10-03-2016

STX Mumbai – is insolvency alone capable of amounting to an anticipatory breach of contract? Maybe, well at least in Singapore

Shipping

Background

In a recent Singapore Court of Appeal case [1] the claimant supplied bunkers to the defendant’s ship. The terms of the bunker supply contract required payment within 30 days of delivery. Three days before payment fell due, the claimant demanded immediate payment for the bunkers by close of the same business day. The claimant requested immediate payment, before the actual payment date, in view of the recent insolvency of a company which appeared to be the ‘group’ owner of the ship.

When no payment was received, the claimant commenced in rem proceedings and arrested the ship in Singapore on the basis that the defendant had committed an anticipatory breach of contract, that is: having a clear intention to renounce the contract, by either not complying with the claimant’s letter of demand or because it was impossible for the defendant to do so (for financial reasons). The defendant’s application to strike out the in rem action before the Assistant Registrar was successful. This decision was then upheld by the Singapore High Court, on appeal, when it was held that this action was legally unsustainable. The judge said that insolvency per se did not amount to a repudiatory breach and rejected the claimant’s argument that due to the parent company’s insolvency, it would be impossible for the respondent to make payment on the prescribed date.

The claimant appealed and the case went to the Singapore Court of Appeal.

The Court of Appeal decision

The Court of Appeal held that a debtor such as this would ordinarily be in anticipatory breach only if it stated, in advance, that it would not perform its payment obligations under the contract when the appropriate time arrived. The court further upheld that insolvency would not, of itself, normally amount to an anticipatory breach.

However, each case should be considered independently on its own particular factual matrix and whether insolvency falls within the scope of an anticipatory breach should ultimately depend on its individual circumstances. In this case, there was some connection between the insolvent (parent) company and the defendant, which could prevent the latter from making timely payment under the bunker supply contract. Consequently, the Singapore court did not strike out the claimant’s claim for anticipatory breach and upheld the warrant of arrest in this case.

Conclusion

This decision is of great significance to the shipping industry. Although there is certainly no guarantee that the approach of the Singapore Court of Appeal will be followed by other courts / jurisdictions, it does at least ‘open the door’ for in rem proceedings against ships for anticipatory breach of contract in the future. Furthermore, although all circumstances must always be carefully considered before deciding in any case whether insolvency would amount per se to an anticipatory breach of contract, there is at least this argument available to creditors in the future.

Source: The Standard Club

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