Anticipatory breach occurs when one party indicates, before performance is due, that they will not perform their obligations under the contract. It does not involve non-performance at the time of the breach but rather an indication that the party will not fulfil their contractual duties when the time comes.
This doctrine allows the non-breaching party to:
- terminate the contract immediately by accepting the breach and seek damages; or
- wait to see if the breaching party will perform the contract by the agreed date and if not, claim damages.
The Supply Contract
The recent case of Advanced Multi-Technology v. Uniserve Ltd, concerned a contract for the supply of Personal Protection Equipment (PPE) during the COVID-19 pandemic.
Advanced Multi-Technology (trading as Hitex) was a manufacturer of medical supplies in Jordan. Hitex entered into a contract for the sale and purchase of 80 million medical masks (the “Supply Contract”) with the Defendant (“Uniserve”) at the height of the COVID-19 pandemic in April 2020.
The Supply Contract had been arranged by Mr Popeck, the sole shareholder and director of Caramel Sales Limited (“Caramel”). Mr Popeck and Caramel were to be rewarded by Uniserve by means of an introduction and supply agreement (the “Commission Contract” – see further below) entered into alongside the Supply Contract.
Problems arose shortly after the contract’s formation, concerning the dates for delivery.
The Court found that the parties did agree to substitute a revised schedule for the original delivery schedule. Uniserve argued that it terminated the Supply Contract, having accepted Hitex’s repudiatory breach of failing to meet the revised delivery timetable. The Court found that Uniserve had no grounds for terminating the Supply Contract.
On the contrary, it was clear that Uniserve had no intention of accepting delivery of the masks and paying for them. This amounted to anticipatory breach which would give rise to a right to Hitex to terminate the Supply Contract.
Hitex had the option to accept this breach by Uniserve as terminating the Supply Contract, or it could affirm the Supply Contract. Although Hitex did not expressly communicate its decision to Uniserve, the Court found that its conduct was consistent with an acceptance of Uniserve’s breach, so bringing the Supply Contract to an end.
These issues led to the following claims and counterclaims:
- Hitex sought damages of $23.1 million, alleging that Uniserve failed to meet its obligations under the contract by refusing to accept delivery of the masks.
- Uniserve claimed that Hitex breached its contractual obligation by failing to deliver the masks as per the agreed schedule.
- Uniserve counterclaimed against Hitex for $300,000 alleging that it was induced to enter both the Supply Contract and Commission Contract by a fraudulent and negligent misrepresentation.
- Mr Popeck and Caramel also claimed £19.25 million from Uniserve which they contended was due to them under the Commission Contract.
In summary, Hitex was awarded $16.94 million in damages, Uniserve’s counterclaim for $300,000 succeeded and was assigned to Caramel; and Mr Popeck’s and Caramel’s claim under the Commission Contract was dismissed.
Key Takeaways on Anticipatory Breach
- The judgment emphasises the need for clear, unambiguous and documented communication. The Court closely examined the communications between Hitex and Uniserve looking for evidence that either party had clearly indicated an intention not to perform their obligations. Therefore, parties should maintain a comprehensive record of all communications, statements and actions that suggest an anticipatory breach. This will include emails, letters and notes of verbal conversations.
- To avoid disputes over anticipatory breach, parties should revisit contracts to ensure that they have a thorough understanding of the contractual obligations. Parties should also consider whether their contracts need to be updated to incorporate more specific terms regarding breaches and remedies.
- Consider options and decide whether to (i) accept the breach so terminating the contract immediately, (ii) wait until the agreed date passes to see if the breaching party will perform the contract, or (iii) accept the breach and affirm the contract.
The Commission Contract
The complexity of the issues concerning the Supply Contract were not made any easier by the terms of the Commission Contract.
As the judge pointed out, under the plain terms of the Commission Contract, commissions were due only after a shipment arrives in the United Kingdom and has cleared customs. Moreover, the Commission Contract provided for it to terminate where the Supply Contract is terminated “for whatever reason“. It was not possible for Mr Popeck and Caramel to claim that Mr Popeck’s original plan (to buy from Hitex and sell to Uniserve at a profit and that the Commission Contract was intended to have the same effect) should be taken into account, given that the Commission Contract included an entire agreement clause and an acknowledgement by each party that it was not entering into the agreement in reliance on any representation, warranty, other undertaking or understanding not fully reflected in the terms of the Commission Contract.
Key Takeaway on the Commission Contract
An agent which is reliant on the happening of particular events in order to be paid commission needs to consider both the events and the consequences of those events not occurring and ensure that the terms of the agency agreement properly reflect its position.
Overall
This judgment highlights the risks and costs which contracting parties in supply chains face when they fail in their contracts to address the contractual issues which are relevant to their respective bargains.
