Carter principle.In White & Carter, the judges who took that view actually formed a majority. Lord Morton and Lord Keith rested their dissenting decisions principally upon the wastefulness of the pursuers’ conduct.Lord Reid’s legitimate interest qualification also centred effectively on it. It was once argued that White & Carter involved unwanted but not necessarily wasteful performance. The reason seems to be that the defender would reap benefits, such as good publicity, from the unwanted advertisements. This argument is, however, based on too restrictive a view of ‘waste’. A performance is wasteful when its costs exceed the benefits. Yet the wastefulness must not be assessed solely from the perspective of one of the parties. Rather, full regard must be had to the interests of both parties and even to the interests of the wider community.  It is economically inefficient and is thus wasteful. On the facts of White & Carter, the pursuers ought, on learning of the repudiation, to have realised that their advertising services would find better use in a desirous party and would thus be wasteful if imposed upon the defender. The wastefulness of the victim’s continuing performance is in fact essential to the White & Carter principle. It is this wastefulness, not the fact that an award of the contract price might cause ‘undue hardship’ to the contract-breaker, that lies at the heart of the notion of ‘legitimate interest’ .

The second comment is that if the third formulation is concerned only with the wastefulness of the victim’s continuing performance, then it misses the full picture. Wastefulness alone does not necessarily mean that the victim is precluded from earning the contract price by continuing performance. The victim’s ability to do so hinges on the weighing of two competing values, namely, the sanctity and certainty of contract and economic efficiency in the form of waste avoidance. English contract law has traditionally prioritised the sanctity and certainty of contract ahead of efficiency. This prioritisation tends to lead to the extreme view that efficiency should be entirely left out of consideration. In White & Carter, Lord Hodson thus held that the pursuers were entitled to the contract price simply because they had given what the defender contracted for, namely, the advertising service, and it was irrelevant that their continuing performance was unreasonable or wasteful. [xxxi] However, as Lloyd J observed, ‘absolute certainty can never be attained’.  The better view seems not to dismiss efficiency entirely but to accept that it may, in certain circumstances, triumph over the sanctity and certainty of contract.  Indeed, it is clear from Lord Reid’s decision in White & Carter that only in exceptional cases is the victim regarded as having no legitimate interest in continuing to perform the contract. The appropriate legal test is whether the wastefulness of the victim’s continuing performance is so serious as to outweigh the sanctity and certainty of contract, namely, the desirability of preserving its ability to earn the contract price by continuing performance.  Lord Reid’s legitimate interest qualification ought to be recast on the basis of this legal test. In applying the White & Carter principle, the courts will take account of a wide range of factors in weighing wastefulness against the sanctity and certainty of contract. Consequently, this is an equitable principle that comes to the contract-breaker’s aid only where wastefulness outweighs the sanctity and certainty of contract.

At this point it should be noted that the victim’s ‘performance interest’ must be distinguished from its contractual right. A performance interest may or may not give rise to a contractual right. A contractual right arises only when both parties intend it to. It is one thing to say that the parties have ‘willed’ that an award of the contract price should be granted once that price is due and not paid. It is quite another to assert that they have intended that, in the face of one party’s repudiation, the other party might continue to perform its side of the contract against the contract-breaker’s will. A contract is usually silent on the latter issue. Thus, ‘performance interest’ in the present context is perhaps best viewed as an alternative expression of ‘the sanctity and certainty of contract’  . Each contracting party has an interest in the contract being upheld and performed. In most cases this interest is fully protected as the victim’s continuing performance is recognised by the court and hence makes the contract price payable. However, the existence of such an interest does not create an absolute rule that allows no exception. It does not preclude the situation where the court may, at least in some cases, exercise its discretion and hold that the victim’s continuing performance is so wasteful that in order to discourage or even deter it the performance must not be given its intended effect of making the contract price payable. The victim, who simply follows the terms of the contract, should not be required to justify its conduct. It is for the contract-breaker to establish that the victim’s continuing performance is so wasteful as to outweigh its performance interest in earning the contract price. Lord Reid, when formulating the legitimate interest qualification in White & Carter, explicitly adopted this view.  Later cases followed suit. [xxxii] As regards the co-operation qualification, once the victim makes out a prima facie case that the contract price is payable, it is also for the contract-breaker to show that the victim’s performance requires its co-operation and has been rendered without it.

 

Legitimate interest

 

The legitimate interest qualification brings out conspicuously the clash between the sanctity and certainty of contract and economic efficiency. The contract-breaker must show that the wastefulness of the victim’s continuing performance outweighs its performance interest in earning the contract price. Three specific tests have been proposed, either individually or jointly, to determine the existence of a legitimate interest. They are: adequacy of damages, duty to mitigate and “wholly unreasonable”. They must first be examined separately.

 

Adequacy of Damages

The first test, alluded to by Lord Reid in White & Carter and adopted by English courts subsequently, states that in order to show the absence of a legitimate interest on the victim’s part, the contract-breaker must satisfy the court that damages are an adequate remedy for the victim. This test was sometimes said to be the dominant test. [xxxiii] More commonly, the test was seen as controlling one of the two essential elements to a successful defence against a claim for the contract price: the con- tract-breaker must show not only the adequacy of damages, but also that the victim’s continuing performance would be ‘wholly unreasonable’. [xxxiv]

In either case, an analogy has been drawn by English courts between a claim for the contract price and a claim for specific performance. The adequacy of damages test, the principal test for the availability of specific performance in anticipatory breach as well as actual breach cases, has consequently been adopted.   As shown previously,   the claim in White & Carter is a claim in debt, rather than a claim for specific performance. The adequacy of damages test in specific performance cases must not be applied   to a case such as White & Carter. The adequacy of damages is distinguishable from the wastefulness of the victim’s continuing performance in that it is not concerned with whether the costs of that performance exceed its benefits, but with whether the victim might be compensated for the difference between the contract price and those costs. This does not, however, mean that the adequacy of damages is wholly irrelevant to the White & Carter principle. Coupled with the wastefulness of the victim’s continuing performance, the adequacy of damages would argue strongly in favour of a finding of no legitimate interest. It must be shown that the victim has a real alternative other than to continue to perform the contract. If no such alternative exists, the value of conserving the victim’s performance interest must prevail over any wastefulness involved in its continuing performance. The adequacy of damages means that the principal alternative, namely, terminating the contract and claiming damages, is open to the victim. It does not, however, necessarily lead to the conclusion that the victim is disallowed to earn the contract price. Nor does it follow from the inadequacy of damages that the victim has no real alternative other than to continue .

 

Duty to Mitigate

The second test, relied upon by the two dissenting judges in White & Carter, is to use the victim’s duty to mitigate to establish the victim’s ability to earn the contract price by continuing performance. A formidable obstacle for this test is a long-standing line of authorities that fix the time when a duty to mitigate arises in anticipatory breach cases at the time when the victim accepts the breach. It was suggested that this rule of law has caused a major anomaly in practice, as the victim might freely continue to perform the contract and thus shift the cost of wasted resources to the contract-breaker. [xxxv] Consequently, critics argued that American law should be preferred, under which a duty to mitigate arose in the victim as soon as the anticipatory breach was communicated and held the victim’s continuing performance in check.  Even some members of the English judiciary have been attracted to this ‘uncomplicated view’. [xxxvi]To be sure, the mitigation principle and the White & Carter principle do share in common a commendable desire to avoid waste.   What is objectionable is the suggestion that the distinction between the two should be removed entirely and the mitigation principle should be applied to a victim who chooses to continue to perform to earn the contract price in the same way as it is applied in assessing damages. [xxxvii]

 

Consequently, the yardstick for a legitimate interest under the White & Carter principle must be distinguished from that in mitigation cases. Although the onus on the contract-breaker to show that the victim acts ‘unreasonably’ in not mitigating is not a light one,  the onus must be even heavier when the contract-breaker aims not to reduce the amount of damages payable, but to thwart in its entirety a claim for the contract price. In fact, the courts, as will be seen, have been alert to this distinction and have thus pitched the level of the contract-breaker’s onus under the White & Carter principle at ‘wholly unreasonable’.

In other words, it is the fact that a party in anticipatory breach ‘may reinstate himself’ prior to acceptance that makes acceptance a prerequisite for both a right of action for damages and a duty to mitigate. [xxxviii]

In rejecting the mitigation principle as an appropriate test I have omitted the usual argument that that principle has application only in a claim for damages, not in a claim in debt. [xxxix] This argument has been criticised for putting form above substance.

 

‘Wholly Unreasonable’

The third test, reasserted many times by English courts subsequent to White & Carter, asks whether the victim’s continuing performance is ‘wholly unreasonable’. Lord Reid’s unhesitating rejection of Lord Cooper’s prior observation that ‘the only reasonable and proper course’ for the victim to take was to accept the breach [xl] was a clear indication that a test of ‘unreasonableness’, inclusive of that applied under the mitigation principle, was too broad to strike a sensible balance between the sanctity and certainty of contract and economic efficiency in a case like White & Carter. Taking up this strand of reasoning, the courts in later cases stressed that the equity to refuse a claim for the contract price should be administered in ‘extreme cases’ only. [xli] The contract-breaker must show that the victim acts ‘wholly unreasonably’ in continuing to perform the contract. The distinction between merely unreasonable and wholly unreasonable is nowhere more prominently depicted than in a judgment of Lloyd J in The Alaskan Trader[xlii] It is necessary to quote the learned judge’s statement in full:

 

“there comes a point at which the court will cease, on general equitable principles, to allow the innocent party to enforce his contract according to its strict legal terms. How one defines that point is obviously a matter of some difficulty, for it involves drawing a line between conduct which is merely unreasonable (see per Lord Reid in White & Carter v McGregor [1961] 3 All ER 1178 at 1182, [1962] AC 473 at 429-430, criticising the Lord President in Langford & Co Ltd v Dutch 1952 SC 15) and conduct which is wholly unreasonable (see per Kerr J in The Odenfeld [1978] 2 Lloyd’s Rep 357 at 374). But however difficult it may be to define the point, that there is such a point seems to me to have been accepted both by the Court of Appeal in The Puerto Buitrago and by Kerr J in The Odenfeld. “

 

The test  of unreasonableness under the White & Carter principle should not be broadly directed at the unreasonableness of the victim’s continuing performance at all. A test of ‘unreasonableness’ fails to capture the critical issue in White & Carter and tends to hide and expand unduly the real factors to be taken into account. The better approach is to confine the courts’ discretion to those factors that affect the weighing of wastefulness against the sanctity and certainty of contract. Consequently, the legal test for ‘legitimate interest’ must be reformulated.

It is possible to reformulate the ‘wholly unreasonable’ test as follows.

(1) The principal test for a legitimate interest is whether, in the particular circumstances of the case, the wastefulness of the victim’s continuing performance outweighs its performance interest in earning the contract price. By its nature this test is equitable and confers on the court a discretionary power, which is exercised only in exceptional cases, to hold that the victim has no legitimate interest in continuing to perform and is thus not entitled to the contract price. There must be some ‘very cogent reason’ for doing so, as the victim would otherwise suffer ‘inconvenience and injustice’. [xliii]

(2) In applying the ‘wholly unreasonable’ test, the courts seem to be looking for a further good reason, in addition to the fact that the victim has a performance interest in earning the contract price, for its continuing performance. The new test recognises more directly and clearly the significance of such a reason. This is not to say that a further good reason is required and without it the victim cannot have a legitimate interest in continuing to perform. Rather, the existence of such a reason may very easily tip the scale in favour of an award of the contract price. A further good reason can be a non-pecuniary interest in the performance of the contract   or a legal liability to a third party consequent on non-performance . It can also be the lack of a real alternative for the victim other than continuing to perform .

(3) Since the main countervailing factor for the victim’s performance interest in earning the contract price is the wastefulness of its continuing performance, regard must be had not only to the victim’s interests, but also to the contract-breaker’s interests. [xliv] It is not sufficient for the contract-breaker to show the mere fact of wastefulness, namely, that the benefits of the victim’s continuing performance are small in comparison with its costs. [xlv]The benefit-cost gap must be ‘completely out of proportion’.  The excessiveness of the wastefulness is necessary for the victim’s claim for the contract price to be resisted  .

(4) The principal test is subject to a defence that the victim has no knowledge of the anticipatory breach at the time when it continues to perform the contract  . It is, however, debatable whether the victim’s lack of knowledge of the wastefulness of its continuing performance also constitutes a good defence. There were suggestions that the ‘wholly unreasonable’ test should be applied from the victim’s point of view and therefore the latter’s knowledge should be taken into account. [xlvi] The decision in White & Carter was thus said to be justified by the pursuers’ apparent ignorance of any waste. Accordingly, it was argued that in the expert report illustration, the expert might go on and make the report if the company wished to engage another expert but not if to his knowledge the report had become superfluous. If the contract-breaker shows that wastefulness outweighs the sanctity and certainty of contract, it is difficult to see why the victim’s continuing performance should be justifiable by reason of its ignorance of the waste. The White & Carter principle is not invoked to impose a legal liability upon an intentional wrongdoer. It discourages the victim from continuing to perform the contract if to do so is adjudged to be overly wasteful and hence inappropriate. Thus, if the inappropriateness of the continuance with the contract is established, it is irrelevant that it is unknown to the victim .

The central issue is whether the victim’s continuance with its performance is so wasteful as to outweigh its performance interest in earning the contract price. This formulation puts a limit on the range of facts that may be taken into account in determining the existence of a legitimate interest.

Was White & Carter correctly decided in view of this newly articulated test? Since the pursuers’ ignorance of the wastefulness of their continuing performance was irrelevant and there was apparently no further good reason for that performance, the answer should hinge on whether the wastefulness was excessive.  This point, however, was not addressed by counsel in the case.

 

If we now compare with the situation in French law, where the doctrine of anticipatory breach does not exist.

French law

Article 1186 of the Civil Code itself expressly provides that where an obligation is due only on a certain event (typically a date), its performance cannot be claimed before the occurrence of that event. [xlvii]French law does admit three exceptions to this rule, where as a result a party may be sued for non-performance of an obligation before the date on which it is due according to the terme, [xlviii] but these do not include the case of the party being unable or declaring himself unwilling to perform the obligation before the due date. Thus, these two situations which English law would see as possibly attracting the doctrine of anticipatory breach would be covered by the rule found in Article 1186, with the result that no actions for enforcement can be brought before the due date. Nor can the "injured party" bring an action for judicial termination of the contract (resolution) on the ground of its serious non-performance as, ex hypothesi, before the terme falls due no non-performance has occurred. These two propositions explain why neither of the circumstances which in English law give rise to the special rights associated with "anticipatory breach" give rise to any immediate right of action in French law, whether that action is for enforcement, damages or for termination of the contract.

1. The "defence based on non-performance" (exception d'inexecution)

French law has recognised that in some circumstances the non-performance of his obligation or obligations by one party to a bilateral contract may give a defence to the other if sued by the party in breach for performance, a defence known as the exception d'inexecution. [xlix] However, the fact that the first party's non-performance was deliberate does not have any formal impact on the availability of the defence, though it could go to the issue of the seriousness of the non-performance necessary to attract its application. So, for example, if a party to a contract informed the other party that he would not perform his obligations at all, this would after the date when performance was due clearly constitute a sufficiently serious non-performance to attract the defence.

2.      Judicial termination of the contract for non-performance (resolution judiciaire)

Strikingly for a common lawyer, in the absence of express stipulation,' in principle an injured party cannot terminate the contract by his own act or by notice however serious the other party's non-performance and must instead apply to the court for judicial termination under Article 1184 of the Civil Code. Once seised of such a claim, and if satisfied of the seriousness of the non-performance, the court may terminate the contract,' but it may declare it subsisting and award damages instead or allow the debtor further time for performance.' [l]There is here much room for what a common lawyer would see as judicial discretion and it would seem that a French court would take into account whether or not the non-performance was deliberate (and therefore whether or not it was in bad faith) in coming to its decision,'" it being particularly unlikely that any further time for performance would be given where the party had previously declared himself unwilling to per- form even though he was able to do so."

As Treitel has noted,' however, the case where a party to a contract has declared that he will not perform his obligations forms an exception to the general requirement of going to court for resolution and, while the point is not specifically adverted to by la doctrine, there would seem to be no reason why this exception should not hold good in the case of a declaration made before the date for performance. Here, then, a creditor may, after the date for performance arrives, treat the contract as though it is at an end there and then, though he does so at the risk of a court subsequently holding that he was not entitled to do so on grounds other than the mere failure to go to court.

3. Damages

There are two ways in which the facts which give rise to the doctrine of anticipatory breach may affect the damages awardable in French law for non-performance.

First, while the availability of damages for delay in performance is in principle subject to a requirement of formal "notice to perform" (mise en demeure) being given by the injured party, it is clear that no notice is required where the other party has indicated that he will not perform. [li]In the result, where a party has declared that he will not perform, after the date for performance has arrived damages for delay in performance will accrue  .

Secondly, the deliberate nature of a party's non-performance affects what a common lawyer would term the test of remoteness of damage applicable. In principle, damages for non-performance of a contractual obligation are limited to those which were or could have been foreseen at the time of making the contract, [lii] but this rule finds an exception where the non-performance constitutes dol. In that case, a non-performing party is liable for damages which are the "immediate and direct consequence of the agreement's non-performance". [liii]

Conclusion

In conclusion, therefore, it can be seen that in French law the fact that a breach of a contract has occurred before the time for performance does not in general affect when any remedy based on breach becomes available, but its deliberate nature may have considerable effects on any subsequent remedy. By contrast, in English law, while in principle the deliberate nature of a breach of contract is irrelevant to the remedies which it attracts, when combined with the element of "anticipation" it may attract the accelerated remedies associated with the doctrine of anticipatory breach, even though these are not restricted only to this situation”.

Tọa đàm “Vi phm hp đng trong h thng Thông lut”

Vào lúc 14h ngày 21/01/2013 tại Phòng A 901, Khoa Luật dân sự phối hợp với GS Eira Ruben (Đại học của Anh Quốc) tổ chức Tọa đàm về chủ đề “Vi phạm hợp đồng trong hệ thống Thông luật”. Trong buổi Tọa đàm, GS Eira Ruben đã trình bày thực trạng của Thông luật về vi phạm hợp đồng và tập trung vào chủ đề vi phạm hợp đồng trước thời hạn. Sau đó, nhiều chủ đề được thảo luận như xác định sự tồn tại và hệ quả pháp lý của vi phạm hợp đồng trước thời hạn hay vấn đề vi phạm cơ bản hợp đồng.

Được sự đồng ý của GS Eira Ruben, xin giới thiệu tới bạn đọc nội dung tham luận của GS về vi phạm hợp đồng trước thời hạn trong Thông luật:

 

“In this paper I wish to examine the case of White & Carter v McGregor[i].The reason is that this case goes to the heart of problems associated with anticipatory breach. Anticipatory breach is a doctrine very specific to the Common Law and a doctrine which does not exist in civil law jurisdictions. I shall first try to disentangle the reasons that drove their Lordships to take the decisions that they did in that case and then try and understand how the doctrine is dispensed with in French law.

