UK: The "Bulk Uruguay": No Anticipatory Breach Where Future Performance Is Contingent On A Third Party’s Conduct

In Geden Operations v Dry Bulk Handy Holding Inc (The "Bulk Uruguay") [2014] EWCA 885, the Commercial Court, in rejecting an appeal under s.69 Arbitration Act 1996, considered the impact of words or conduct giving rise to uncertainty about future performance, the contingency of which rested upon the conduct of a third party, and whether this can amount to anticipatory breach of contract.

Arbitration Proceedings

The dispute arose out of a time charter party between Disponent Owners and Charterers (the "Charterparty") containing a Conwartime 2004 clause and an amended BIMCO Piracy clause. The latter had been specifically amended by deletion of paragraphs (a) and (b) and reflected the market practice where it was intended that the vessel could transit the Gulf of Aden ("GOA") without the owner's consent. On its own, this meant the vessel could be marketed as "GOA OK", giving her a competitive advantage. The Head Charter, however, required Head Owners' permission to transit the GOA.

Head Owners gave permission to transit the GOA for the vessel's maiden voyage but indicated that this was standalone permission and that permission would need to be sought for future voyages. When Disponent Owners asserted that the charterparty required their permission to transit the GOA and that this would only be given if they obtained permission from the Head Owners, the Charterers alleged this was an anticipatory breach which they purported to accept as terminating the Charterparty. Charterers brought a claim for damages.

The dispute was originally referred to arbitration. By a majority the Tribunal held that on its true construction, the Charterparty did not make GOA transit subject to Disponent Owners' consent. It held that Disponent Owners had not evinced an intention not to perform the charter, and that the Charterers were not substantially deprived of the benefit of the whole contract.

Commercial Court

There was no dispute that the correct test was:

  1. Did Disponent Owners, by their words or conduct, evince an intention not to perform, or expressly declare that they would be unable to perform their obligations under the Charterparty; and
  2. If so, did such a refusal have the effect of substantially depriving the Charterers of the whole benefit of which it was the intention of the parties that they should obtain from the contract.

The issue was whether this had been correctly applied by the Tribunal. The Court found that it had, and rejected Charterers' appeal.

The Court first stated that Charterers' arguments were an attempt to appeal a finding of fact by 'dressing it up' as an issue of law. The Tribunal had found that Owners' stance was not to be understood as being that they would be unable or unwilling to perform if and when Charterers ordered a GOA transit. This was a conclusion of fact, and was not reviewable by the court.

The Court also held that Disponent Owners had not evinced an intention not to perform. Words or conduct which give rise to the uncertainty of future performance, the contingency of which rests on the conduct of a third party, will not necessarily evince an intention not to be bound.

In light of these conclusions, the question as to whether there was an error of law in respect of point (b) above did not arise, but the judge expressed his brief views as to why he agreed with the Tribunal's approach. The correct approach was to identify the benefit which Charterers would have been deprived of under the Charterparty for the remainder of the period. This assessment should be made prospectively at the time of the anticipatory breach. The benefit was the opportunity in the longer term to market the Vessel as GOA OK. Disponent Owners' conduct did not deprive Charterers of substantially the whole of that benefit.

When concluding, Mr Justice Popplewell referred to The Chrysalis [1983] 1 Lloyd's Rep 503 and upheld the principle that "once the Court has concluded that a tribunal which correctly understood the law could have arrived at the same answer as the one reached by the arbitrator, the fact that the individual judge himself would have come to a different conclusion is no ground for disturbing the award".

This decision illustrates the fact that courts dealing with arbitration appeals will consider carefully whether the issue before them is one of fact or law. Only the latter may be appealed. Courts will have little sympathy for attempts to present a reasonable alternative finding of fact as an error of law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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