Repudiatory breach and frustration

In a recent case, the Court of Appeal has considered the law relating to repudiatory breach of contract.

Cottonex Anstalt contracted with MSC Mediterranean Shipping Co SA to transport 35 containers containing cotton from the Persian Gulf to Chittagong. The containers were delivered on various dates in May and June 2011. The bills of lading provided that, after a period of 14 days’ free time for the use of the containers at the destination, Cottonex would have to pay MSC demurrage at a daily rate until the containers had been emptied and returned.

Before the containers could be emptied, the price of cotton collapsed. There was also a dispute between Cottonex and Regent Spinning Mills Ltd, to which the cotton had been sold, which led to proceedings in the High Court in Dhaka. The result was that neither Cottonex nor Regent was willing or able to take delivery of the cotton, and the customs authorities at Chittagong refused to allow anyone to deal with the containers without an order of the court.

In September 2011, Cottonex informed MSC that it no longer had legal title to the cotton, because it had received payment for it. In February 2012, MSC offered to sell the containers to Cottonex, but no price was agreed. The containers remained at the port, and in June 2013 MSC issued a claim against Cottonex seeking to recover demurrage for the period from the expiry of the 14 days’ free time to date.

The Court of Appeal held that MSC could recover demurrage up to February 2012, when it offered to sell the containers to Cottonex, but not thereafter. It was evident by February 2012 that the commercial purpose of the adventure had become frustrated. While Cottonex was in repudiatory breach by that date, MSC was not entitled to affirm the contract and insist on continued payment of demurrage, since further performance had become impossible. Instead, the containers would be treated as lost and MSC could recover their value (a much lower sum).

This case provides a helpful exploration of the relationship between repudiatory breach and frustration. It establishes that, where a repudiatory breach makes performance either impossible or radically different from what was intended, the contract will be treated as frustrated and the innocent party will not have the right to affirm it.

MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789.