 

A breach of contract can be either anticipatory or actual. An anticipatory breach occurs when before the time for performance the promissor either announces that he will not perform his obligation as required by the contract or disables himself from doing so. This definition was used in Hochster v De La Tour.[ii] On 12 April a courier was employed by the defendant to perform duties to begin on June 1. On 11 May, the defendant told the courier that he had changed his mind. On 22 May, the courier brought an action for damages and was successful. To recover damages before time of performance had arisen, there must have been a breach of contract by the defendant, and to justify the courier in not performing the contract, the term breached must have been a condition. The right of the innocent party to bring an action for damages before the time for performance has arisen benefits both parties. The innocent party is able to recover damages at an earlier point in time than if he was to wait for the “actual” breach. The party in breach is also advantaged because , as soon as he has exercised his election, the innocent party must mitigate his loss.

 

But, where a party commits an anticipatory breach of its obligation to pay a fixed sum at a future time, is the other party entitled to continue to perform the contract and then claim that sum when it falls due? This is the legal question arising under White & Carter v McGregor.  Lets look more closely at the case itself.

The pursuers ( this is a Scottish  case, we would say claimants) were a company supplying litter bins to local councils and were paid by businesses like the defender in return for displaying the latter’s advertisements on the bins. On 26 June 1957, when a three-year contract for displaying advertisements between the two parties was about to expire, the sales manager of the defender renewed it with the pursuers for a further term. On the same day the defender purported to cancel the deal, stating that the manager acted without valid authority. The pursuers nonetheless proceeded with the contract and had the defender’s advertisements displayed as contracted for. When the first few payments under the contract were not paid within the specified times, the pursuers brought a claim for the whole contract price pursuant to condition 8 of the contract, which provided that all of the defender’s future payments would accrue immediately upon a failure to make any payment in time. The claim was refused on two occasions in Scotland, only to be allowed on appeal to the House of Lords by a narrow 3 to 2 margin.

In upholding the pursuers’ claim, their Lordships in the majority adopted two distinct approaches. They all started from the general principle that the victim of an anticipatory breach had an unfettered option whether to accept it or not, and that it was under no duty to enforce its contractual rights in a reasonable way. [iii] Lord Hodson denied any room for an exception to the general principle and rejected any role for equity in this regard, [iv] Lord Reid ,however, admitted two grounds on which the general principle could be departed from.

First, the present case belonged to a small number of cases where the victim could perform its side of the contract without any co-operation from the contract- breaker; otherwise the claim would fail right away as the defender could not be compelled to co-operate. [v]

Secondly, the victim’s ability to earn the contract price might be restrained on the ground of ‘some general equitable principle or element of public policy’, where the contract-breaker should be able to show that the victim ‘has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages’. [vi]

The two judges in the minority, in contrast, relying as they did upon a range of different legal grounds, expressed a concern that the pursuers had engaged in an ‘unreasonable and oppressive’ course of action.

There appeared to be two distinct lines of reasoning. First, the pursuers were in effect ‘claiming a kind of inverted specific performance’, [vii] whilst specific performance could not be decreed in the present case because damages would be an adequate remedy.

According to English law, the contract in White & Carter was clearly not one in respect of which specific performance was available. It can thus be said that the pursuers’ claim for the contract price, if permitted, would achieve what a claim for specific performance would not achieve, and would therefore defeat the policing reasons that necessitated the rejection of the latter claim. Secondly, the minority also argued that the pursuers in carrying on performance contravened a duty to mitigate their losses. Lord Keith, in addition, raised a few other points in support of his decision, including, inter alia, automatic termination and an analogy with a contract of personal service.

A hypothetical example relied upon by counsel for the defender, adverted to by their Lordships, well illustrated their differences in opinion. A company commissioned an expert to write a report and, before he could incur any expenses, repudiated the contract. Was the expert entitled to proceed to finish the report and claim the agreed remuneration? Whilst Lord Reid left the matter open by saying that it ‘might be’ that the company could show a lack of ‘legitimate interest’ on the expert’s part, it was said to be ‘strange’  or ‘startling’, by Lord Morton and Lord Keith respectively, that an affirmative answer would be given.

The decision in White & Carter has proved to be an extremely controversial one.    There has been, for example, some uncertainty as to whether Lord Reid’s two qualifications formed part of the ratio of the case. The other two majority judges did not endorse the qualifications. In this respect, they should therefore be regarded as dicta only. Yet, it can of course be said that without Lord Reid there would be no majority.  Therefore, the qualifications are better seen as part of the ratio. In any event, having been repeatedly adopted or applied by lower courts including the Court of Appeal, they are now incontrovertibly seen as an integral component of the White & Carter principle. Nevertheless, the decision in White & Carter, albeit constantly followed, has been   both criticised as ‘grotesque’[viii] and defended as ‘both legally and logically inevitable’. [ix]

The decision has been attacked on both procedural and substantive grounds:

1) on the ground that it was unfair to the respondent in that it saddled him with a performance he did not want

2) it has also been argued that it leads to a result which is economically inefficient in that performance was a waste

3) the rule has been limited in subsequent cases by being narrowly interpreted: the rule does not apply where the innocent party is dependent upon the cooperation of the party in breach in order to be able to continue with performance

4) and if the innocent party has no legitimate interest in performance of the contract

Was White & Carter correctly decided, in terms of both legal principle and its application to the facts? Should any of their Lordships’ speeches, especially that of Lord Reid, be regarded as embodying the most appropriate approach to future like cases? In order to answer this question I will look at the critical issue raised by the case and the competing values and policies underpinning it.

 

IDENTIFYING THE ISSUE

The legal issue posed in a factual situation akin to White & Carter has been variously stated. In general, it can be put in three different ways.

First, the issue has been seen as one relating to the availability of an option to keep the contract alive. [x]There is a theory that, where a contract is or is analogous to a contract of personal service, it should automatically come to an end once an anticipatory breach is communicated.

Secondly, there have been suggestions that White & Carter was concerned not with the victim’s option, but with its ability to resort to a claim for the contract price.  As Sachs LJ succinctly put it, ‘it is the range of remedies that is limited, not the right to elect’. [xi] Thus,‘[t]he court is not exercising a dispensing power; nor is it rewriting an improvident contract. It is simply refusing a certain kind of relief.’ [xii]

Thirdly, it can be argued that the real issue concerns whether, and to what extent, a party is allowed, in the face of an anticipatory breach by the other party, to persist in a wasteful performance. [xiii] In other words, it is on this third view the appropriateness of the continuance of performance, rather than the freedom to continue with the contract or the availability of a claim for the contract price, that sits at the distinctive core of the White & Carter principle. The above three formulations of the issue in White & Carter have obvious connections. If an anticipatory breach automatically terminates the contract, thereby giving rise to a right to claim damages only, the other two formulations would be irrelevant. The ability to claim the contract price, albeit distinct from the appropriateness of continuing performance, depends in large part on the latter. It will be shown below that these three formulations must be either rejected or substantially improved.

 

Automatic termination

 

Should a contract be kept alive? This question stems from a debate as to whether a contract of personal service forms an exception to the general rule that an anticipatory breach does not automatically terminate the contract but merely vests in the victim a power to terminate. Two opposing views exist. [xiv] One, usually dubbed the ‘elective (or acceptance) view’, treats a contract of personal service as no different from other types of contracts. The other, usually dubbed the ‘unilateral (or automatic termination) view’, excludes such a contract from the general rule.       The ‘elective view’ seems the preferred option.This formulation assumes that the unilateral view is tenable in at least some cases. If that view is based on the fact that a wrongful dismissal destroys the victim’s status as an employee and thus prevents him   claiming wages,  [xv] then a contract of personal service should be regarded as sui generis in this respect. However, if the unilateral view is founded on a more general basis, this would open the door to an enquiry into whether an anticipatory breach in a given case is such that it would automatically terminate the contract and thus terminate any hope of the victim claiming the contract price. Two such general arguments emerge.

The first argument is that, where an employee is wrongfully dismissed, since s/he is generally not entitled to specific relief, [xvi]including a claim for unearned wages, [xvii] the wrongful dismissal must have automatically terminated the contract, leaving the employee with a claim for damages only. This argument can be extended to other types of contracts. Accordingly, whether an anticipatory breach automatically terminates the contract would depend on the availability of specific relief. Where specific relief is not available to the victim, the contract is automatically terminated and the victim has no option to keep it alive.The logic of this argument is evidently flawed. The subsistence of a contract is a necessary, but not sufficient, reason for seeking specific relief. Conversely, even where specific relief is unavailable, the victim may still have ‘good reasons’ to keep the contract alive.[xviii] An option to preserve the contract following an anticipatory breach is thus not, as Shaw LJ once suggested, ‘an empty formality’. [xix]

The second argument in support of the unilateral view is that automatic termination is a result of the seriousness of an anticipatory breach. This is one possible interpretation of the assertion that a wrongful dismissal, if it destroys the relationship of trust and confidence between the parties, would automatically terminate the contract. More generally, Lord Denning once observed that, whilst certain actual breaches might automatically terminate the contract, no anticipatory breach could have such an effect. [xx] Part of his Lordship’s observation is explicable on the ground that an actual breach might be so serious that it should be treated in the same way as a frustrating event, [xxi] it is arguable that the same could be said of an anticipatory breach, such as where it renders further performance of the contract impossible. If the seller under a contract for the sale of a unique painting burns it to ashes, it does not seem to matter whether the incident happens before or after the time for delivery. There are several responses to this argument.

First, not only is it hard to discern any rational basis for linking the seriousness of a breach with the legal effect of automatic termination, but it also seems to contradict established authority to regard frustration cases a[xxii]s resting upon a more stringent test of seriousness than that applied in termination for breach cases. [xxiii]In this respect, a breach of contract is in sharp contrast to a frustrating event, which automatically terminates a contract so that neither party can profit from the event by holding the other to a fundamentally different undertaking. [xxiv]

The reason why automatic termination for breach of contract is not the correct response is because of the need to protect the victim by putting the matter into his hands, to prevent the contract-breaker from taking advantage of its own wrong, and a desire to preserve a deal  . [xxv] This is reinforced by the fact that an anticipatory breach is a retractable wrong. It would deny the contract-breaker an opportunity of undoing the wrong if the breach is treated automatically as terminating the contract.   The fact that a degree of co-operation is required for most contracts to be performed does not derogate from the root principle that the victim has an option whether or not to accept a repudiation. Thirdly, the ‘impossibility’ cases are commonly solved by holding the victim to have impliedly accepted the anticipatory breach, as such an acceptance should be ‘easily infer[red]’ where any other interpretation would be ‘meaningless’. [xxvi]

All in all, the ‘unilateral view’ was rightly condemned by Templeman LJ as ‘contrary to principle, unsupported by authority . . . and undesirable in practice’.  What lies between a contract of personal service and other types of contract is ‘a difference in procedure, not in principle’. [xxvii]

The first formulation of the issue in White & Carter v McGregor is both false and illogical and must thus be rejected. It is false because it should be accepted that the victim of an anticipatory breach has an option whether or not to terminate the contract. It is illogical because if the victim decides not to terminate the contract, it does not necessarily follow that it is entitled to the contract price.

 

Availability of specific relief

 

The second formulation of the issue in White & Carter postulates that an enquiry should be had whether a claim for the contract price is available to the victim of an anticipatory breach. This formulation has two dimensions.

First, the contract price, as a debt, is payable only if all conditions precedent are fulfilled and the duty to pay it has arisen. A vital key to understanding the issue in White & Carter is the distinction between a claim in debt and a claim in damages. A claim in debt is a claim that the debtor owes to the creditor a sum of money. Such a claim is not subject to the requirement that the creditor must have mitigated his loss. Either the debtor owes the sum of money to the creditor or he does not. A claim in damages is an unliquidated claim to be compensated for the loss that the innocent party has suffered as a result of breach of contract. In this case there is a duty to mitigate loss.

The co-operation qualification is testimony to this point. In most cases, the victim’s performance is necessary for the contractual debt to accrue and without the contract-breaker’s co-operation no such performance is possible. A typical example is that of a wrongfully dismissed employee who cannot claim future wages because he needs the employer’s co-operation to earn the wages and is incapable of doing so by simply presenting his services to the employer. [xxviii]The issue is thus sometimes transformed into one of whether the contract in question, such as a charterparty, should be treated as analogous to a contract of personal service in this respect. However, the clearance of the co- operation hurdle is not sufficient for the claim to be allowed. The legitimate interest qualification, which does not concern the fulfillment of a condition precedent to the payment of the contract price, must also be satisfied. Indeed, the White & Carter principle is not concerned with the accrual of a contractual debt as such. Its distinctiveness lies in a different question: is it appropriate to allow the victim to go on and fulfill all the conditions precedent to the payment of the contract price, thereby putting itself in a position to claim an accrued debt?

Secondly, there were suggestions that a claim for the contract price was not only a claim in debt, but should also be treated as a form of specific performance[xxix]As noted earlier, one of the grounds on which the minority rejected the claim in White & Carter was that it might outflank and undermine the court’s jurisdiction over the sanctioning of specific performance. None of the judges in that case, however, treated the claim as analogous to a claim for specific performance.  Nevertheless, the minority’s argument was later relied upon by some English courts to draw the analogy and consequently the adequacy of damages was accepted as a principal test for ‘legitimate interest’. It is thus well established that where a payment falls due before an anticipatory breach is committed it is recoverable irrespective of whether or not the breach is accepted. [xxx] The courts have no discretion to encumber the victim’s entitlement to the contract price. Admittedly, Lord Reid’s legitimate interest qualification confers on the courts an equitable jurisdiction to constrain the accrual of that entitlement.

The legitimate interest criterion must be distinguished from the equitable doctrine of specific performance in two important respects. First, the focus and scope of the legitimate interest qualification is demonstrably distinct from that of the courts’ more general jurisdiction to grant an order of specific performance.  The factors that mould the equitable jurisdiction to decree specific performance, such as the preservation of personal liberty and the impracticability of supervision, have no role in the White & Carter principle.  Secondly, in contrast to the equitable doctrine of specific performance, the legitimate interest qualification does not concern the appropriateness of a certain remedy at all. The issue in White & Carter is not whether the victim, having fulfilled all the conditions precedent, should be awarded the contract price, but whether it should be allowed to fulfill those conditions in the first place, or, whether its conduct in fulfillment of those conditions should be regarded as inappropriate and thus incapable of giving rise to an entitlement to the contract price. Thus the courts exercise discretion over not the availability of a claim in debt, but the appropriateness of the victim’s conduct in bringing the debt to maturity. The legitimate interest qualification involves a legal exercise preceding the determination of appropriate remedies. In short, the White & Carter principle is not concerned with the appropriateness of a claim for the contract price, whether it is seen as a claim in debt or a claim for specific performance, but with the appropriateness of the victim’s continuing performance. It is for this reason that the second formulation must be rejected.

 

Wasteful performance

 

The issue in White & Carter does not lie in whether the victim of an anticipatory breach may keep the contract alive or, if it continues and completes its perfor- mance, it is entitled to the contract price. Instead, the third formulation asserts that it is the wastefulness of the victim’s continuing performance that goes to he heart of the White & Carter principle.In White & Carter, the judges who took that view actually formed a majority. Lord Morton and Lord Keith rested their dissenting decisions principally upon the wastefulness of the pursuers’ conduct.Lord Reid’s legitimate interest qualification also centred effectively on it. It was once argued that White & Carter involved unwanted but not necessarily wasteful performance. The reason seems to be that the defender would reap benefits, such as good publicity, from the unwanted advertisements. This argument is, however, based on too restrictive a view of ‘waste’. A performance is wasteful when its costs exceed the benefits. Yet the wastefulness must not be assessed solely from the perspective of one of the parties. Rather, full regard must be had to the interests of both parties and even to the interests of the wider community.  It is economically inefficient and is thus wasteful. On the facts of White & Carter, the pursuers ought, on learning of the repudiation, to have realised that their advertising services would find better use in a desirous party and would thus be wasteful if imposed upon the defender. The wastefulness of the victim’s continuing performance is in fact essential to the White & Carter principle. It is this wastefulness, not the fact that an award of the contract price might cause ‘undue hardship’ to the contract-breaker, that lies at the heart of the notion of ‘legitimate interest’ .

The second comment is that if the third formulation is concerned only with the wastefulness of the victim’s continuing performance, then it misses the full picture. Wastefulness alone does not necessarily mean that the victim is precluded from earning the contract price by continuing performance. The victim’s ability to do so hinges on the weighing of two competing values, namely, the sanctity and certainty of contract and economic efficiency in the form of waste avoidance. English contract law has traditionally prioritised the sanctity and certainty of contract ahead of efficiency. This prioritisation tends to lead to the extreme view that efficiency should be entirely left out of consideration. In White & Carter, Lord Hodson thus held that the pursuers were entitled to the contract price simply because they had given what the defender contracted for, namely, the advertising service, and it was irrelevant that their continuing performance was unreasonable or wasteful. [xxxi] However, as Lloyd J observed, ‘absolute certainty can never be attained’.  The better view seems not to dismiss efficiency entirely but to accept that it may, in certain circumstances, triumph over the sanctity and certainty of contract.  Indeed, it is clear from Lord Reid’s decision in White & Carter that only in exceptional cases is the victim regarded as having no legitimate interest in continuing to perform the contract. The appropriate legal test is whether the wastefulness of the victim’s continuing performance is so serious as to outweigh the sanctity and certainty of contract, namely, the desirability of preserving its ability to earn the contract price by continuing performance.  Lord Reid’s legitimate interest qualification ought to be recast on the basis of this legal test. In applying the White & Carter principle, the courts will take account of a wide range of factors in weighing wastefulness against the sanctity and certainty of contract. Consequently, this is an equitable principle that comes to the contract-breaker’s aid only where wastefulness outweighs the sanctity and certainty of contract.

At this point it should be noted that the victim’s ‘performance interest’ must be distinguished from its contractual right. A performance interest may or may not give rise to a contractual right. A contractual right arises only when both parties intend it to. It is one thing to say that the parties have ‘willed’ that an award of the contract price should be granted once that price is due and not paid. It is quite another to assert that they have intended that, in the face of one party’s repudiation, the other party might continue to perform its side of the contract against the contract-breaker’s will. A contract is usually silent on the latter issue. Thus, ‘performance interest’ in the present context is perhaps best viewed as an alternative expression of ‘the sanctity and certainty of contract’  . Each contracting party has an interest in the contract being upheld and performed. In most cases this interest is fully protected as the victim’s continuing performance is recognised by the court and hence makes the contract price payable. However, the existence of such an interest does not create an absolute rule that allows no exception. It does not preclude the situation where the court may, at least in some cases, exercise its discretion and hold that the victim’s continuing performance is so wasteful that in order to discourage or even deter it the performance must not be given its intended effect of making the contract price payable. The victim, who simply follows the terms of the contract, should not be required to justify its conduct. It is for the contract-breaker to establish that the victim’s continuing performance is so wasteful as to outweigh its performance interest in earning the contract price. Lord Reid, when formulating the legitimate interest qualification in White & Carter, explicitly adopted this view.  Later cases followed suit. [xxxii] As regards the co-operation qualification, once the victim makes out a prima facie case that the contract price is payable, it is also for the contract-breaker to show that the victim’s performance requires its co-operation and has been rendered without it.

