Repudiatory Damages
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24 February 2009
When
a contract is primarily violated then the other party is permitted to
terminate that contract and damages under common law could be sought.
These types of damages are generally known as repudiatory damages.
Stocznia Gdynia SA v Gearbulk
Holdings Ltd in
this case the Court of Appeal held that failing to deliver the ships at
all, Stocznia had acted in repudiatory breach of contract.
Facts of the case: Stocznia
Gdynia (Seller) failed to manufacture three ships as agreed with buyer
Gearbulk (Buyer). Subsequently the contract was terminated by the Buyer
by exercising his rights under contract and while exercising such
rights he also claimed repayment of money already paid to the seller.
Buyer did not stop here and claimed common law damages for the failure
to fulfill the contract. The Seller argued that the Buyer could not
seek repudiatory damages as he sought repayment of money already paid.
He further argued that when a supplier primarily breaches the
stipulations of a contract, the customer has a choice either to treat
the contract as still in existence; or terminate and seek damages for
repudiation at common law. So Buyer's exercise of the refund provision
affirmed the contract as still in existence hence, he cannot now seek
repudiatory damages under common law.
Decision: The
High Court supported the seller's argument that there was affirmation,
the Court of Appeal condemned it. While overturning the earlier
decision, the Court of Appeal held that Buyer's exercise of its
contractual right to terminate did not hinder, in any way, its right to
claim repudiatory damages under common law. This judgment could make it
easier for buyers to exercise both contractual and common law remedies
at the same time when there is any termination of a supply contract.
Manmeet Singh, Legal
assistant to Izaz Ali (izaz.ali@lawdit.co.uk).
Izaz Ali is a commercial lawyer who specialises in information
technology law and intellectual property law with an emphasis on IT,
escrow and buying and selling online businesses.
Lawdit Solicitors
offer services and advice for litigation, commercial contracts, Intellectual
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