UK: The High Court Clarifies And Updates The Law On Renunciation

Last Updated: 11 February 2010
Article by Michael Volikas

SK Shipping (S) Pte Ltd v Petroexport Ltd (The Pro Victor) [2009] EWHC 2974 (Comm)

In SK Shipping v Petroexport (The Pro Victor), the High Court has provided a helpful restatement of the law on what can constitute a renunciation of a contract. Renunciation is a form of anticipatory breach: where a party clearly, unequivocally and absolutely evinces an intention, by words or by conduct, not to fulfil their part of a contract, the other party may elect to treat the contract as at an end and bring a claim for damages. This is often termed a 'repudiatory breach' or a 'repudiation'.

Background Facts

The Pro Victor was voyage chartered to carry a cargo of naphtha from Karachi to either Taiwan, Korea or Japan. Following conclusion of the charter, there were exchanges of correspondence and telephone calls between the parties, as a result of which owners became doubtful of the charterer's intention to perform the charter. These exchanges included the following:

  • The charterer proposed that the voyage charter be converted to a time charter trip with delivery in Jordan and redelivery in the Singapore/South Korea range.
  • The vessel was ordered to slow steam en-route to the load port. 
  • On arriving at the load port, the vessel was ordered to wait at the outer anchorage because of a supposed problem in issuing a letter of credit required under the sale contract.
  • The charterer did not provide a signed copy of the charterparty, which was required to procure a freight tax exemption in Pakistan. 
  • The charterer put forward a second proposal that the voyage charter be converted to a six month time charter.
  • A representative of the charterer called a representative of the owner and said that the buyer of the cargo had pulled out of the deal, no cargo could be stemmed and therefore the charterer had no use for the vessel.
  • The owner sent a message to the charterer asking if a cargo was going to be loaded or not. In its response, the charterer stated that it might have to declare "force majeure" but that they would consider a mutual cancellation.
  • The owner sent a message saying that they considered this to be a "declaration of non- performance". In their response, the charterer rejected the contention that they had declared non-performance, but said that the owner should "mitigate any alleged losses" by agreeing to convert to a time charter trip for a cargo loaded out of India and concluded by saying: "sincerely regret current circumstances".
  • The charterer's broker called the owner's representative to explain again that the charterer had lost its buyer and would be unable to proceed with the charter.
  • The owner sent a message asking the charterer to confirm "unequivocally and unconditionally" that they would provide a cargo, otherwise they would assume that the charterer did not intend to perform the charter and would treat this conduct as repudiating the charter. The owner gave a deadline for a response and, although the charterer protested against this "ultimatum", they did not give the confirmation requested and so the owner elected to treat the charterer's conduct as repudiating the charter.

Commercial Court Decision

Mr Justice Flaux found that the charterer's on-sale of the cargo had fallen through and that the charterer had been looking to engineer a cancellation of the charter by consent. Although the charterer, for the most part, was careful not to say that they would not perform the charter, the Judge found that when everything said and done was put together, the charterer had evinced an intention not to perform. He viewed the charterer's suggestion that owners should mitigate their losses by converting the voyage charter to a time charter as a threat to the owner and the charterer's expression of regret at the current situation as an apology for not being able to perform. The Judge was particularly influenced by the failure of the charterer to give a clear and unequivocal statement that they were ready, willing and able to perform once the owner said they considered that the charterer had given a declaration of non-performance. He considered that, by the time of termination, the owner subjectively believed that the charterer was saying that they would not perform the charter.

In giving his judgment, Flaux J provided clarification on two important issues concerning the law of renunciation:

  1. The court can look at the totality of the words and conduct of the defaulting party, adding them together to arrive at a conclusion that the defaulting party had evinced an intention not to perform the contract. To use the analogy discussed in the case, even where the individual bricks are not renunciatory, it is possible to use them to build a wall of renunciation.
  2. In addition to it being necessary to assess whether objectively the defaulting party's words or conduct would lead a reasonable person in the position of the innocent party to the conclusion that the defaulting party intended not to perform the contract, it is also relevant to judge whether, subjectively, the innocent party believed that the defaulting party had evinced an intention not to perform the contract.

The case therefore provides a helpful clarification of the law in this area and useful practical guidance on the type of circumstances where the court will find that the totality of a party's conduct evidences an intention not to perform.

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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