 

Legitimate interest

 

The legitimate interest qualification brings out conspicuously the clash between the sanctity and certainty of contract and economic efficiency. The contract-breaker must show that the wastefulness of the victim’s continuing performance outweighs its performance interest in earning the contract price. Three specific tests have been proposed, either individually or jointly, to determine the existence of a legitimate interest. They are: adequacy of damages, duty to mitigate and “wholly unreasonable”. They must first be examined separately.

 

Adequacy of Damages

The first test, alluded to by Lord Reid in White & Carter and adopted by English courts subsequently, states that in order to show the absence of a legitimate interest on the victim’s part, the contract-breaker must satisfy the court that damages are an adequate remedy for the victim. This test was sometimes said to be the dominant test. [xxxiii] More commonly, the test was seen as controlling one of the two essential elements to a successful defence against a claim for the contract price: the con- tract-breaker must show not only the adequacy of damages, but also that the victim’s continuing performance would be ‘wholly unreasonable’. [xxxiv]

In either case, an analogy has been drawn by English courts between a claim for the contract price and a claim for specific performance. The adequacy of damages test, the principal test for the availability of specific performance in anticipatory breach as well as actual breach cases, has consequently been adopted.   As shown previously,   the claim in White & Carter is a claim in debt, rather than a claim for specific performance. The adequacy of damages test in specific performance cases must not be applied   to a case such as White & Carter. The adequacy of damages is distinguishable from the wastefulness of the victim’s continuing performance in that it is not concerned with whether the costs of that performance exceed its benefits, but with whether the victim might be compensated for the difference between the contract price and those costs. This does not, however, mean that the adequacy of damages is wholly irrelevant to the White & Carter principle. Coupled with the wastefulness of the victim’s continuing performance, the adequacy of damages would argue strongly in favour of a finding of no legitimate interest. It must be shown that the victim has a real alternative other than to continue to perform the contract. If no such alternative exists, the value of conserving the victim’s performance interest must prevail over any wastefulness involved in its continuing performance. The adequacy of damages means that the principal alternative, namely, terminating the contract and claiming damages, is open to the victim. It does not, however, necessarily lead to the conclusion that the victim is disallowed to earn the contract price. Nor does it follow from the inadequacy of damages that the victim has no real alternative other than to continue .

 

Duty to Mitigate

The second test, relied upon by the two dissenting judges in White & Carter, is to use the victim’s duty to mitigate to establish the victim’s ability to earn the contract price by continuing performance. A formidable obstacle for this test is a long-standing line of authorities that fix the time when a duty to mitigate arises in anticipatory breach cases at the time when the victim accepts the breach. It was suggested that this rule of law has caused a major anomaly in practice, as the victim might freely continue to perform the contract and thus shift the cost of wasted resources to the contract-breaker. [xxxv] Consequently, critics argued that American law should be preferred, under which a duty to mitigate arose in the victim as soon as the anticipatory breach was communicated and held the victim’s continuing performance in check.  Even some members of the English judiciary have been attracted to this ‘uncomplicated view’. [xxxvi]To be sure, the mitigation principle and the White & Carter principle do share in common a commendable desire to avoid waste.   What is objectionable is the suggestion that the distinction between the two should be removed entirely and the mitigation principle should be applied to a victim who chooses to continue to perform to earn the contract price in the same way as it is applied in assessing damages. [xxxvii]

 

Consequently, the yardstick for a legitimate interest under the White & Carter principle must be distinguished from that in mitigation cases. Although the onus on the contract-breaker to show that the victim acts ‘unreasonably’ in not mitigating is not a light one,  the onus must be even heavier when the contract-breaker aims not to reduce the amount of damages payable, but to thwart in its entirety a claim for the contract price. In fact, the courts, as will be seen, have been alert to this distinction and have thus pitched the level of the contract-breaker’s onus under the White & Carter principle at ‘wholly unreasonable’.

In other words, it is the fact that a party in anticipatory breach ‘may reinstate himself’ prior to acceptance that makes acceptance a prerequisite for both a right of action for damages and a duty to mitigate. [xxxviii]

In rejecting the mitigation principle as an appropriate test I have omitted the usual argument that that principle has application only in a claim for damages, not in a claim in debt. [xxxix] This argument has been criticised for putting form above substance.

 

‘Wholly Unreasonable’

 

The third test, reasserted many times by English courts subsequent to White & Carter, asks whether the victim’s continuing performance is ‘wholly unreasonable’. Lord Reid’s unhesitating rejection of Lord Cooper’s prior observation that ‘the only reasonable and proper course’ for the victim to take was to accept the breach [xl] was a clear indication that a test of ‘unreasonableness’, inclusive of that applied under the mitigation principle, was too broad to strike a sensible balance between the sanctity and certainty of contract and economic efficiency in a case like White & Carter. Taking up this strand of reasoning, the courts in later cases stressed that the equity to refuse a claim for the contract price should be administered in ‘extreme cases’ only. [xli] The contract-breaker must show that the victim acts ‘wholly unreasonably’ in continuing to perform the contract. The distinction between merely unreasonable and wholly unreasonable is nowhere more prominently depicted than in a judgment of Lloyd J in The Alaskan Trader[xlii] It is necessary to quote the learned judge’s statement in full:

 

“there comes a point at which the court will cease, on general equitable principles, to allow the innocent party to enforce his contract according to its strict legal terms. How one defines that point is obviously a matter of some difficulty, for it involves drawing a line between conduct which is merely unreasonable (see per Lord Reid in White & Carter v McGregor [1961] 3 All ER 1178 at 1182, [1962] AC 473 at 429-430, criticising the Lord President in Langford & Co Ltd v Dutch 1952 SC 15) and conduct which is wholly unreasonable (see per Kerr J in The Odenfeld [1978] 2 Lloyd’s Rep 357 at 374). But however difficult it may be to define the point, that there is such a point seems to me to have been accepted both by the Court of Appeal in The Puerto Buitrago and by Kerr J in The Odenfeld. “

 

The test  of unreasonableness under the White & Carter principle should not be broadly directed at the unreasonableness of the victim’s continuing performance at all. A test of ‘unreasonableness’ fails to capture the critical issue in White & Carter and tends to hide and expand unduly the real factors to be taken into account. The better approach is to confine the courts’ discretion to those factors that affect the weighing of wastefulness against the sanctity and certainty of contract. Consequently, the legal test for ‘legitimate interest’ must be reformulated.

It is possible to reformulate the ‘wholly unreasonable’ test as follows.

(1) The principal test for a legitimate interest is whether, in the particular circumstances of the case, the wastefulness of the victim’s continuing performance outweighs its performance interest in earning the contract price. By its nature this test is equitable and confers on the court a discretionary power, which is exercised only in exceptional cases, to hold that the victim has no legitimate interest in continuing to perform and is thus not entitled to the contract price. There must be some ‘very cogent reason’ for doing so, as the victim would otherwise suffer ‘inconvenience and injustice’. [xliii]

(2) In applying the ‘wholly unreasonable’ test, the courts seem to be looking for a further good reason, in addition to the fact that the victim has a performance interest in earning the contract price, for its continuing performance. The new test recognises more directly and clearly the significance of such a reason. This is not to say that a further good reason is required and without it the victim cannot have a legitimate interest in continuing to perform. Rather, the existence of such a reason may very easily tip the scale in favour of an award of the contract price. A further good reason can be a non-pecuniary interest in the performance of the contract   or a legal liability to a third party consequent on non-performance . It can also be the lack of a real alternative for the victim other than continuing to perform .

(3) Since the main countervailing factor for the victim’s performance interest in earning the contract price is the wastefulness of its continuing performance, regard must be had not only to the victim’s interests, but also to the contract-breaker’s interests. [xliv] It is not sufficient for the contract-breaker to show the mere fact of wastefulness, namely, that the benefits of the victim’s continuing performance are small in comparison with its costs. [xlv]The benefit-cost gap must be ‘completely out of proportion’.  The excessiveness of the wastefulness is necessary for the victim’s claim for the contract price to be resisted  .

(4) The principal test is subject to a defence that the victim has no knowledge of the anticipatory breach at the time when it continues to perform the contract  . It is, however, debatable whether the victim’s lack of knowledge of the wastefulness of its continuing performance also constitutes a good defence. There were suggestions that the ‘wholly unreasonable’ test should be applied from the victim’s point of view and therefore the latter’s knowledge should be taken into account. [xlvi] The decision in White & Carter was thus said to be justified by the pursuers’ apparent ignorance of any waste. Accordingly, it was argued that in the expert report illustration, the expert might go on and make the report if the company wished to engage another expert but not if to his knowledge the report had become superfluous. If the contract-breaker shows that wastefulness outweighs the sanctity and certainty of contract, it is difficult to see why the victim’s continuing performance should be justifiable by reason of its ignorance of the waste. The White & Carter principle is not invoked to impose a legal liability upon an intentional wrongdoer. It discourages the victim from continuing to perform the contract if to do so is adjudged to be overly wasteful and hence inappropriate. Thus, if the inappropriateness of the continuance with the contract is established, it is irrelevant that it is unknown to the victim .

The central issue is whether the victim’s continuance with its performance is so wasteful as to outweigh its performance interest in earning the contract price. This formulation puts a limit on the range of facts that may be taken into account in determining the existence of a legitimate interest.

Was White & Carter correctly decided in view of this newly articulated test? Since the pursuers’ ignorance of the wastefulness of their continuing performance was irrelevant and there was apparently no further good reason for that performance, the answer should hinge on whether the wastefulness was excessive.  This point, however, was not addressed by counsel in the case.

 

If we now compare with the situation in French law, where the doctrine of anticipatory breach does not exist.

 

French law

Article 1186 of the Civil Code itself expressly provides that where an obligation is due only on a certain event (typically a date), its performance cannot be claimed before the occurrence of that event. [xlvii]French law does admit three exceptions to this rule, where as a result a party may be sued for non-performance of an obligation before the date on which it is due according to the terme, [xlviii] but these do not include the case of the party being unable or declaring himself unwilling to perform the obligation before the due date. Thus, these two situations which English law would see as possibly attracting the doctrine of anticipatory breach would be covered by the rule found in Article 1186, with the result that no actions for enforcement can be brought before the due date. Nor can the "injured party" bring an action for judicial termination of the contract (resolution) on the ground of its serious non-performance as, ex hypothesi, before the terme falls due no non-performance has occurred. These two propositions explain why neither of the circumstances which in English law give rise to the special rights associated with "anticipatory breach" give rise to any immediate right of action in French law, whether that action is for enforcement, damages or for termination of the contract.

1. The "defence based on non-performance" (exception d'inexecution)

French law has recognised that in some circumstances the non-performance of his obligation or obligations by one party to a bilateral contract may give a defence to the other if sued by the party in breach for performance, a defence known as the exception d'inexecution. [xlix] However, the fact that the first party's non-performance was deliberate does not have any formal impact on the availability of the defence, though it could go to the issue of the seriousness of the non-performance necessary to attract its application. So, for example, if a party to a contract informed the other party that he would not perform his obligations at all, this would after the date when performance was due clearly constitute a sufficiently serious non-performance to attract the defence.

2.      Judicial termination of the contract for non-performance (resolution judiciaire)

Strikingly for a common lawyer, in the absence of express stipulation,' in principle an injured party cannot terminate the contract by his own act or by notice however serious the other party's non-performance and must instead apply to the court for judicial termination under Article 1184 of the Civil Code. Once seised of such a claim, and if satisfied of the seriousness of the non-performance, the court may terminate the contract,' but it may declare it subsisting and award damages instead or allow the debtor further time for performance.' [l]There is here much room for what a common lawyer would see as judicial discretion and it would seem that a French court would take into account whether or not the non-performance was deliberate (and therefore whether or not it was in bad faith) in coming to its decision,'" it being particularly unlikely that any further time for performance would be given where the party had previously declared himself unwilling to per- form even though he was able to do so."

As Treitel has noted,' however, the case where a party to a contract has declared that he will not perform his obligations forms an exception to the general requirement of going to court for resolution and, while the point is not specifically adverted to by la doctrine, there would seem to be no reason why this exception should not hold good in the case of a declaration made before the date for performance. Here, then, a creditor may, after the date for performance arrives, treat the contract as though it is at an end there and then, though he does so at the risk of a court subsequently holding that he was not entitled to do so on grounds other than the mere failure to go to court.

3. Damages

There are two ways in which the facts which give rise to the doctrine of anticipatory breach may affect the damages awardable in French law for non-performance.

First, while the availability of damages for delay in performance is in principle subject to a requirement of formal "notice to perform" (mise en demeure) being given by the injured party, it is clear that no notice is required where the other party has indicated that he will not perform. [li]In the result, where a party has declared that he will not perform, after the date for performance has arrived damages for delay in performance will accrue  .

Secondly, the deliberate nature of a party's non-performance affects what a common lawyer would term the test of remoteness of damage applicable. In principle, damages for non-performance of a contractual obligation are limited to those which were or could have been foreseen at the time of making the contract, [lii] but this rule finds an exception where the non-performance constitutes dol. In that case, a non-performing party is liable for damages which are the "immediate and direct consequence of the agreement's non-performance". [liii]

Conclusion

In conclusion, therefore, it can be seen that in French law the fact that a breach of a contract has occurred before the time for performance does not in general affect when any remedy based on breach becomes available, but its deliberate nature may have considerable effects on any subsequent remedy. By contrast, in English law, while in principle the deliberate nature of a breach of contract is irrelevant to the remedies which it attracts, when combined with the element of "anticipation" it may attract the accelerated remedies associated with the doctrine of anticipatory breach, even though these are not restricted only to this situation”.

 



[i] White & Carter (Councils) Ltd v McGregor (1962) HL 3 All ER 1178

[ii] Hochster v De La Tour (1853) 2 E & B 678

[iii] White & Carter above  (Lord Reid); 445 (Lord Hodson).Lord Tucker concurred with Lord Hodson.

[iv] Ibid 445.

[v] Ibid 429.

[vi] Ibid 434 (Lord Morton)

[vii] ibid 433. Also,438 (Lord Keith)

[viii] M.Furmston,Cheshire, Fifoot & Furmston’s Law of Contract (Oxford:OUP,2007) 782 and Lord Morton at 1184

[ix] E. Tabachnik, ‘Anticipatory Breach of Contract’ (1972) 25 Current Legal Problems 149, 166.

[x] Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GMBH (The ‘Puerto Buitrago’) [1976] 1

Lloyd’s Rep 250 CA 255 (Lord Denning MR) (The Puerto Buitrago).       Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178 (Ch), [2003] 2 All ER (Comm) 823 at [71] (Mr Nicholas Strauss QC) (Ministry of Sound): ‘a degree of judicial reluctance over the last 40 years to apply White and Carter outside the strict limits of its ratio’.

[xi] Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361 CA 370 (Salmon LJ);

375-376 (Sachs LJ); 381 (Buckley LJ) (Decro-Wall and ibid 375.

[xii] The Alaskan Trader No2 [1984] 1 All ER,137(Lloyd J). Also, Gator Shipping Corp v Trans-Asiatic Oil Ltd SA and Occidental Shipping Establishment (The ‘Odenfeld’) [1978] 2 Lloyd’s Rep 357 Com Ct 373 (Kerr J) (The Odenfeld).

[xiii] J.W. Carter A. Phang and S. Y. Phang, ‘Performance Following Repudiation: Legal and Economic Interests’ (1999) 15 JCL 1, 98-99.

[xiv] These two views were   summarized in Robert Cort & Son Ltd v Charman [1981]ICR816EAT 819 (Browne-Wilkinson J).

[xv] Ministry of Sound  at[58],citing with approval Gunton ,778 (Brightman LJ)

[xvi] Jerome Francis v The Municipal Councillors of Kuala Lumpur[1962]1WLR1411PC1417-1418

[xvii] Mackay v Dick(1881)6 App Cas 251HL;Vine v National Dock

[xviii] Hill v Parsons[1972]Ch 305 CA 319-320(Sachs LJ),cf 314(Lord Denning MR)

[xix] Gunton , 459

[xx] LondonTransport at ,362.His Lordship used two examples to illustrate the point:while an employee might retract a previous refusal to work, the contract of employment was automatically terminated when he walked out and worked for another employer (362-363).

[xxi] ibid. His Lordship cited Blackburn J’s statement in Poussard v Spiers and Pond(1876)1QBD410,414

[xxii] Ocean Marine Navigation Ltd v Koch Carbon, The Dynamic [2003] EWHC 1936

[xxiii] Poussard above  ,414-415;Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]2QB 26 CA 66 (Diplock LJ).

[xxiv] Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 PC 507 (Lord Sumner). For the test of fundamental/essential difference, Davis Contractors Ltd v Fareham Urban DC [1956] AC 696 HL

[xxv] New Zealand Shipping Co Ltd v Societe  des Ateliers et Chantiers de France [1919]AC1HL9 (Lord Atkin-

son). Also, Heyman v Darwin Ltd [1942] AC 350 HL 361 (Viscount Simon).

[xxvi] Gunton above

[xxvii] Masood v Zahoor [2008] EWHC 1034 (Ch) at [279] (Peter Smith J).

[xxviii] The Alaskan Trader above ,139 (Lloyd J):yes; The Odenfeld ,374(Kerr J):

[xxix]

[xxx] Ministry of Sound above   .Also, A.L.Corbin, Corbin on Contracts vol10 ‘Breach of Con-

tract’ (Matthew Bender, rev ed, 2007) 983.

[xxxi] Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The‘Scaptrade’)[1983]QB529CA, [1983] 1 Lloyd’s Rep 146, where the existence of an equity was rejected as there was no countervailing value such as efficiency that competed with contractual certainty in that case.

[xxxii] The Puerto Buitrago above  , 256 (Orr LJ); Stocznia v Latvian Shipping [1995] 2 Lloyd’s Rep 592

Com Ct 602 (Clarke J); Ocean Marine Navigation Ltd v Koch Carbon Inc (The ‘Dynamic’) [2003] EWHC 1936 (Comm), [2003] 2 Lloyd’s Rep 693 at [23] (Simon J) (The Dynamic).

[xxxiii] The Puerto Buitrago above  , 255 (Lord Denning MR). To be distinguished from the recent case Isabella Shipowner SA v Shagang Shipping Co Ltd (The Aquafaith) [2012] EWHC 1077 (Comm) Also, A. Burrows, Remedies for Torts and Breach of Contract (Oxford: OUP, 3rd ed, 2004) 440.

[xxxiv] The Odenfeld above ,374;The Dynamic above at[22]; Reichman v Beveridge [2006]EWCA Civ 1659, [17] (Lloyd LJ).

