The key questions for the Court of Appeal to determine were as follows:
- Does the doctrine of anticipatory breach apply to both executory and executed contracts?
- Can insolvency be the basis for invoking the doctrine of anticipatory breach?
Anticipatory breach: Executory and executed contracts
In some jurisdictions (for example, the US and Canada), the doctrine of anticipatory breach is only applicable to executory contracts (i.e. where both parties are yet to perform their respective obligations) and not executed contracts (i.e. where the one party has performed all of its contractual obligations but the other has not).
However, the Singapore Court of Appeal unequivocally held that the doctrine of anticipatory breach can be invoked regardless of whether a contract is executory or executed. In arriving at this conclusion, the Court considered what it described as “the traditional view” on this issue, namely that there is an implied promise (made, in this case, by the party receiving the bunkers) not to prevent the innocent party (the supplier) from performing their part of the contract. The Court of Appeal judges found this implied promise concept to be artificial. The Court noted, in particular, that the theory was difficult to apply to circumstances such as bunker supplies where the bunker supplier fulfilled their part of the contract at the very outset so, in reality, there was nothing more that their contractual counterpart could be required to promise not to interfere with. In other words, the implied promise became redundant in these circumstances.
The alternative approach favoured by the Court was, in essence, that in circumstances where the defendant has evinced a clear intention that it will not perform its obligations then, as a matter of principle and logic, that clear intent may be considered as the basis for holding that an actual breach has, in substance, taken place even though the time for performance (i.e. payment) has not yet arrived.
The Court of Appeal was also focused on reaching a conclusion based on principles of justice and fairness. In this respect, the Court concluded that it would be unfair to allow the doctrine only to apply to executory contracts (and not executed contracts) because that would result in leaving an innocent party who has already performed its contractual obligations in a worse position than one who has not yet performed but is willing to do so.
Anticipatory breach: Insolvency
The Singapore Court of Appeal recognized and acknowledged that, in general, insolvency, in and of itself, cannot amount to anticipatory breach. However, the Court concluded that the line of authorities for that proposition could be distinguished on their facts from the circumstances in the STX Mumbai case. In this respect, the Court examined circumstances in which a liquidator might elect to adopt a contract on the basis that it would be beneficial to the insolvent company’s interests. Their conclusion was that a bunker supply contract was very different in nature and thus not likely to be adopted by liquidators because the debtor had already had the full benefit of the services and thus to settle the debt would potentially breach the liquidator’s duties in terms of treating all creditors even handedly. The Court of Appeal did stress the view that a proper appreciation of the factual matrix behind the insolvency would ultimately determine whether the contract had become impossible to perform (and thus whether an anticipatory breach had been committed). However, the issue for the Court of Appeal was whether the bunker supplier’s case was legally unsustainable and thus capable of being disposed of (“struck out”) without a full trial. The full facts, therefore, including the question as to whether the bankruptcy at group level could or would affect the ability of the ship owner within the group to pay for its bunkers, would be referred back to the lower court for determination at a full trial.