[xxxv] A.L.Goodhart,‘Measure of Damages When a Contract is Repudiated’(1962) 78 LQR 263,267et

seq; S. Stoljar,‘Some Problems of Anticipatory Breach’ [1974] 9 MLR 355.

[xxxvi] The Alaskan Trader above ,137(Lloyd J). ,Stocznia v Latvian Shipping[2001]1

Lloyd’s Rep 537 (Com Ct) at [175] (Thomas J).

[xxxvii] Treitel’s Law of Contract,above ,1097-1099

[xxxviii] K. Scott,‘Contract ,Repudiation , Performance by Innocent Party’ [1962] CLJ 12, 14  227-228; McKendrick, above  , 824.

[xxxix] McKendrick Contract Law (Oxford 4th ed 2010) 811

[xl] White & Carter,above n1,429,430

[xli] The Odenfeld above  ,374;The Dynamic above  ;Reichman v Beveridge above

[xlii] The Alaskan Trader above

[xliii] Highland & Universal Properties Ltd v Safeway Properties Ltd [2000] 3 EGLR110CSIH111 (Lord President Rodger), adopting Grahame v Magistrates of Kirkcaldy (1882) 9 R (HL) 91, 91^92 (Lord Watson);White & Carter above n 1, 430 (Lord Reid).

[xliv] Stocznia v Latvian Shipping [1996] 2 Lloyd’s Rep132,139 (Staughton LJ).  Carter et al, above  , 66,    McGregor on Damages, above   at [7- 030].

[xlv] White & Carter  (Lord Reid); The Dynamic above  at [22].

[xlvi] ibid

[xlvii] On the other hand, the fact that the obligation already exists is reflected in the fact that

if e.g. money is paid under an obligation whose performance is not yet due it cannot be recovered as money undue : idem Art.1186.

[xlviii] The time at which performance is due is referred to as the echeance de la creance a terme and where this non-performance is actionable before this time, its decheance is said to have occurred: see the elaborate discussion in J. Ghestin, Traite de droit civil, Les effects du contrat (2nd edn, 1994 with C. Jamin and M. Billiau), Nos.161 et seq.

In that there is no formal restriction in Art.1184.3 Civil Code to cases of   non-performance in

good faith. However, this provision is to be compared to Art.1244-1, which gives the court a discretion to give debtors of money obligations time to pay where their financial circumstances are difficult, a possibility which one leading text declared applied at least before its last re-amendment only to debtors in good faith: P. Malaurie and L. Aynes, Droit civil, Les obligations (6th edn, 1995), No.1012, p.587.

[xlix] Article 1186 CC : where an obligation is due only on a certain event (like a date), its performance cannot be claimed before the occurrence of that event.

[l] idem

[li] B. Starck, H. Roland and L. Boyer, Obligations, Vol.2: Contrat (4th edn, 1993), No.1402, p.586; Mazeaud et al., idem, No.944, p.260

[lii] Art.1150, Civil Code.

[liii] Article 1151 CC

Tọa đàm “Vi phm hp đng trong h thng Thông lut”

Vào lúc 14h ngày 21/01/2013 tại Phòng A 901, Khoa Luật dân sự phối hợp với GS Eira Ruben (Đại học của Anh Quốc) tổ chức Tọa đàm về chủ đề “Vi phạm hợp đồng trong hệ thống Thông luật”. Trong buổi Tọa đàm, GS Eira Ruben đã trình bày thực trạng của Thông luật về vi phạm hợp đồng và tập trung vào chủ đề vi phạm hợp đồng trước thời hạn. Sau đó, nhiều chủ đề được thảo luận như xác định sự tồn tại và hệ quả pháp lý của vi phạm hợp đồng trước thời hạn hay vấn đề vi phạm cơ bản hợp đồng.

Được sự đồng ý của GS Eira Ruben, xin giới thiệu tới bạn đọc nội dung tham luận của GS về vi phạm hợp đồng trước thời hạn trong Thông luật:

 

“In this paper I wish to examine the case of White & Carter v McGregor[i].The reason is that this case goes to the heart of problems associated with anticipatory breach. Anticipatory breach is a doctrine very specific to the Common Law and a doctrine which does not exist in civil law jurisdictions. I shall first try to disentangle the reasons that drove their Lordships to take the decisions that they did in that case and then try and understand how the doctrine is dispensed with in French law.

 

A breach of contract can be either anticipatory or actual. An anticipatory breach occurs when before the time for performance the promissor either announces that he will not perform his obligation as required by the contract or disables himself from doing so. This definition was used in Hochster v De La Tour.[ii] On 12 April a courier was employed by the defendant to perform duties to begin on June 1. On 11 May, the defendant told the courier that he had changed his mind. On 22 May, the courier brought an action for damages and was successful. To recover damages before time of performance had arisen, there must have been a breach of contract by the defendant, and to justify the courier in not performing the contract, the term breached must have been a condition. The right of the innocent party to bring an action for damages before the time for performance has arisen benefits both parties. The innocent party is able to recover damages at an earlier point in time than if he was to wait for the “actual” breach. The party in breach is also advantaged because , as soon as he has exercised his election, the innocent party must mitigate his loss.

 

But, where a party commits an anticipatory breach of its obligation to pay a fixed sum at a future time, is the other party entitled to continue to perform the contract and then claim that sum when it falls due? This is the legal question arising under White & Carter v McGregor.  Lets look more closely at the case itself.

The pursuers ( this is a Scottish  case, we would say claimants) were a company supplying litter bins to local councils and were paid by businesses like the defender in return for displaying the latter’s advertisements on the bins. On 26 June 1957, when a three-year contract for displaying advertisements between the two parties was about to expire, the sales manager of the defender renewed it with the pursuers for a further term. On the same day the defender purported to cancel the deal, stating that the manager acted without valid authority. The pursuers nonetheless proceeded with the contract and had the defender’s advertisements displayed as contracted for. When the first few payments under the contract were not paid within the specified times, the pursuers brought a claim for the whole contract price pursuant to condition 8 of the contract, which provided that all of the defender’s future payments would accrue immediately upon a failure to make any payment in time. The claim was refused on two occasions in Scotland, only to be allowed on appeal to the House of Lords by a narrow 3 to 2 margin.

In upholding the pursuers’ claim, their Lordships in the majority adopted two distinct approaches. They all started from the general principle that the victim of an anticipatory breach had an unfettered option whether to accept it or not, and that it was under no duty to enforce its contractual rights in a reasonable way. [iii] Lord Hodson denied any room for an exception to the general principle and rejected any role for equity in this regard, [iv] Lord Reid ,however, admitted two grounds on which the general principle could be departed from.

First, the present case belonged to a small number of cases where the victim could perform its side of the contract without any co-operation from the contract- breaker; otherwise the claim would fail right away as the defender could not be compelled to co-operate. [v]

Secondly, the victim’s ability to earn the contract price might be restrained on the ground of ‘some general equitable principle or element of public policy’, where the contract-breaker should be able to show that the victim ‘has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages’. [vi]

The two judges in the minority, in contrast, relying as they did upon a range of different legal grounds, expressed a concern that the pursuers had engaged in an ‘unreasonable and oppressive’ course of action.

There appeared to be two distinct lines of reasoning. First, the pursuers were in effect ‘claiming a kind of inverted specific performance’, [vii] whilst specific performance could not be decreed in the present case because damages would be an adequate remedy.

According to English law, the contract in White & Carter was clearly not one in respect of which specific performance was available. It can thus be said that the pursuers’ claim for the contract price, if permitted, would achieve what a claim for specific performance would not achieve, and would therefore defeat the policing reasons that necessitated the rejection of the latter claim. Secondly, the minority also argued that the pursuers in carrying on performance contravened a duty to mitigate their losses. Lord Keith, in addition, raised a few other points in support of his decision, including, inter alia, automatic termination and an analogy with a contract of personal service.

A hypothetical example relied upon by counsel for the defender, adverted to by their Lordships, well illustrated their differences in opinion. A company commissioned an expert to write a report and, before he could incur any expenses, repudiated the contract. Was the expert entitled to proceed to finish the report and claim the agreed remuneration? Whilst Lord Reid left the matter open by saying that it ‘might be’ that the company could show a lack of ‘legitimate interest’ on the expert’s part, it was said to be ‘strange’  or ‘startling’, by Lord Morton and Lord Keith respectively, that an affirmative answer would be given.

The decision in White & Carter has proved to be an extremely controversial one.    There has been, for example, some uncertainty as to whether Lord Reid’s two qualifications formed part of the ratio of the case. The other two majority judges did not endorse the qualifications. In this respect, they should therefore be regarded as dicta only. Yet, it can of course be said that without Lord Reid there would be no majority.  Therefore, the qualifications are better seen as part of the ratio. In any event, having been repeatedly adopted or applied by lower courts including the Court of Appeal, they are now incontrovertibly seen as an integral component of the White & Carter principle. Nevertheless, the decision in White & Carter, albeit constantly followed, has been   both criticised as ‘grotesque’[viii] and defended as ‘both legally and logically inevitable’. [ix]

The decision has been attacked on both procedural and substantive grounds:

1) on the ground that it was unfair to the respondent in that it saddled him with a performance he did not want

2) it has also been argued that it leads to a result which is economically inefficient in that performance was a waste

3) the rule has been limited in subsequent cases by being narrowly interpreted: the rule does not apply where the innocent party is dependent upon the cooperation of the party in breach in order to be able to continue with performance

4) and if the innocent party has no legitimate interest in performance of the contract

Was White & Carter correctly decided, in terms of both legal principle and its application to the facts? Should any of their Lordships’ speeches, especially that of Lord Reid, be regarded as embodying the most appropriate approach to future like cases? In order to answer this question I will look at the critical issue raised by the case and the competing values and policies underpinning it.

 

IDENTIFYING THE ISSUE

The legal issue posed in a factual situation akin to White & Carter has been variously stated. In general, it can be put in three different ways.

First, the issue has been seen as one relating to the availability of an option to keep the contract alive. [x]There is a theory that, where a contract is or is analogous to a contract of personal service, it should automatically come to an end once an anticipatory breach is communicated.

Secondly, there have been suggestions that White & Carter was concerned not with the victim’s option, but with its ability to resort to a claim for the contract price.  As Sachs LJ succinctly put it, ‘it is the range of remedies that is limited, not the right to elect’. [xi] Thus,‘[t]he court is not exercising a dispensing power; nor is it rewriting an improvident contract. It is simply refusing a certain kind of relief.’ [xii]

Thirdly, it can be argued that the real issue concerns whether, and to what extent, a party is allowed, in the face of an anticipatory breach by the other party, to persist in a wasteful performance. [xiii] In other words, it is on this third view the appropriateness of the continuance of performance, rather than the freedom to continue with the contract or the availability of a claim for the contract price, that sits at the distinctive core of the White & Carter principle. The above three formulations of the issue in White & Carter have obvious connections. If an anticipatory breach automatically terminates the contract, thereby giving rise to a right to claim damages only, the other two formulations would be irrelevant. The ability to claim the contract price, albeit distinct from the appropriateness of continuing performance, depends in large part on the latter. It will be shown below that these three formulations must be either rejected or substantially improved.

 

Automatic termination

 

Should a contract be kept alive? This question stems from a debate as to whether a contract of personal service forms an exception to the general rule that an anticipatory breach does not automatically terminate the contract but merely vests in the victim a power to terminate. Two opposing views exist. [xiv] One, usually dubbed the ‘elective (or acceptance) view’, treats a contract of personal service as no different from other types of contracts. The other, usually dubbed the ‘unilateral (or automatic termination) view’, excludes such a contract from the general rule.       The ‘elective view’ seems the preferred option.This formulation assumes that the unilateral view is tenable in at least some cases. If that view is based on the fact that a wrongful dismissal destroys the victim’s status as an employee and thus prevents him   claiming wages,  [xv] then a contract of personal service should be regarded as sui generis in this respect. However, if the unilateral view is founded on a more general basis, this would open the door to an enquiry into whether an anticipatory breach in a given case is such that it would automatically terminate the contract and thus terminate any hope of the victim claiming the contract price. Two such general arguments emerge.

The first argument is that, where an employee is wrongfully dismissed, since s/he is generally not entitled to specific relief, [xvi]including a claim for unearned wages, [xvii] the wrongful dismissal must have automatically terminated the contract, leaving the employee with a claim for damages only. This argument can be extended to other types of contracts. Accordingly, whether an anticipatory breach automatically terminates the contract would depend on the availability of specific relief. Where specific relief is not available to the victim, the contract is automatically terminated and the victim has no option to keep it alive.The logic of this argument is evidently flawed. The subsistence of a contract is a necessary, but not sufficient, reason for seeking specific relief. Conversely, even where specific relief is unavailable, the victim may still have ‘good reasons’ to keep the contract alive.[xviii] An option to preserve the contract following an anticipatory breach is thus not, as Shaw LJ once suggested, ‘an empty formality’. [xix]

The second argument in support of the unilateral view is that automatic termination is a result of the seriousness of an anticipatory breach. This is one possible interpretation of the assertion that a wrongful dismissal, if it destroys the relationship of trust and confidence between the parties, would automatically terminate the contract. More generally, Lord Denning once observed that, whilst certain actual breaches might automatically terminate the contract, no anticipatory breach could have such an effect. [xx] Part of his Lordship’s observation is explicable on the ground that an actual breach might be so serious that it should be treated in the same way as a frustrating event, [xxi] it is arguable that the same could be said of an anticipatory breach, such as where it renders further performance of the contract impossible. If the seller under a contract for the sale of a unique painting burns it to ashes, it does not seem to matter whether the incident happens before or after the time for delivery. There are several responses to this argument.

First, not only is it hard to discern any rational basis for linking the seriousness of a breach with the legal effect of automatic termination, but it also seems to contradict established authority to regard frustration cases a[xxii]s resting upon a more stringent test of seriousness than that applied in termination for breach cases. [xxiii]In this respect, a breach of contract is in sharp contrast to a frustrating event, which automatically terminates a contract so that neither party can profit from the event by holding the other to a fundamentally different undertaking. [xxiv]

The reason why automatic termination for breach of contract is not the correct response is because of the need to protect the victim by putting the matter into his hands, to prevent the contract-breaker from taking advantage of its own wrong, and a desire to preserve a deal  . [xxv] This is reinforced by the fact that an anticipatory breach is a retractable wrong. It would deny the contract-breaker an opportunity of undoing the wrong if the breach is treated automatically as terminating the contract.   The fact that a degree of co-operation is required for most contracts to be performed does not derogate from the root principle that the victim has an option whether or not to accept a repudiation. Thirdly, the ‘impossibility’ cases are commonly solved by holding the victim to have impliedly accepted the anticipatory breach, as such an acceptance should be ‘easily infer[red]’ where any other interpretation would be ‘meaningless’. [xxvi]

All in all, the ‘unilateral view’ was rightly condemned by Templeman LJ as ‘contrary to principle, unsupported by authority . . . and undesirable in practice’.  What lies between a contract of personal service and other types of contract is ‘a difference in procedure, not in principle’. [xxvii]

The first formulation of the issue in White & Carter v McGregor is both false and illogical and must thus be rejected. It is false because it should be accepted that the victim of an anticipatory breach has an option whether or not to terminate the contract. It is illogical because if the victim decides not to terminate the contract, it does not necessarily follow that it is entitled to the contract price.

 

Availability of specific relief

 

The second formulation of the issue in White & Carter postulates that an enquiry should be had whether a claim for the contract price is available to the victim of an anticipatory breach. This formulation has two dimensions.

First, the contract price, as a debt, is payable only if all conditions precedent are fulfilled and the duty to pay it has arisen. A vital key to understanding the issue in White & Carter is the distinction between a claim in debt and a claim in damages. A claim in debt is a claim that the debtor owes to the creditor a sum of money. Such a claim is not subject to the requirement that the creditor must have mitigated his loss. Either the debtor owes the sum of money to the creditor or he does not. A claim in damages is an unliquidated claim to be compensated for the loss that the innocent party has suffered as a result of breach of contract. In this case there is a duty to mitigate loss.

The co-operation qualification is testimony to this point. In most cases, the victim’s performance is necessary for the contractual debt to accrue and without the contract-breaker’s co-operation no such performance is possible. A typical example is that of a wrongfully dismissed employee who cannot claim future wages because he needs the employer’s co-operation to earn the wages and is incapable of doing so by simply presenting his services to the employer. [xxviii]The issue is thus sometimes transformed into one of whether the contract in question, such as a charterparty, should be treated as analogous to a contract of personal service in this respect. However, the clearance of the co- operation hurdle is not sufficient for the claim to be allowed. The legitimate interest qualification, which does not concern the fulfillment of a condition precedent to the payment of the contract price, must also be satisfied. Indeed, the White & Carter principle is not concerned with the accrual of a contractual debt as such. Its distinctiveness lies in a different question: is it appropriate to allow the victim to go on and fulfill all the conditions precedent to the payment of the contract price, thereby putting itself in a position to claim an accrued debt?

Secondly, there were suggestions that a claim for the contract price was not only a claim in debt, but should also be treated as a form of specific performance[xxix]As noted earlier, one of the grounds on which the minority rejected the claim in White & Carter was that it might outflank and undermine the court’s jurisdiction over the sanctioning of specific performance. None of the judges in that case, however, treated the claim as analogous to a claim for specific performance.  Nevertheless, the minority’s argument was later relied upon by some English courts to draw the analogy and consequently the adequacy of damages was accepted as a principal test for ‘legitimate interest’. It is thus well established that where a payment falls due before an anticipatory breach is committed it is recoverable irrespective of whether or not the breach is accepted. [xxx] The courts have no discretion to encumber the victim’s entitlement to the contract price. Admittedly, Lord Reid’s legitimate interest qualification confers on the courts an equitable jurisdiction to constrain the accrual of that entitlement.

The legitimate interest criterion must be distinguished from the equitable doctrine of specific performance in two important respects. First, the focus and scope of the legitimate interest qualification is demonstrably distinct from that of the courts’ more general jurisdiction to grant an order of specific performance.  The factors that mould the equitable jurisdiction to decree specific performance, such as the preservation of personal liberty and the impracticability of supervision, have no role in the White & Carter principle.  Secondly, in contrast to the equitable doctrine of specific performance, the legitimate interest qualification does not concern the appropriateness of a certain remedy at all. The issue in White & Carter is not whether the victim, having fulfilled all the conditions precedent, should be awarded the contract price, but whether it should be allowed to fulfill those conditions in the first place, or, whether its conduct in fulfillment of those conditions should be regarded as inappropriate and thus incapable of giving rise to an entitlement to the contract price. Thus the courts exercise discretion over not the availability of a claim in debt, but the appropriateness of the victim’s conduct in bringing the debt to maturity. The legitimate interest qualification involves a legal exercise preceding the determination of appropriate remedies. In short, the White & Carter principle is not concerned with the appropriateness of a claim for the contract price, whether it is seen as a claim in debt or a claim for specific performance, but with the appropriateness of the victim’s continuing performance. It is for this reason that the second formulation must be rejected.

 

Wasteful performance

 

The issue in White & Carter does not lie in whether the victim of an anticipatory breach may keep the contract alive or, if it continues and completes its perfor- mance, it is entitled to the contract price. Instead, the third formulation asserts that it is the wastefulness of the victim’s continuing performance that goes to he heart of the White & Carter principle.In White & Carter, the judges who took that view actually formed a majority. Lord Morton and Lord Keith rested their dissenting decisions principally upon the wastefulness of the pursuers’ conduct.Lord Reid’s legitimate interest qualification also centred effectively on it. It was once argued that White & Carter involved unwanted but not necessarily wasteful performance. The reason seems to be that the defender would reap benefits, such as good publicity, from the unwanted advertisements. This argument is, however, based on too restrictive a view of ‘waste’. A performance is wasteful when its costs exceed the benefits. Yet the wastefulness must not be assessed solely from the perspective of one of the parties. Rather, full regard must be had to the interests of both parties and even to the interests of the wider community.  It is economically inefficient and is thus wasteful. On the facts of White & Carter, the pursuers ought, on learning of the repudiation, to have realised that their advertising services would find better use in a desirous party and would thus be wasteful if imposed upon the defender. The wastefulness of the victim’s continuing performance is in fact essential to the White & Carter principle. It is this wastefulness, not the fact that an award of the contract price might cause ‘undue hardship’ to the contract-breaker, that lies at the heart of the notion of ‘legitimate interest’ .

The second comment is that if the third formulation is concerned only with the wastefulness of the victim’s continuing performance, then it misses the full picture. Wastefulness alone does not necessarily mean that the victim is precluded from earning the contract price by continuing performance. The victim’s ability to do so hinges on the weighing of two competing values, namely, the sanctity and certainty of contract and economic efficiency in the form of waste avoidance. English contract law has traditionally prioritised the sanctity and certainty of contract ahead of efficiency. This prioritisation tends to lead to the extreme view that efficiency should be entirely left out of consideration. In White & Carter, Lord Hodson thus held that the pursuers were entitled to the contract price simply because they had given what the defender contracted for, namely, the advertising service, and it was irrelevant that their continuing performance was unreasonable or wasteful. [xxxi] However, as Lloyd J observed, ‘absolute certainty can never be attained’.  The better view seems not to dismiss efficiency entirely but to accept that it may, in certain circumstances, triumph over the sanctity and certainty of contract.  Indeed, it is clear from Lord Reid’s decision in White & Carter that only in exceptional cases is the victim regarded as having no legitimate interest in continuing to perform the contract. The appropriate legal test is whether the wastefulness of the victim’s continuing performance is so serious as to outweigh the sanctity and certainty of contract, namely, the desirability of preserving its ability to earn the contract price by continuing performance.  Lord Reid’s legitimate interest qualification ought to be recast on the basis of this legal test. In applying the White & Carter principle, the courts will take account of a wide range of factors in weighing wastefulness against the sanctity and certainty of contract. Consequently, this is an equitable principle that comes to the contract-breaker’s aid only where wastefulness outweighs the sanctity and certainty of contract.

At this point it should be noted that the victim’s ‘performance interest’ must be distinguished from its contractual right. A performance interest may or may not give rise to a contractual right. A contractual right arises only when both parties intend it to. It is one thing to say that the parties have ‘willed’ that an award of the contract price should be granted once that price is due and not paid. It is quite another to assert that they have intended that, in the face of one party’s repudiation, the other party might continue to perform its side of the contract against the contract-breaker’s will. A contract is usually silent on the latter issue. Thus, ‘performance interest’ in the present context is perhaps best viewed as an alternative expression of ‘the sanctity and certainty of contract’  . Each contracting party has an interest in the contract being upheld and performed. In most cases this interest is fully protected as the victim’s continuing performance is recognised by the court and hence makes the contract price payable. However, the existence of such an interest does not create an absolute rule that allows no exception. It does not preclude the situation where the court may, at least in some cases, exercise its discretion and hold that the victim’s continuing performance is so wasteful that in order to discourage or even deter it the performance must not be given its intended effect of making the contract price payable. The victim, who simply follows the terms of the contract, should not be required to justify its conduct. It is for the contract-breaker to establish that the victim’s continuing performance is so wasteful as to outweigh its performance interest in earning the contract price. Lord Reid, when formulating the legitimate interest qualification in White & Carter, explicitly adopted this view.  Later cases followed suit. [xxxii] As regards the co-operation qualification, once the victim makes out a prima facie case that the contract price is payable, it is also for the contract-breaker to show that the victim’s performance requires its co-operation and has been rendered without it.

 

Legitimate interest

 

The legitimate interest qualification brings out conspicuously the clash between the sanctity and certainty of contract and economic efficiency. The contract-breaker must show that the wastefulness of the victim’s continuing performance outweighs its performance interest in earning the contract price. Three specific tests have been proposed, either individually or jointly, to determine the existence of a legitimate interest. They are: adequacy of damages, duty to mitigate and “wholly unreasonable”. They must first be examined separately.

 

Adequacy of Damages

The first test, alluded to by Lord Reid in White & Carter and adopted by English courts subsequently, states that in order to show the absence of a legitimate interest on the victim’s part, the contract-breaker must satisfy the court that damages are an adequate remedy for the victim. This test was sometimes said to be the dominant test. [xxxiii] More commonly, the test was seen as controlling one of the two essential elements to a successful defence against a claim for the contract price: the con- tract-breaker must show not only the adequacy of damages, but also that the victim’s continuing performance would be ‘wholly unreasonable’. [xxxiv]

In either case, an analogy has been drawn by English courts between a claim for the contract price and a claim for specific performance. The adequacy of damages test, the principal test for the availability of specific performance in anticipatory breach as well as actual breach cases, has consequently been adopted.   As shown previously,   the claim in White & Carter is a claim in debt, rather than a claim for specific performance. The adequacy of damages test in specific performance cases must not be applied   to a case such as White & Carter. The adequacy of damages is distinguishable from the wastefulness of the victim’s continuing performance in that it is not concerned with whether the costs of that performance exceed its benefits, but with whether the victim might be compensated for the difference between the contract price and those costs. This does not, however, mean that the adequacy of damages is wholly irrelevant to the White & Carter principle. Coupled with the wastefulness of the victim’s continuing performance, the adequacy of damages would argue strongly in favour of a finding of no legitimate interest. It must be shown that the victim has a real alternative other than to continue to perform the contract. If no such alternative exists, the value of conserving the victim’s performance interest must prevail over any wastefulness involved in its continuing performance. The adequacy of damages means that the principal alternative, namely, terminating the contract and claiming damages, is open to the victim. It does not, however, necessarily lead to the conclusion that the victim is disallowed to earn the contract price. Nor does it follow from the inadequacy of damages that the victim has no real alternative other than to continue .

 

Duty to Mitigate

The second test, relied upon by the two dissenting judges in White & Carter, is to use the victim’s duty to mitigate to establish the victim’s ability to earn the contract price by continuing performance. A formidable obstacle for this test is a long-standing line of authorities that fix the time when a duty to mitigate arises in anticipatory breach cases at the time when the victim accepts the breach. It was suggested that this rule of law has caused a major anomaly in practice, as the victim might freely continue to perform the contract and thus shift the cost of wasted resources to the contract-breaker. [xxxv] Consequently, critics argued that American law should be preferred, under which a duty to mitigate arose in the victim as soon as the anticipatory breach was communicated and held the victim’s continuing performance in check.  Even some members of the English judiciary have been attracted to this ‘uncomplicated view’. [xxxvi]To be sure, the mitigation principle and the White & Carter principle do share in common a commendable desire to avoid waste.   What is objectionable is the suggestion that the distinction between the two should be removed entirely and the mitigation principle should be applied to a victim who chooses to continue to perform to earn the contract price in the same way as it is applied in assessing damages. [xxxvii]

 

Consequently, the yardstick for a legitimate interest under the White & Carter principle must be distinguished from that in mitigation cases. Although the onus on the contract-breaker to show that the victim acts ‘unreasonably’ in not mitigating is not a light one,  the onus must be even heavier when the contract-breaker aims not to reduce the amount of damages payable, but to thwart in its entirety a claim for the contract price. In fact, the courts, as will be seen, have been alert to this distinction and have thus pitched the level of the contract-breaker’s onus under the White & Carter principle at ‘wholly unreasonable’.

In other words, it is the fact that a party in anticipatory breach ‘may reinstate himself’ prior to acceptance that makes acceptance a prerequisite for both a right of action for damages and a duty to mitigate. [xxxviii]

In rejecting the mitigation principle as an appropriate test I have omitted the usual argument that that principle has application only in a claim for damages, not in a claim in debt. [xxxix] This argument has been criticised for putting form above substance.

 

‘Wholly Unreasonable’

 

The third test, reasserted many times by English courts subsequent to White & Carter, asks whether the victim’s continuing performance is ‘wholly unreasonable’. Lord Reid’s unhesitating rejection of Lord Cooper’s prior observation that ‘the only reasonable and proper course’ for the victim to take was to accept the breach [xl] was a clear indication that a test of ‘unreasonableness’, inclusive of that applied under the mitigation principle, was too broad to strike a sensible balance between the sanctity and certainty of contract and economic efficiency in a case like White & Carter. Taking up this strand of reasoning, the courts in later cases stressed that the equity to refuse a claim for the contract price should be administered in ‘extreme cases’ only. [xli] The contract-breaker must show that the victim acts ‘wholly unreasonably’ in continuing to perform the contract. The distinction between merely unreasonable and wholly unreasonable is nowhere more prominently depicted than in a judgment of Lloyd J in The Alaskan Trader[xlii] It is necessary to quote the learned judge’s statement in full:

 

“there comes a point at which the court will cease, on general equitable principles, to allow the innocent party to enforce his contract according to its strict legal terms. How one defines that point is obviously a matter of some difficulty, for it involves drawing a line between conduct which is merely unreasonable (see per Lord Reid in White & Carter v McGregor [1961] 3 All ER 1178 at 1182, [1962] AC 473 at 429-430, criticising the Lord President in Langford & Co Ltd v Dutch 1952 SC 15) and conduct which is wholly unreasonable (see per Kerr J in The Odenfeld [1978] 2 Lloyd’s Rep 357 at 374). But however difficult it may be to define the point, that there is such a point seems to me to have been accepted both by the Court of Appeal in The Puerto Buitrago and by Kerr J in The Odenfeld. “

 

The test  of unreasonableness under the White & Carter principle should not be broadly directed at the unreasonableness of the victim’s continuing performance at all. A test of ‘unreasonableness’ fails to capture the critical issue in White & Carter and tends to hide and expand unduly the real factors to be taken into account. The better approach is to confine the courts’ discretion to those factors that affect the weighing of wastefulness against the sanctity and certainty of contract. Consequently, the legal test for ‘legitimate interest’ must be reformulated.

It is possible to reformulate the ‘wholly unreasonable’ test as follows.

(1) The principal test for a legitimate interest is whether, in the particular circumstances of the case, the wastefulness of the victim’s continuing performance outweighs its performance interest in earning the contract price. By its nature this test is equitable and confers on the court a discretionary power, which is exercised only in exceptional cases, to hold that the victim has no legitimate interest in continuing to perform and is thus not entitled to the contract price. There must be some ‘very cogent reason’ for doing so, as the victim would otherwise suffer ‘inconvenience and injustice’. [xliii]

(2) In applying the ‘wholly unreasonable’ test, the courts seem to be looking for a further good reason, in addition to the fact that the victim has a performance interest in earning the contract price, for its continuing performance. The new test recognises more directly and clearly the significance of such a reason. This is not to say that a further good reason is required and without it the victim cannot have a legitimate interest in continuing to perform. Rather, the existence of such a reason may very easily tip the scale in favour of an award of the contract price. A further good reason can be a non-pecuniary interest in the performance of the contract   or a legal liability to a third party consequent on non-performance . It can also be the lack of a real alternative for the victim other than continuing to perform .

(3) Since the main countervailing factor for the victim’s performance interest in earning the contract price is the wastefulness of its continuing performance, regard must be had not only to the victim’s interests, but also to the contract-breaker’s interests. [xliv] It is not sufficient for the contract-breaker to show the mere fact of wastefulness, namely, that the benefits of the victim’s continuing performance are small in comparison with its costs. [xlv]The benefit-cost gap must be ‘completely out of proportion’.  The excessiveness of the wastefulness is necessary for the victim’s claim for the contract price to be resisted  .

(4) The principal test is subject to a defence that the victim has no knowledge of the anticipatory breach at the time when it continues to perform the contract  . It is, however, debatable whether the victim’s lack of knowledge of the wastefulness of its continuing performance also constitutes a good defence. There were suggestions that the ‘wholly unreasonable’ test should be applied from the victim’s point of view and therefore the latter’s knowledge should be taken into account. [xlvi] The decision in White & Carter was thus said to be justified by the pursuers’ apparent ignorance of any waste. Accordingly, it was argued that in the expert report illustration, the expert might go on and make the report if the company wished to engage another expert but not if to his knowledge the report had become superfluous. If the contract-breaker shows that wastefulness outweighs the sanctity and certainty of contract, it is difficult to see why the victim’s continuing performance should be justifiable by reason of its ignorance of the waste. The White & Carter principle is not invoked to impose a legal liability upon an intentional wrongdoer. It discourages the victim from continuing to perform the contract if to do so is adjudged to be overly wasteful and hence inappropriate. Thus, if the inappropriateness of the continuance with the contract is established, it is irrelevant that it is unknown to the victim .

The central issue is whether the victim’s continuance with its performance is so wasteful as to outweigh its performance interest in earning the contract price. This formulation puts a limit on the range of facts that may be taken into account in determining the existence of a legitimate interest.

Was White & Carter correctly decided in view of this newly articulated test? Since the pursuers’ ignorance of the wastefulness of their continuing performance was irrelevant and there was apparently no further good reason for that performance, the answer should hinge on whether the wastefulness was excessive.  This point, however, was not addressed by counsel in the case.

 

If we now compare with the situation in French law, where the doctrine of anticipatory breach does not exist.

 

French law

Article 1186 of the Civil Code itself expressly provides that where an obligation is due only on a certain event (typically a date), its performance cannot be claimed before the occurrence of that event. [xlvii]French law does admit three exceptions to this rule, where as a result a party may be sued for non-performance of an obligation before the date on which it is due according to the terme, [xlviii] but these do not include the case of the party being unable or declaring himself unwilling to perform the obligation before the due date. Thus, these two situations which English law would see as possibly attracting the doctrine of anticipatory breach would be covered by the rule found in Article 1186, with the result that no actions for enforcement can be brought before the due date. Nor can the "injured party" bring an action for judicial termination of the contract (resolution) on the ground of its serious non-performance as, ex hypothesi, before the terme falls due no non-performance has occurred. These two propositions explain why neither of the circumstances which in English law give rise to the special rights associated with "anticipatory breach" give rise to any immediate right of action in French law, whether that action is for enforcement, damages or for termination of the contract.

1. The "defence based on non-performance" (exception d'inexecution)

French law has recognised that in some circumstances the non-performance of his obligation or obligations by one party to a bilateral contract may give a defence to the other if sued by the party in breach for performance, a defence known as the exception d'inexecution. [xlix] However, the fact that the first party's non-performance was deliberate does not have any formal impact on the availability of the defence, though it could go to the issue of the seriousness of the non-performance necessary to attract its application. So, for example, if a party to a contract informed the other party that he would not perform his obligations at all, this would after the date when performance was due clearly constitute a sufficiently serious non-performance to attract the defence.

2.      Judicial termination of the contract for non-performance (resolution judiciaire)

Strikingly for a common lawyer, in the absence of express stipulation,' in principle an injured party cannot terminate the contract by his own act or by notice however serious the other party's non-performance and must instead apply to the court for judicial termination under Article 1184 of the Civil Code. Once seised of such a claim, and if satisfied of the seriousness of the non-performance, the court may terminate the contract,' but it may declare it subsisting and award damages instead or allow the debtor further time for performance.' [l]There is here much room for what a common lawyer would see as judicial discretion and it would seem that a French court would take into account whether or not the non-performance was deliberate (and therefore whether or not it was in bad faith) in coming to its decision,'" it being particularly unlikely that any further time for performance would be given where the party had previously declared himself unwilling to per- form even though he was able to do so."

As Treitel has noted,' however, the case where a party to a contract has declared that he will not perform his obligations forms an exception to the general requirement of going to court for resolution and, while the point is not specifically adverted to by la doctrine, there would seem to be no reason why this exception should not hold good in the case of a declaration made before the date for performance. Here, then, a creditor may, after the date for performance arrives, treat the contract as though it is at an end there and then, though he does so at the risk of a court subsequently holding that he was not entitled to do so on grounds other than the mere failure to go to court.

3. Damages

There are two ways in which the facts which give rise to the doctrine of anticipatory breach may affect the damages awardable in French law for non-performance.

First, while the availability of damages for delay in performance is in principle subject to a requirement of formal "notice to perform" (mise en demeure) being given by the injured party, it is clear that no notice is required where the other party has indicated that he will not perform. [li]In the result, where a party has declared that he will not perform, after the date for performance has arrived damages for delay in performance will accrue  .

Secondly, the deliberate nature of a party's non-performance affects what a common lawyer would term the test of remoteness of damage applicable. In principle, damages for non-performance of a contractual obligation are limited to those which were or could have been foreseen at the time of making the contract, [lii] but this rule finds an exception where the non-performance constitutes dol. In that case, a non-performing party is liable for damages which are the "immediate and direct consequence of the agreement's non-performance". [liii]

Conclusion

In conclusion, therefore, it can be seen that in French law the fact that a breach of a contract has occurred before the time for performance does not in general affect when any remedy based on breach becomes available, but its deliberate nature may have considerable effects on any subsequent remedy. By contrast, in English law, while in principle the deliberate nature of a breach of contract is irrelevant to the remedies which it attracts, when combined with the element of "anticipation" it may attract the accelerated remedies associated with the doctrine of anticipatory breach, even though these are not restricted only to this situation”.

 



[i] White & Carter (Councils) Ltd v McGregor (1962) HL 3 All ER 1178

[ii] Hochster v De La Tour (1853) 2 E & B 678

[iii] White & Carter above  (Lord Reid); 445 (Lord Hodson).Lord Tucker concurred with Lord Hodson.

[iv] Ibid 445.

[v] Ibid 429.

[vi] Ibid 434 (Lord Morton)

[vii] ibid 433. Also,438 (Lord Keith)

[viii] M.Furmston,Cheshire, Fifoot & Furmston’s Law of Contract (Oxford:OUP,2007) 782 and Lord Morton at 1184

[ix] E. Tabachnik, ‘Anticipatory Breach of Contract’ (1972) 25 Current Legal Problems 149, 166.

[x] Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GMBH (The ‘Puerto Buitrago’) [1976] 1

Lloyd’s Rep 250 CA 255 (Lord Denning MR) (The Puerto Buitrago).       Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178 (Ch), [2003] 2 All ER (Comm) 823 at [71] (Mr Nicholas Strauss QC) (Ministry of Sound): ‘a degree of judicial reluctance over the last 40 years to apply White and Carter outside the strict limits of its ratio’.

[xi] Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361 CA 370 (Salmon LJ);

375-376 (Sachs LJ); 381 (Buckley LJ) (Decro-Wall and ibid 375.

[xii] The Alaskan Trader No2 [1984] 1 All ER,137(Lloyd J). Also, Gator Shipping Corp v Trans-Asiatic Oil Ltd SA and Occidental Shipping Establishment (The ‘Odenfeld’) [1978] 2 Lloyd’s Rep 357 Com Ct 373 (Kerr J) (The Odenfeld).

[xiii] J.W. Carter A. Phang and S. Y. Phang, ‘Performance Following Repudiation: Legal and Economic Interests’ (1999) 15 JCL 1, 98-99.

[xiv] These two views were   summarized in Robert Cort & Son Ltd v Charman [1981]ICR816EAT 819 (Browne-Wilkinson J).

[xv] Ministry of Sound  at[58],citing with approval Gunton ,778 (Brightman LJ)

[xvi] Jerome Francis v The Municipal Councillors of Kuala Lumpur[1962]1WLR1411PC1417-1418

[xvii] Mackay v Dick(1881)6 App Cas 251HL;Vine v National Dock

[xviii] Hill v Parsons[1972]Ch 305 CA 319-320(Sachs LJ),cf 314(Lord Denning MR)

[xix] Gunton , 459

[xx] LondonTransport at ,362.His Lordship used two examples to illustrate the point:while an employee might retract a previous refusal to work, the contract of employment was automatically terminated when he walked out and worked for another employer (362-363).

[xxi] ibid. His Lordship cited Blackburn J’s statement in Poussard v Spiers and Pond(1876)1QBD410,414

[xxii] Ocean Marine Navigation Ltd v Koch Carbon, The Dynamic [2003] EWHC 1936

[xxiii] Poussard above  ,414-415;Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]2QB 26 CA 66 (Diplock LJ).

[xxiv] Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 PC 507 (Lord Sumner). For the test of fundamental/essential difference, Davis Contractors Ltd v Fareham Urban DC [1956] AC 696 HL

[xxv] New Zealand Shipping Co Ltd v Societe  des Ateliers et Chantiers de France [1919]AC1HL9 (Lord Atkin-

son). Also, Heyman v Darwin Ltd [1942] AC 350 HL 361 (Viscount Simon).

[xxvi] Gunton above

[xxvii] Masood v Zahoor [2008] EWHC 1034 (Ch) at [279] (Peter Smith J).

[xxviii] The Alaskan Trader above ,139 (Lloyd J):yes; The Odenfeld ,374(Kerr J):

[xxix]

[xxx] Ministry of Sound above   .Also, A.L.Corbin, Corbin on Contracts vol10 ‘Breach of Con-

tract’ (Matthew Bender, rev ed, 2007) 983.

[xxxi] Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The‘Scaptrade’)[1983]QB529CA, [1983] 1 Lloyd’s Rep 146, where the existence of an equity was rejected as there was no countervailing value such as efficiency that competed with contractual certainty in that case.

[xxxii] The Puerto Buitrago above  , 256 (Orr LJ); Stocznia v Latvian Shipping [1995] 2 Lloyd’s Rep 592

Com Ct 602 (Clarke J); Ocean Marine Navigation Ltd v Koch Carbon Inc (The ‘Dynamic’) [2003] EWHC 1936 (Comm), [2003] 2 Lloyd’s Rep 693 at [23] (Simon J) (The Dynamic).

[xxxiii] The Puerto Buitrago above  , 255 (Lord Denning MR). To be distinguished from the recent case Isabella Shipowner SA v Shagang Shipping Co Ltd (The Aquafaith) [2012] EWHC 1077 (Comm) Also, A. Burrows, Remedies for Torts and Breach of Contract (Oxford: OUP, 3rd ed, 2004) 440.

[xxxiv] The Odenfeld above ,374;The Dynamic above at[22]; Reichman v Beveridge [2006]EWCA Civ 1659, [17] (Lloyd LJ).

[xxxv] A.L.Goodhart,‘Measure of Damages When a Contract is Repudiated’(1962) 78 LQR 263,267et

seq; S. Stoljar,‘Some Problems of Anticipatory Breach’ [1974] 9 MLR 355.

[xxxvi] The Alaskan Trader above ,137(Lloyd J). ,Stocznia v Latvian Shipping[2001]1

Lloyd’s Rep 537 (Com Ct) at [175] (Thomas J).

[xxxvii] Treitel’s Law of Contract,above ,1097-1099

[xxxviii] K. Scott,‘Contract ,Repudiation , Performance by Innocent Party’ [1962] CLJ 12, 14  227-228; McKendrick, above  , 824.

[xxxix] McKendrick Contract Law (Oxford 4th ed 2010) 811

[xl] White & Carter,above n1,429,430

[xli] The Odenfeld above  ,374;The Dynamic above  ;Reichman v Beveridge above

[xlii] The Alaskan Trader above

[xliii] Highland & Universal Properties Ltd v Safeway Properties Ltd [2000] 3 EGLR110CSIH111 (Lord President Rodger), adopting Grahame v Magistrates of Kirkcaldy (1882) 9 R (HL) 91, 91^92 (Lord Watson);White & Carter above n 1, 430 (Lord Reid).

[xliv] Stocznia v Latvian Shipping [1996] 2 Lloyd’s Rep132,139 (Staughton LJ).  Carter et al, above  , 66,    McGregor on Damages, above   at [7- 030].

[xlv] White & Carter  (Lord Reid); The Dynamic above  at [22].

[xlvi] ibid

[xlvii] On the other hand, the fact that the obligation already exists is reflected in the fact that

if e.g. money is paid under an obligation whose performance is not yet due it cannot be recovered as money undue : idem Art.1186.

[xlviii] The time at which performance is due is referred to as the echeance de la creance a terme and where this non-performance is actionable before this time, its decheance is said to have occurred: see the elaborate discussion in J. Ghestin, Traite de droit civil, Les effects du contrat (2nd edn, 1994 with C. Jamin and M. Billiau), Nos.161 et seq.

In that there is no formal restriction in Art.1184.3 Civil Code to cases of   non-performance in

good faith. However, this provision is to be compared to Art.1244-1, which gives the court a discretion to give debtors of money obligations time to pay where their financial circumstances are difficult, a possibility which one leading text declared applied at least before its last re-amendment only to debtors in good faith: P. Malaurie and L. Aynes, Droit civil, Les obligations (6th edn, 1995), No.1012, p.587.

[xlix] Article 1186 CC : where an obligation is due only on a certain event (like a date), its performance cannot be claimed before the occurrence of that event.

[l] idem

[li] B. Starck, H. Roland and L. Boyer, Obligations, Vol.2: Contrat (4th edn, 1993), No.1402, p.586; Mazeaud et al., idem, No.944, p.260

[lii] Art.1150, Civil Code.

[liii] Article 1151 CC

Tọa đàm “Vi phm hp đng trong h thng Thông lut”

Vào lúc 14h ngày 21/01/2013 tại Phòng A 901, Khoa Luật dân sự phối hợp với GS Eira Ruben (Đại học của Anh Quốc) tổ chức Tọa đàm về chủ đề “Vi phạm hợp đồng trong hệ thống Thông luật”. Trong buổi Tọa đàm, GS Eira Ruben đã trình bày thực trạng của Thông luật về vi phạm hợp đồng và tập trung vào chủ đề vi phạm hợp đồng trước thời hạn. Sau đó, nhiều chủ đề được thảo luận như xác định sự tồn tại và hệ quả pháp lý của vi phạm hợp đồng trước thời hạn hay vấn đề vi phạm cơ bản hợp đồng.

Được sự đồng ý của GS Eira Ruben, xin giới thiệu tới bạn đọc nội dung tham luận của GS về vi phạm hợp đồng trước thời hạn trong Thông luật:

 

“In this paper I wish to examine the case of White & Carter v McGregor[i].The reason is that this case goes to the heart of problems associated with anticipatory breach. Anticipatory breach is a doctrine very specific to the Common Law and a doctrine which does not exist in civil law jurisdictions. I shall first try to disentangle the reasons that drove their Lordships to take the decisions that they did in that case and then try and understand how the doctrine is dispensed with in French law.

 

A breach of contract can be either anticipatory or actual. An anticipatory breach occurs when before the time for performance the promissor either announces that he will not perform his obligation as required by the contract or disables himself from doing so. This definition was used in Hochster v De La Tour.[ii] On 12 April a courier was employed by the defendant to perform duties to begin on June 1. On 11 May, the defendant told the courier that he had changed his mind. On 22 May, the courier brought an action for damages and was successful. To recover damages before time of performance had arisen, there must have been a breach of contract by the defendant, and to justify the courier in not performing the contract, the term breached must have been a condition. The right of the innocent party to bring an action for damages before the time for performance has arisen benefits both parties. The innocent party is able to recover damages at an earlier point in time than if he was to wait for the “actual” breach. The party in breach is also advantaged because , as soon as he has exercised his election, the innocent party must mitigate his loss.

 

But, where a party commits an anticipatory breach of its obligation to pay a fixed sum at a future time, is the other party entitled to continue to perform the contract and then claim that sum when it falls due? This is the legal question arising under White & Carter v McGregor.  Lets look more closely at the case itself.

The pursuers ( this is a Scottish  case, we would say claimants) were a company supplying litter bins to local councils and were paid by businesses like the defender in return for displaying the latter’s advertisements on the bins. On 26 June 1957, when a three-year contract for displaying advertisements between the two parties was about to expire, the sales manager of the defender renewed it with the pursuers for a further term. On the same day the defender purported to cancel the deal, stating that the manager acted without valid authority. The pursuers nonetheless proceeded with the contract and had the defender’s advertisements displayed as contracted for. When the first few payments under the contract were not paid within the specified times, the pursuers brought a claim for the whole contract price pursuant to condition 8 of the contract, which provided that all of the defender’s future payments would accrue immediately upon a failure to make any payment in time. The claim was refused on two occasions in Scotland, only to be allowed on appeal to the House of Lords by a narrow 3 to 2 margin.

In upholding the pursuers’ claim, their Lordships in the majority adopted two distinct approaches. They all started from the general principle that the victim of an anticipatory breach had an unfettered option whether to accept it or not, and that it was under no duty to enforce its contractual rights in a reasonable way. [iii] Lord Hodson denied any room for an exception to the general principle and rejected any role for equity in this regard, [iv] Lord Reid ,however, admitted two grounds on which the general principle could be departed from.

First, the present case belonged to a small number of cases where the victim could perform its side of the contract without any co-operation from the contract- breaker; otherwise the claim would fail right away as the defender could not be compelled to co-operate. [v]

Secondly, the victim’s ability to earn the contract price might be restrained on the ground of ‘some general equitable principle or element of public policy’, where the contract-breaker should be able to show that the victim ‘has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages’. [vi]

The two judges in the minority, in contrast, relying as they did upon a range of different legal grounds, expressed a concern that the pursuers had engaged in an ‘unreasonable and oppressive’ course of action.

There appeared to be two distinct lines of reasoning. First, the pursuers were in effect ‘claiming a kind of inverted specific performance’, [vii] whilst specific performance could not be decreed in the present case because damages would be an adequate remedy.

According to English law, the contract in White & Carter was clearly not one in respect of which specific performance was available. It can thus be said that the pursuers’ claim for the contract price, if permitted, would achieve what a claim for specific performance would not achieve, and would therefore defeat the policing reasons that necessitated the rejection of the latter claim. Secondly, the minority also argued that the pursuers in carrying on performance contravened a duty to mitigate their losses. Lord Keith, in addition, raised a few other points in support of his decision, including, inter alia, automatic termination and an analogy with a contract of personal service.

A hypothetical example relied upon by counsel for the defender, adverted to by their Lordships, well illustrated their differences in opinion. A company commissioned an expert to write a report and, before he could incur any expenses, repudiated the contract. Was the expert entitled to proceed to finish the report and claim the agreed remuneration? Whilst Lord Reid left the matter open by saying that it ‘might be’ that the company could show a lack of ‘legitimate interest’ on the expert’s part, it was said to be ‘strange’  or ‘startling’, by Lord Morton and Lord Keith respectively, that an affirmative answer would be given.

The decision in White & Carter has proved to be an extremely controversial one.    There has been, for example, some uncertainty as to whether Lord Reid’s two qualifications formed part of the ratio of the case. The other two majority judges did not endorse the qualifications. In this respect, they should therefore be regarded as dicta only. Yet, it can of course be said that without Lord Reid there would be no majority.  Therefore, the qualifications are better seen as part of the ratio. In any event, having been repeatedly adopted or applied by lower courts including the Court of Appeal, they are now incontrovertibly seen as an integral component of the White & Carter principle. Nevertheless, the decision in White & Carter, albeit constantly followed, has been   both criticised as ‘grotesque’[viii] and defended as ‘both legally and logically inevitable’. [ix]

The decision has been attacked on both procedural and substantive grounds:

1) on the ground that it was unfair to the respondent in that it saddled him with a performance he did not want

2) it has also been argued that it leads to a result which is economically inefficient in that performance was a waste

3) the rule has been limited in subsequent cases by being narrowly interpreted: the rule does not apply where the innocent party is dependent upon the cooperation of the party in breach in order to be able to continue with performance

4) and if the innocent party has no legitimate interest in performance of the contract

Was White & Carter correctly decided, in terms of both legal principle and its application to the facts? Should any of their Lordships’ speeches, especially that of Lord Reid, be regarded as embodying the most appropriate approach to future like cases? In order to answer this question I will look at the critical issue raised by the case and the competing values and policies underpinning it.

 

IDENTIFYING THE ISSUE

The legal issue posed in a factual situation akin to White & Carter has been variously stated. In general, it can be put in three different ways.

First, the issue has been seen as one relating to the availability of an option to keep the contract alive. [x]There is a theory that, where a contract is or is analogous to a contract of personal service, it should automatically come to an end once an anticipatory breach is communicated.

Secondly, there have been suggestions that White & Carter was concerned not with the victim’s option, but with its ability to resort to a claim for the contract price.  As Sachs LJ succinctly put it, ‘it is the range of remedies that is limited, not the right to elect’. [xi] Thus,‘[t]he court is not exercising a dispensing power; nor is it rewriting an improvident contract. It is simply refusing a certain kind of relief.’ [xii]

Thirdly, it can be argued that the real issue concerns whether, and to what extent, a party is allowed, in the face of an anticipatory breach by the other party, to persist in a wasteful performance. [xiii] In other words, it is on this third view the appropriateness of the continuance of performance, rather than the freedom to continue with the contract or the availability of a claim for the contract price, that sits at the distinctive core of the White & Carter principle. The above three formulations of the issue in White & Carter have obvious connections. If an anticipatory breach automatically terminates the contract, thereby giving rise to a right to claim damages only, the other two formulations would be irrelevant. The ability to claim the contract price, albeit distinct from the appropriateness of continuing performance, depends in large part on the latter. It will be shown below that these three formulations must be either rejected or substantially improved.

 

Automatic termination

 

Should a contract be kept alive? This question stems from a debate as to whether a contract of personal service forms an exception to the general rule that an anticipatory breach does not automatically terminate the contract but merely vests in the victim a power to terminate. Two opposing views exist. [xiv] One, usually dubbed the ‘elective (or acceptance) view’, treats a contract of personal service as no different from other types of contracts. The other, usually dubbed the ‘unilateral (or automatic termination) view’, excludes such a contract from the general rule.       The ‘elective view’ seems the preferred option.This formulation assumes that the unilateral view is tenable in at least some cases. If that view is based on the fact that a wrongful dismissal destroys the victim’s status as an employee and thus prevents him   claiming wages,  [xv] then a contract of personal service should be regarded as sui generis in this respect. However, if the unilateral view is founded on a more general basis, this would open the door to an enquiry into whether an anticipatory breach in a given case is such that it would automatically terminate the contract and thus terminate any hope of the victim claiming the contract price. Two such general arguments emerge.

The first argument is that, where an employee is wrongfully dismissed, since s/he is generally not entitled to specific relief, [xvi]including a claim for unearned wages, [xvii] the wrongful dismissal must have automatically terminated the contract, leaving the employee with a claim for damages only. This argument can be extended to other types of contracts. Accordingly, whether an anticipatory breach automatically terminates the contract would depend on the availability of specific relief. Where specific relief is not available to the victim, the contract is automatically terminated and the victim has no option to keep it alive.The logic of this argument is evidently flawed. The subsistence of a contract is a necessary, but not sufficient, reason for seeking specific relief. Conversely, even where specific relief is unavailable, the victim may still have ‘good reasons’ to keep the contract alive.[xviii] An option to preserve the contract following an anticipatory breach is thus not, as Shaw LJ once suggested, ‘an empty formality’. [xix]

The second argument in support of the unilateral view is that automatic termination is a result of the seriousness of an anticipatory breach. This is one possible interpretation of the assertion that a wrongful dismissal, if it destroys the relationship of trust and confidence between the parties, would automatically terminate the contract. More generally, Lord Denning once observed that, whilst certain actual breaches might automatically terminate the contract, no anticipatory breach could have such an effect. [xx] Part of his Lordship’s observation is explicable on the ground that an actual breach might be so serious that it should be treated in the same way as a frustrating event, [xxi] it is arguable that the same could be said of an anticipatory breach, such as where it renders further performance of the contract impossible. If the seller under a contract for the sale of a unique painting burns it to ashes, it does not seem to matter whether the incident happens before or after the time for delivery. There are several responses to this argument.

First, not only is it hard to discern any rational basis for linking the seriousness of a breach with the legal effect of automatic termination, but it also seems to contradict established authority to regard frustration cases a[xxii]s resting upon a more stringent test of seriousness than that applied in termination for breach cases. [xxiii]In this respect, a breach of contract is in sharp contrast to a frustrating event, which automatically terminates a contract so that neither party can profit from the event by holding the other to a fundamentally different undertaking. [xxiv]

The reason why automatic termination for breach of contract is not the correct response is because of the need to protect the victim by putting the matter into his hands, to prevent the contract-breaker from taking advantage of its own wrong, and a desire to preserve a deal  . [xxv] This is reinforced by the fact that an anticipatory breach is a retractable wrong. It would deny the contract-breaker an opportunity of undoing the wrong if the breach is treated automatically as terminating the contract.   The fact that a degree of co-operation is required for most contracts to be performed does not derogate from the root principle that the victim has an option whether or not to accept a repudiation. Thirdly, the ‘impossibility’ cases are commonly solved by holding the victim to have impliedly accepted the anticipatory breach, as such an acceptance should be ‘easily infer[red]’ where any other interpretation would be ‘meaningless’. [xxvi]

All in all, the ‘unilateral view’ was rightly condemned by Templeman LJ as ‘contrary to principle, unsupported by authority . . . and undesirable in practice’.  What lies between a contract of personal service and other types of contract is ‘a difference in procedure, not in principle’. [xxvii]

The first formulation of the issue in White & Carter v McGregor is both false and illogical and must thus be rejected. It is false because it should be accepted that the victim of an anticipatory breach has an option whether or not to terminate the contract. It is illogical because if the victim decides not to terminate the contract, it does not necessarily follow that it is entitled to the contract price.

 

Availability of specific relief

 

The second formulation of the issue in White & Carter postulates that an enquiry should be had whether a claim for the contract price is available to the victim of an anticipatory breach. This formulation has two dimensions.

First, the contract price, as a debt, is payable only if all conditions precedent are fulfilled and the duty to pay it has arisen. A vital key to understanding the issue in White & Carter is the distinction between a claim in debt and a claim in damages. A claim in debt is a claim that the debtor owes to the creditor a sum of money. Such a claim is not subject to the requirement that the creditor must have mitigated his loss. Either the debtor owes the sum of money to the creditor or he does not. A claim in damages is an unliquidated claim to be compensated for the loss that the innocent party has suffered as a result of breach of contract. In this case there is a duty to mitigate loss.

The co-operation qualification is testimony to this point. In most cases, the victim’s performance is necessary for the contractual debt to accrue and without the contract-breaker’s co-operation no such performance is possible. A typical example is that of a wrongfully dismissed employee who cannot claim future wages because he needs the employer’s co-operation to earn the wages and is incapable of doing so by simply presenting his services to the employer. [xxviii]The issue is thus sometimes transformed into one of whether the contract in question, such as a charterparty, should be treated as analogous to a contract of personal service in this respect. However, the clearance of the co- operation hurdle is not sufficient for the claim to be allowed. The legitimate interest qualification, which does not concern the fulfillment of a condition precedent to the payment of the contract price, must also be satisfied. Indeed, the White & Carter principle is not concerned with the accrual of a contractual debt as such. Its distinctiveness lies in a different question: is it appropriate to allow the victim to go on and fulfill all the conditions precedent to the payment of the contract price, thereby putting itself in a position to claim an accrued debt?

Secondly, there were suggestions that a claim for the contract price was not only a claim in debt, but should also be treated as a form of specific performance[xxix]As noted earlier, one of the grounds on which the minority rejected the claim in White & Carter was that it might outflank and undermine the court’s jurisdiction over the sanctioning of specific performance. None of the judges in that case, however, treated the claim as analogous to a claim for specific performance.  Nevertheless, the minority’s argument was later relied upon by some English courts to draw the analogy and consequently the adequacy of damages was accepted as a principal test for ‘legitimate interest’. It is thus well established that where a payment falls due before an anticipatory breach is committed it is recoverable irrespective of whether or not the breach is accepted. [xxx] The courts have no discretion to encumber the victim’s entitlement to the contract price. Admittedly, Lord Reid’s legitimate interest qualification confers on the courts an equitable jurisdiction to constrain the accrual of that entitlement.

The legitimate interest criterion must be distinguished from the equitable doctrine of specific performance in two important respects. First, the focus and scope of the legitimate interest qualification is demonstrably distinct from that of the courts’ more general jurisdiction to grant an order of specific performance.  The factors that mould the equitable jurisdiction to decree specific performance, such as the preservation of personal liberty and the impracticability of supervision, have no role in the White & Carter principle.  Secondly, in contrast to the equitable doctrine of specific performance, the legitimate interest qualification does not concern the appropriateness of a certain remedy at all. The issue in White & Carter is not whether the victim, having fulfilled all the conditions precedent, should be awarded the contract price, but whether it should be allowed to fulfill those conditions in the first place, or, whether its conduct in fulfillment of those conditions should be regarded as inappropriate and thus incapable of giving rise to an entitlement to the contract price. Thus the courts exercise discretion over not the availability of a claim in debt, but the appropriateness of the victim’s conduct in bringing the debt to maturity. The legitimate interest qualification involves a legal exercise preceding the determination of appropriate remedies. In short, the White & Carter principle is not concerned with the appropriateness of a claim for the contract price, whether it is seen as a claim in debt or a claim for specific performance, but with the appropriateness of the victim’s continuing performance. It is for this reason that the second formulation must be rejected.

 

Wasteful performance

 

The issue in White & Carter does not lie in whether the victim of an anticipatory breach may keep the contract alive or, if it continues and completes its perfor- mance, it is entitled to the contract price. Instead, the third formulation asserts that it is the wastefulness of the victim’s continuing performance that goes to he heart of the White & Carter principle.In White & Carter, the judges who took that view actually formed a majority. Lord Morton and Lord Keith rested their dissenting decisions principally upon the wastefulness of the pursuers’ conduct.Lord Reid’s legitimate interest qualification also centred effectively on it. It was once argued that White & Carter involved unwanted but not necessarily wasteful performance. The reason seems to be that the defender would reap benefits, such as good publicity, from the unwanted advertisements. This argument is, however, based on too restrictive a view of ‘waste’. A performance is wasteful when its costs exceed the benefits. Yet the wastefulness must not be assessed solely from the perspective of one of the parties. Rather, full regard must be had to the interests of both parties and even to the interests of the wider community.  It is economically inefficient and is thus wasteful. On the facts of White & Carter, the pursuers ought, on learning of the repudiation, to have realised that their advertising services would find better use in a desirous party and would thus be wasteful if imposed upon the defender. The wastefulness of the victim’s continuing performance is in fact essential to the White & Carter principle. It is this wastefulness, not the fact that an award of the contract price might cause ‘undue hardship’ to the contract-breaker, that lies at the heart of the notion of ‘legitimate interest’ .

The second comment is that if the third formulation is concerned only with the wastefulness of the victim’s continuing performance, then it misses the full picture. Wastefulness alone does not necessarily mean that the victim is precluded from earning the contract price by continuing performance. The victim’s ability to do so hinges on the weighing of two competing values, namely, the sanctity and certainty of contract and economic efficiency in the form of waste avoidance. English contract law has traditionally prioritised the sanctity and certainty of contract ahead of efficiency. This prioritisation tends to lead to the extreme view that efficiency should be entirely left out of consideration. In White & Carter, Lord Hodson thus held that the pursuers were entitled to the contract price simply because they had given what the defender contracted for, namely, the advertising service, and it was irrelevant that their continuing performance was unreasonable or wasteful. [xxxi] However, as Lloyd J observed, ‘absolute certainty can never be attained’.  The better view seems not to dismiss efficiency entirely but to accept that it may, in certain circumstances, triumph over the sanctity and certainty of contract.  Indeed, it is clear from Lord Reid’s decision in White & Carter that only in exceptional cases is the victim regarded as having no legitimate interest in continuing to perform the contract. The appropriate legal test is whether the wastefulness of the victim’s continuing performance is so serious as to outweigh the sanctity and certainty of contract, namely, the desirability of preserving its ability to earn the contract price by continuing performance.  Lord Reid’s legitimate interest qualification ought to be recast on the basis of this legal test. In applying the White & Carter principle, the courts will take account of a wide range of factors in weighing wastefulness against the sanctity and certainty of contract. Consequently, this is an equitable principle that comes to the contract-breaker’s aid only where wastefulness outweighs the sanctity and certainty of contract.

At this point it should be noted that the victim’s ‘performance interest’ must be distinguished from its contractual right. A performance interest may or may not give rise to a contractual right. A contractual right arises only when both parties intend it to. It is one thing to say that the parties have ‘willed’ that an award of the contract price should be granted once that price is due and not paid. It is quite another to assert that they have intended that, in the face of one party’s repudiation, the other party might continue to perform its side of the contract against the contract-breaker’s will. A contract is usually silent on the latter issue. Thus, ‘performance interest’ in the present context is perhaps best viewed as an alternative expression of ‘the sanctity and certainty of contract’  . Each contracting party has an interest in the contract being upheld and performed. In most cases this interest is fully protected as the victim’s continuing performance is recognised by the court and hence makes the contract price payable. However, the existence of such an interest does not create an absolute rule that allows no exception. It does not preclude the situation where the court may, at least in some cases, exercise its discretion and hold that the victim’s continuing performance is so wasteful that in order to discourage or even deter it the performance must not be given its intended effect of making the contract price payable. The victim, who simply follows the terms of the contract, should not be required to justify its conduct. It is for the contract-breaker to establish that the victim’s continuing performance is so wasteful as to outweigh its performance interest in earning the contract price. Lord Reid, when formulating the legitimate interest qualification in White & Carter, explicitly adopted this view.  Later cases followed suit. [xxxii] As regards the co-operation qualification, once the victim makes out a prima facie case that the contract price is payable, it is also for the contract-breaker to show that the victim’s performance requires its co-operation and has been rendered without it.

 

Legitimate interest

 

The legitimate interest qualification brings out conspicuously the clash between the sanctity and certainty of contract and economic efficiency. The contract-breaker must show that the wastefulness of the victim’s continuing performance outweighs its performance interest in earning the contract price. Three specific tests have been proposed, either individually or jointly, to determine the existence of a legitimate interest. They are: adequacy of damages, duty to mitigate and “wholly unreasonable”. They must first be examined separately.

 

Adequacy of Damages

The first test, alluded to by Lord Reid in White & Carter and adopted by English courts subsequently, states that in order to show the absence of a legitimate interest on the victim’s part, the contract-breaker must satisfy the court that damages are an adequate remedy for the victim. This test was sometimes said to be the dominant test. [xxxiii] More commonly, the test was seen as controlling one of the two essential elements to a successful defence against a claim for the contract price: the con- tract-breaker must show not only the adequacy of damages, but also that the victim’s continuing performance would be ‘wholly unreasonable’. [xxxiv]

In either case, an analogy has been drawn by English courts between a claim for the contract price and a claim for specific performance. The adequacy of damages test, the principal test for the availability of specific performance in anticipatory breach as well as actual breach cases, has consequently been adopted.   As shown previously,   the claim in White & Carter is a claim in debt, rather than a claim for specific performance. The adequacy of damages test in specific performance cases must not be applied   to a case such as White & Carter. The adequacy of damages is distinguishable from the wastefulness of the victim’s continuing performance in that it is not concerned with whether the costs of that performance exceed its benefits, but with whether the victim might be compensated for the difference between the contract price and those costs. This does not, however, mean that the adequacy of damages is wholly irrelevant to the White & Carter principle. Coupled with the wastefulness of the victim’s continuing performance, the adequacy of damages would argue strongly in favour of a finding of no legitimate interest. It must be shown that the victim has a real alternative other than to continue to perform the contract. If no such alternative exists, the value of conserving the victim’s performance interest must prevail over any wastefulness involved in its continuing performance. The adequacy of damages means that the principal alternative, namely, terminating the contract and claiming damages, is open to the victim. It does not, however, necessarily lead to the conclusion that the victim is disallowed to earn the contract price. Nor does it follow from the inadequacy of damages that the victim has no real alternative other than to continue .

 

Duty to Mitigate

The second test, relied upon by the two dissenting judges in White & Carter, is to use the victim’s duty to mitigate to establish the victim’s ability to earn the contract price by continuing performance. A formidable obstacle for this test is a long-standing line of authorities that fix the time when a duty to mitigate arises in anticipatory breach cases at the time when the victim accepts the breach. It was suggested that this rule of law has caused a major anomaly in practice, as the victim might freely continue to perform the contract and thus shift the cost of wasted resources to the contract-breaker. [xxxv] Consequently, critics argued that American law should be preferred, under which a duty to mitigate arose in the victim as soon as the anticipatory breach was communicated and held the victim’s continuing performance in check.  Even some members of the English judiciary have been attracted to this ‘uncomplicated view’. [xxxvi]To be sure, the mitigation principle and the White & Carter principle do share in common a commendable desire to avoid waste.   What is objectionable is the suggestion that the distinction between the two should be removed entirely and the mitigation principle should be applied to a victim who chooses to continue to perform to earn the contract price in the same way as it is applied in assessing damages. [xxxvii]

 

Consequently, the yardstick for a legitimate interest under the White & Carter principle must be distinguished from that in mitigation cases. Although the onus on the contract-breaker to show that the victim acts ‘unreasonably’ in not mitigating is not a light one,  the onus must be even heavier when the contract-breaker aims not to reduce the amount of damages payable, but to thwart in its entirety a claim for the contract price. In fact, the courts, as will be seen, have been alert to this distinction and have thus pitched the level of the contract-breaker’s onus under the White & Carter principle at ‘wholly unreasonable’.

In other words, it is the fact that a party in anticipatory breach ‘may reinstate himself’ prior to acceptance that makes acceptance a prerequisite for both a right of action for damages and a duty to mitigate. [xxxviii]

In rejecting the mitigation principle as an appropriate test I have omitted the usual argument that that principle has application only in a claim for damages, not in a claim in debt. [xxxix] This argument has been criticised for putting form above substance.

 

‘Wholly Unreasonable’

 

The third test, reasserted many times by English courts subsequent to White & Carter, asks whether the victim’s continuing performance is ‘wholly unreasonable’. Lord Reid’s unhesitating rejection of Lord Cooper’s prior observation that ‘the only reasonable and proper course’ for the victim to take was to accept the breach [xl] was a clear indication that a test of ‘unreasonableness’, inclusive of that applied under the mitigation principle, was too broad to strike a sensible balance between the sanctity and certainty of contract and economic efficiency in a case like White & Carter. Taking up this strand of reasoning, the courts in later cases stressed that the equity to refuse a claim for the contract price should be administered in ‘extreme cases’ only. [xli] The contract-breaker must show that the victim acts ‘wholly unreasonably’ in continuing to perform the contract. The distinction between merely unreasonable and wholly unreasonable is nowhere more prominently depicted than in a judgment of Lloyd J in The Alaskan Trader[xlii] It is necessary to quote the learned judge’s statement in full:

 

“there comes a point at which the court will cease, on general equitable principles, to allow the innocent party to enforce his contract according to its strict legal terms. How one defines that point is obviously a matter of some difficulty, for it involves drawing a line between conduct which is merely unreasonable (see per Lord Reid in White & Carter v McGregor [1961] 3 All ER 1178 at 1182, [1962] AC 473 at 429-430, criticising the Lord President in Langford & Co Ltd v Dutch 1952 SC 15) and conduct which is wholly unreasonable (see per Kerr J in The Odenfeld [1978] 2 Lloyd’s Rep 357 at 374). But however difficult it may be to define the point, that there is such a point seems to me to have been accepted both by the Court of Appeal in The Puerto Buitrago and by Kerr J in The Odenfeld. “

 

The test  of unreasonableness under the White & Carter principle should not be broadly directed at the unreasonableness of the victim’s continuing performance at all. A test of ‘unreasonableness’ fails to capture the critical issue in White & Carter and tends to hide and expand unduly the real factors to be taken into account. The better approach is to confine the courts’ discretion to those factors that affect the weighing of wastefulness against the sanctity and certainty of contract. Consequently, the legal test for ‘legitimate interest’ must be reformulated.

It is possible to reformulate the ‘wholly unreasonable’ test as follows.

(1) The principal test for a legitimate interest is whether, in the particular circumstances of the case, the wastefulness of the victim’s continuing performance outweighs its performance interest in earning the contract price. By its nature this test is equitable and confers on the court a discretionary power, which is exercised only in exceptional cases, to hold that the victim has no legitimate interest in continuing to perform and is thus not entitled to the contract price. There must be some ‘very cogent reason’ for doing so, as the victim would otherwise suffer ‘inconvenience and injustice’. [xliii]

(2) In applying the ‘wholly unreasonable’ test, the courts seem to be looking for a further good reason, in addition to the fact that the victim has a performance interest in earning the contract price, for its continuing performance. The new test recognises more directly and clearly the significance of such a reason. This is not to say that a further good reason is required and without it the victim cannot have a legitimate interest in continuing to perform. Rather, the existence of such a reason may very easily tip the scale in favour of an award of the contract price. A further good reason can be a non-pecuniary interest in the performance of the contract   or a legal liability to a third party consequent on non-performance . It can also be the lack of a real alternative for the victim other than continuing to perform .

(3) Since the main countervailing factor for the victim’s performance interest in earning the contract price is the wastefulness of its continuing performance, regard must be had not only to the victim’s interests, but also to the contract-breaker’s interests. [xliv] It is not sufficient for the contract-breaker to show the mere fact of wastefulness, namely, that the benefits of the victim’s continuing performance are small in comparison with its costs. [xlv]The benefit-cost gap must be ‘completely out of proportion’.  The excessiveness of the wastefulness is necessary for the victim’s claim for the contract price to be resisted  .

(4) The principal test is subject to a defence that the victim has no knowledge of the anticipatory breach at the time when it continues to perform the contract  . It is, however, debatable whether the victim’s lack of knowledge of the wastefulness of its continuing performance also constitutes a good defence. There were suggestions that the ‘wholly unreasonable’ test should be applied from the victim’s point of view and therefore the latter’s knowledge should be taken into account. [xlvi] The decision in White & Carter was thus said to be justified by the pursuers’ apparent ignorance of any waste. Accordingly, it was argued that in the expert report illustration, the expert might go on and make the report if the company wished to engage another expert but not if to his knowledge the report had become superfluous. If the contract-breaker shows that wastefulness outweighs the sanctity and certainty of contract, it is difficult to see why the victim’s continuing performance should be justifiable by reason of its ignorance of the waste. The White & Carter principle is not invoked to impose a legal liability upon an intentional wrongdoer. It discourages the victim from continuing to perform the contract if to do so is adjudged to be overly wasteful and hence inappropriate. Thus, if the inappropriateness of the continuance with the contract is established, it is irrelevant that it is unknown to the victim .

The central issue is whether the victim’s continuance with its performance is so wasteful as to outweigh its performance interest in earning the contract price. This formulation puts a limit on the range of facts that may be taken into account in determining the existence of a legitimate interest.

Was White & Carter correctly decided in view of this newly articulated test? Since the pursuers’ ignorance of the wastefulness of their continuing performance was irrelevant and there was apparently no further good reason for that performance, the answer should hinge on whether the wastefulness was excessive.  This point, however, was not addressed by counsel in the case.

 

If we now compare with the situation in French law, where the doctrine of anticipatory breach does not exist.

 

French law

Article 1186 of the Civil Code itself expressly provides that where an obligation is due only on a certain event (typically a date), its performance cannot be claimed before the occurrence of that event. [xlvii]French law does admit three exceptions to this rule, where as a result a party may be sued for non-performance of an obligation before the date on which it is due according to the terme, [xlviii] but these do not include the case of the party being unable or declaring himself unwilling to perform the obligation before the due date. Thus, these two situations which English law would see as possibly attracting the doctrine of anticipatory breach would be covered by the rule found in Article 1186, with the result that no actions for enforcement can be brought before the due date. Nor can the "injured party" bring an action for judicial termination of the contract (resolution) on the ground of its serious non-performance as, ex hypothesi, before the terme falls due no non-performance has occurred. These two propositions explain why neither of the circumstances which in English law give rise to the special rights associated with "anticipatory breach" give rise to any immediate right of action in French law, whether that action is for enforcement, damages or for termination of the contract.

1. The "defence based on non-performance" (exception d'inexecution)

French law has recognised that in some circumstances the non-performance of his obligation or obligations by one party to a bilateral contract may give a defence to the other if sued by the party in breach for performance, a defence known as the exception d'inexecution. [xlix] However, the fact that the first party's non-performance was deliberate does not have any formal impact on the availability of the defence, though it could go to the issue of the seriousness of the non-performance necessary to attract its application. So, for example, if a party to a contract informed the other party that he would not perform his obligations at all, this would after the date when performance was due clearly constitute a sufficiently serious non-performance to attract the defence.

2.      Judicial termination of the contract for non-performance (resolution judiciaire)

Strikingly for a common lawyer, in the absence of express stipulation,' in principle an injured party cannot terminate the contract by his own act or by notice however serious the other party's non-performance and must instead apply to the court for judicial termination under Article 1184 of the Civil Code. Once seised of such a claim, and if satisfied of the seriousness of the non-performance, the court may terminate the contract,' but it may declare it subsisting and award damages instead or allow the debtor further time for performance.' [l]There is here much room for what a common lawyer would see as judicial discretion and it would seem that a French court would take into account whether or not the non-performance was deliberate (and therefore whether or not it was in bad faith) in coming to its decision,'" it being particularly unlikely that any further time for performance would be given where the party had previously declared himself unwilling to per- form even though he was able to do so."

As Treitel has noted,' however, the case where a party to a contract has declared that he will not perform his obligations forms an exception to the general requirement of going to court for resolution and, while the point is not specifically adverted to by la doctrine, there would seem to be no reason why this exception should not hold good in the case of a declaration made before the date for performance. Here, then, a creditor may, after the date for performance arrives, treat the contract as though it is at an end there and then, though he does so at the risk of a court subsequently holding that he was not entitled to do so on grounds other than the mere failure to go to court.

3. Damages

There are two ways in which the facts which give rise to the doctrine of anticipatory breach may affect the damages awardable in French law for non-performance.

First, while the availability of damages for delay in performance is in principle subject to a requirement of formal "notice to perform" (mise en demeure) being given by the injured party, it is clear that no notice is required where the other party has indicated that he will not perform. [li]In the result, where a party has declared that he will not perform, after the date for performance has arrived damages for delay in performance will accrue  .

Secondly, the deliberate nature of a party's non-performance affects what a common lawyer would term the test of remoteness of damage applicable. In principle, damages for non-performance of a contractual obligation are limited to those which were or could have been foreseen at the time of making the contract, [lii] but this rule finds an exception where the non-performance constitutes dol. In that case, a non-performing party is liable for damages which are the "immediate and direct consequence of the agreement's non-performance". [liii]

Conclusion

In conclusion, therefore, it can be seen that in French law the fact that a breach of a contract has occurred before the time for performance does not in general affect when any remedy based on breach becomes available, but its deliberate nature may have considerable effects on any subsequent remedy. By contrast, in English law, while in principle the deliberate nature of a breach of contract is irrelevant to the remedies which it attracts, when combined with the element of "anticipation" it may attract the accelerated remedies associated with the doctrine of anticipatory breach, even though these are not restricted only to this situation”.

 



[i] White & Carter (Councils) Ltd v McGregor (1962) HL 3 All ER 1178

[ii] Hochster v De La Tour (1853) 2 E & B 678

[iii] White & Carter above  (Lord Reid); 445 (Lord Hodson).Lord Tucker concurred with Lord Hodson.

[iv] Ibid 445.

[v] Ibid 429.

[vi] Ibid 434 (Lord Morton)

[vii] ibid 433. Also,438 (Lord Keith)

[viii] M.Furmston,Cheshire, Fifoot & Furmston’s Law of Contract (Oxford:OUP,2007) 782 and Lord Morton at 1184

[ix] E. Tabachnik, ‘Anticipatory Breach of Contract’ (1972) 25 Current Legal Problems 149, 166.

[x] Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GMBH (The ‘Puerto Buitrago’) [1976] 1

Lloyd’s Rep 250 CA 255 (Lord Denning MR) (The Puerto Buitrago).       Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178 (Ch), [2003] 2 All ER (Comm) 823 at [71] (Mr Nicholas Strauss QC) (Ministry of Sound): ‘a degree of judicial reluctance over the last 40 years to apply White and Carter outside the strict limits of its ratio’.

[xi] Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361 CA 370 (Salmon LJ);

375-376 (Sachs LJ); 381 (Buckley LJ) (Decro-Wall and ibid 375.

[xii] The Alaskan Trader No2 [1984] 1 All ER,137(Lloyd J). Also, Gator Shipping Corp v Trans-Asiatic Oil Ltd SA and Occidental Shipping Establishment (The ‘Odenfeld’) [1978] 2 Lloyd’s Rep 357 Com Ct 373 (Kerr J) (The Odenfeld).

[xiii] J.W. Carter A. Phang and S. Y. Phang, ‘Performance Following Repudiation: Legal and Economic Interests’ (1999) 15 JCL 1, 98-99.

[xiv] These two views were   summarized in Robert Cort & Son Ltd v Charman [1981]ICR816EAT 819 (Browne-Wilkinson J).

[xv] Ministry of Sound  at[58],citing with approval Gunton ,778 (Brightman LJ)

[xvi] Jerome Francis v The Municipal Councillors of Kuala Lumpur[1962]1WLR1411PC1417-1418

[xvii] Mackay v Dick(1881)6 App Cas 251HL;Vine v National Dock

[xviii] Hill v Parsons[1972]Ch 305 CA 319-320(Sachs LJ),cf 314(Lord Denning MR)

[xix] Gunton , 459

[xx] LondonTransport at ,362.His Lordship used two examples to illustrate the point:while an employee might retract a previous refusal to work, the contract of employment was automatically terminated when he walked out and worked for another employer (362-363).

[xxi] ibid. His Lordship cited Blackburn J’s statement in Poussard v Spiers and Pond(1876)1QBD410,414

[xxii] Ocean Marine Navigation Ltd v Koch Carbon, The Dynamic [2003] EWHC 1936

[xxiii] Poussard above  ,414-415;Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]2QB 26 CA 66 (Diplock LJ).

[xxiv] Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 PC 507 (Lord Sumner). For the test of fundamental/essential difference, Davis Contractors Ltd v Fareham Urban DC [1956] AC 696 HL

[xxv] New Zealand Shipping Co Ltd v Societe  des Ateliers et Chantiers de France [1919]AC1HL9 (Lord Atkin-

son). Also, Heyman v Darwin Ltd [1942] AC 350 HL 361 (Viscount Simon).

[xxvi] Gunton above

[xxvii] Masood v Zahoor [2008] EWHC 1034 (Ch) at [279] (Peter Smith J).

[xxviii] The Alaskan Trader above ,139 (Lloyd J):yes; The Odenfeld ,374(Kerr J):

[xxix]

[xxx] Ministry of Sound above   .Also, A.L.Corbin, Corbin on Contracts vol10 ‘Breach of Con-

tract’ (Matthew Bender, rev ed, 2007) 983.

[xxxi] Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The‘Scaptrade’)[1983]QB529CA, [1983] 1 Lloyd’s Rep 146, where the existence of an equity was rejected as there was no countervailing value such as efficiency that competed with contractual certainty in that case.

[xxxii] The Puerto Buitrago above  , 256 (Orr LJ); Stocznia v Latvian Shipping [1995] 2 Lloyd’s Rep 592

Com Ct 602 (Clarke J); Ocean Marine Navigation Ltd v Koch Carbon Inc (The ‘Dynamic’) [2003] EWHC 1936 (Comm), [2003] 2 Lloyd’s Rep 693 at [23] (Simon J) (The Dynamic).

[xxxiii] The Puerto Buitrago above  , 255 (Lord Denning MR). To be distinguished from the recent case Isabella Shipowner SA v Shagang Shipping Co Ltd (The Aquafaith) [2012] EWHC 1077 (Comm) Also, A. Burrows, Remedies for Torts and Breach of Contract (Oxford: OUP, 3rd ed, 2004) 440.

[xxxiv] The Odenfeld above ,374;The Dynamic above at[22]; Reichman v Beveridge [2006]EWCA Civ 1659, [17] (Lloyd LJ).

[xxxv] A.L.Goodhart,‘Measure of Damages When a Contract is Repudiated’(1962) 78 LQR 263,267et

seq; S. Stoljar,‘Some Problems of Anticipatory Breach’ [1974] 9 MLR 355.

[xxxvi] The Alaskan Trader above ,137(Lloyd J). ,Stocznia v Latvian Shipping[2001]1

Lloyd’s Rep 537 (Com Ct) at [175] (Thomas J).

[xxxvii] Treitel’s Law of Contract,above ,1097-1099

[xxxviii] K. Scott,‘Contract ,Repudiation , Performance by Innocent Party’ [1962] CLJ 12, 14  227-228; McKendrick, above  , 824.

[xxxix] McKendrick Contract Law (Oxford 4th ed 2010) 811

[xl] White & Carter,above n1,429,430

[xli] The Odenfeld above  ,374;The Dynamic above  ;Reichman v Beveridge above

[xlii] The Alaskan Trader above

[xliii] Highland & Universal Properties Ltd v Safeway Properties Ltd [2000] 3 EGLR110CSIH111 (Lord President Rodger), adopting Grahame v Magistrates of Kirkcaldy (1882) 9 R (HL) 91, 91^92 (Lord Watson);White & Carter above n 1, 430 (Lord Reid).

[xliv] Stocznia v Latvian Shipping [1996] 2 Lloyd’s Rep132,139 (Staughton LJ).  Carter et al, above  , 66,    McGregor on Damages, above   at [7- 030].

[xlv] White & Carter  (Lord Reid); The Dynamic above  at [22].

[xlvi] ibid

[xlvii] On the other hand, the fact that the obligation already exists is reflected in the fact that

if e.g. money is paid under an obligation whose performance is not yet due it cannot be recovered as money undue : idem Art.1186.

[xlviii] The time at which performance is due is referred to as the echeance de la creance a terme and where this non-performance is actionable before this time, its decheance is said to have occurred: see the elaborate discussion in J. Ghestin, Traite de droit civil, Les effects du contrat (2nd edn, 1994 with C. Jamin and M. Billiau), Nos.161 et seq.

In that there is no formal restriction in Art.1184.3 Civil Code to cases of   non-performance in

good faith. However, this provision is to be compared to Art.1244-1, which gives the court a discretion to give debtors of money obligations time to pay where their financial circumstances are difficult, a possibility which one leading text declared applied at least before its last re-amendment only to debtors in good faith: P. Malaurie and L. Aynes, Droit civil, Les obligations (6th edn, 1995), No.1012, p.587.

[xlix] Article 1186 CC : where an obligation is due only on a certain event (like a date), its performance cannot be claimed before the occurrence of that event.

[l] idem

[li] B. Starck, H. Roland and L. Boyer, Obligations, Vol.2: Contrat (4th edn, 1993), No.1402, p.586; Mazeaud et al., idem, No.944, p.260

[lii] Art.1150, Civil Code.

[liii] Article 



[i] White & Carter (Councils) Ltd v McGregor (1962) HL 3 All ER 1178

[ii] Hochster v De La Tour (1853) 2 E & B 678

[iii] White & Carter above  (Lord Reid); 445 (Lord Hodson).Lord Tucker concurred with Lord Hodson.

[iv] Ibid 445.

[v] Ibid 429.

[vi] Ibid 434 (Lord Morton)

[vii] ibid 433. Also,438 (Lord Keith)

[viii] M.Furmston,Cheshire, Fifoot & Furmston’s Law of Contract (Oxford:OUP,2007) 782 and Lord Morton at 1184

[ix] E. Tabachnik, ‘Anticipatory Breach of Contract’ (1972) 25 Current Legal Problems 149, 166.

[x] Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GMBH (The ‘Puerto Buitrago’) [1976] 1

Lloyd’s Rep 250 CA 255 (Lord Denning MR) (The Puerto Buitrago).       Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178 (Ch), [2003] 2 All ER (Comm) 823 at [71] (Mr Nicholas Strauss QC) (Ministry of Sound): ‘a degree of judicial reluctance over the last 40 years to apply White and Carter outside the strict limits of its ratio’.

[xi] Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361 CA 370 (Salmon LJ);

375-376 (Sachs LJ); 381 (Buckley LJ) (Decro-Wall and ibid 375.

[xii] The Alaskan Trader No2 [1984] 1 All ER,137(Lloyd J). Also, Gator Shipping Corp v Trans-Asiatic Oil Ltd SA and Occidental Shipping Establishment (The ‘Odenfeld’) [1978] 2 Lloyd’s Rep 357 Com Ct 373 (Kerr J) (The Odenfeld).

[xiii] J.W. Carter A. Phang and S. Y. Phang, ‘Performance Following Repudiation: Legal and Economic Interests’ (1999) 15 JCL 1, 98-99.

[xiv] These two views were   summarized in Robert Cort & Son Ltd v Charman [1981]ICR816EAT 819 (Browne-Wilkinson J).

[xv] Ministry of Sound  at[58],citing with approval Gunton ,778 (Brightman LJ)

[xvi] Jerome Francis v The Municipal Councillors of Kuala Lumpur[1962]1WLR1411PC1417-1418

[xvii] Mackay v Dick(1881)6 App Cas 251HL;Vine v National Dock

[xviii] Hill v Parsons[1972]Ch 305 CA 319-320(Sachs LJ),cf 314(Lord Denning MR)

[xix] Gunton , 459

[xx] LondonTransport at ,362.His Lordship used two examples to illustrate the point:while an employee might retract a previous refusal to work, the contract of employment was automatically terminated when he walked out and worked for another employer (362-363).

[xxi] ibid. His Lordship cited Blackburn J’s statement in Poussard v Spiers and Pond(1876)1QBD410,414

[xxii] Ocean Marine Navigation Ltd v Koch Carbon, The Dynamic [2003] EWHC 1936

[xxiii] Poussard above  ,414-415;Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]2QB 26 CA 66 (Diplock LJ).

[xxiv] Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 PC 507 (Lord Sumner). For the test of fundamental/essential difference, Davis Contractors Ltd v Fareham Urban DC [1956] AC 696 HL

[xxv] New Zealand Shipping Co Ltd v Societe  des Ateliers et Chantiers de France [1919]AC1HL9 (Lord Atkin-

son). Also, Heyman v Darwin Ltd [1942] AC 350 HL 361 (Viscount Simon).

[xxvi] Gunton above

[xxvii] Masood v Zahoor [2008] EWHC 1034 (Ch) at [279] (Peter Smith J).

[xxviii] The Alaskan Trader above ,139 (Lloyd J):yes; The Odenfeld ,374(Kerr J):

[xxix]

[xxx] Ministry of Sound above   .Also, A.L.Corbin, Corbin on Contracts vol10 ‘Breach of Con-

tract’ (Matthew Bender, rev ed, 2007) 983.

[xxxi] Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The‘Scaptrade’)[1983]QB529CA, [1983] 1 Lloyd’s Rep 146, where the existence of an equity was rejected as there was no countervailing value such as efficiency that competed with contractual certainty in that case.

[xxxii] The Puerto Buitrago above  , 256 (Orr LJ); Stocznia v Latvian Shipping [1995] 2 Lloyd’s Rep 592

Com Ct 602 (Clarke J); Ocean Marine Navigation Ltd v Koch Carbon Inc (The ‘Dynamic’) [2003] EWHC 1936 (Comm), [2003] 2 Lloyd’s Rep 693 at [23] (Simon J) (The Dynamic).

[xxxiii] The Puerto Buitrago above  , 255 (Lord Denning MR). To be distinguished from the recent case Isabella Shipowner SA v Shagang Shipping Co Ltd (The Aquafaith) [2012] EWHC 1077 (Comm) Also, A. Burrows, Remedies for Torts and Breach of Contract (Oxford: OUP, 3rd ed, 2004) 440.

[xxxiv] The Odenfeld above ,374;The Dynamic above at[22]; Reichman v Beveridge [2006]EWCA Civ 1659, [17] (Lloyd LJ).

[xxxv] A.L.Goodhart,‘Measure of Damages When a Contract is Repudiated’(1962) 78 LQR 263,267et

seq; S. Stoljar,‘Some Problems of Anticipatory Breach’ [1974] 9 MLR 355.

[xxxvi] The Alaskan Trader above ,137(Lloyd J). ,Stocznia v Latvian Shipping[2001]1

Lloyd’s Rep 537 (Com Ct) at [175] (Thomas J).

[xxxvii] Treitel’s Law of Contract,above ,1097-1099

[xxxviii] K. Scott,‘Contract ,Repudiation , Performance by Innocent Party’ [1962] CLJ 12, 14  227-228; McKendrick, above  , 824.

[xxxix] McKendrick Contract Law (Oxford 4th ed 2010) 811

[xl] White & Carter,above n1,429,430

[xli] The Odenfeld above  ,374;The Dynamic above  ;Reichman v Beveridge above

[xlii] The Alaskan Trader above

[xliii] Highland & Universal Properties Ltd v Safeway Properties Ltd [2000] 3 EGLR110CSIH111 (Lord President Rodger), adopting Grahame v Magistrates of Kirkcaldy (1882) 9 R (HL) 91, 91^92 (Lord Watson);White & Carter above n 1, 430 (Lord Reid).

[xliv] Stocznia v Latvian Shipping [1996] 2 Lloyd’s Rep132,139 (Staughton LJ).  Carter et al, above  , 66,    McGregor on Damages, above   at [7- 030].

[xlv] White & Carter  (Lord Reid); The Dynamic above  at [22].

[xlvi] ibid

[xlvii] On the other hand, the fact that the obligation already exists is reflected in the fact that

if e.g. money is paid under an obligation whose performance is not yet due it cannot be recovered as money undue : idem Art.1186.

[xlviii] The time at which performance is due is referred to as the echeance de la creance a terme and where this non-performance is actionable before this time, its decheance is said to have occurred: see the elaborate discussion in J. Ghestin, Traite de droit civil, Les effects du contrat (2nd edn, 1994 with C. Jamin and M. Billiau), Nos.161 et seq.

In that there is no formal restriction in Art.1184.3 Civil Code to cases of   non-performance in

good faith. However, this provision is to be compared to Art.1244-1, which gives the court a discretion to give debtors of money obligations time to pay where their financial circumstances are difficult, a possibility which one leading text declared applied at least before its last re-amendment only to debtors in good faith: P. Malaurie and L. Aynes, Droit civil, Les obligations (6th edn, 1995), No.1012, p.587.

[xlix] Article 1186 CC : where an obligation is due only on a certain event (like a date), its performance cannot be claimed before the occurrence of that event.

[l] idem

[li] B. Starck, H. Roland and L. Boyer, Obligations, Vol.2: Contrat (4th edn, 1993), No.1402, p.586; Mazeaud et al., idem, No.944, p.260

[lii] Art.1150, Civil Code.

[liii] Article 1151 CC

 

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