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Question:

Apt Ltd is a small independent book company, which specialises in publishing modern poetry. In January 2013 itsigned a contract with a new poet, called Bel, to publish her second book of poems in August 2014. In March 2013, Bel won a prestigious award for her first book of poems, which had been published privately.

In the light of the fame which now attached to Bel, Apt Ltd launched an extensive advertising campaign publicising the forthcoming book. The campaign was expensive, costing ￡50,000, but it was successful in generating great interest. As a result, Apt Ltd won a contract to supply a large book club with 100,000 copies of the book, which would make them a profit of ￡250,000.

Unfortunately in May 2014, Bel informed Apt Ltd that she would not be able to supply the manuscript to it as she had signed a more rewarding contract with Cax plc, a very large publishing company.

Required:

In the context of Bel’s anticipatory breach of contract, explain any possible remedies open to Apt Ltd.

Answer:

The essential issues to be disentangled from the problem scenario relate to breach of contract and the remedies available for such breach.

There is clearly a binding contractual agreement between Art Ltd and Bel, which Bel has stated she intends to break. Normally breach of a contract occurs where one of the parties to the agreement fails to comply, either completely or satisfactorily, with their obligations under it. However, such a definition does not appear to apply in this case as the time has not yet come when Bel has to produce the manuscript. She has merely indicated that she has no intention of doing so. This is an example of the operation of the doctrine of anticipatory breach. This arises precisely where one party, prior to the actual due date of performance, demonstrates an intention not to perform their contractual obligations. The intention not to fulfil the contract can be either express or implied.

Express anticipatory breach occurs where a party actually states that they will not perform their contractual obligations (Hochster v De La Tour (1853)). Implied anticipatory breach occurs where a party carries out some act which makes performance impossible (Omnium Enterprises v Sutherland (1919)).

When anticipatory breach takes place, the innocent party can sue for damages immediately on receipt of the notification of the other party’s intention to repudiate the contract, without waiting for the actual contractual date of performance as in Hochster v De La Tour. Alternatively, they can wait until the actual time for performance before taking action. In the latter instance, they are entitled to make preparations for performance, and claim the agreed contract price (White and Carter (Councils) v McGregor (1961)).

It would appear that Bel’s action is clearly an instance of express anticipatory breach and that Art Ltd has the right either to accept the repudiation immediately, or affirm the contract and take action against Bel at the time for performance (Vitol SA v Norelf Ltd (1996)). In any event, Bel is bound to complete her contractual promise or suffer the consequences of her breach of contract.

Remedies for breach of contract

(i) Specific performance

It will sometimes suit a party to break their contractual obligations, even if they have to pay damages. In such circumstances, the court can make an order for specific performance to require the party in breach to complete their part of the contract. However, as specific performance is not available in respect of contracts of employment or personal service, Bel cannot be legally required to provide the manuscript to Apt Ltd (Ryan v Mutual Tontine Westminster Chambers Association (1893)). This means that the only remedy against Bel lies in the award of damages.

(ii) Damages

A breach of contract will result in the innocent party being able to sue for damages. Apt Ltd, therefore, can sue Bel for damages, but the important issue relates to the extent of such damages.

Damages in contract are intended to compensate an injured party for any financial loss sustained as a consequence of another party’s breach. The object is not to punish the party in breach, so the amount of damages awarded can never be greater than the actual loss suffered. The aim is to put the injured party in the same position they would have been in had the contract been properly performed.

The rule in Hadley v Baxendale (1845) states that damages will only be awarded in respect of losses which arise naturally, or which both parties may reasonably be supposed to have contemplated when the contract was made, as a probable result of its breach.

The effect of the first part of the rule in Hadley v Baxendale is that the party in breach is deemed to expect the normal consequences of the breach, whether they actually expected them or not. Under the second part of the rule, however, the party in breach can only be held liable for abnormal consequences where they have actual knowledge that the abnormal consequences might follow (Victoria Laundry Ltd v Newham Industries Ltd (1949)).

Applying these rules to the scenario, it is evident that Bel has effected an anticipatory breach of her contract with Apt Ltd and will be liable to it for damages suffered as a consequence.

As for the extensive preliminary expenses, Bel would certainly be liable for them, as long as they were in the ordinary course of Apt Ltd’s business and were not excessive (Anglia Television v Reed (1972)).

As regards the profits from the contract to supply the book club, the issue would be as to whether this was normal profit or amounted to an unexpected gain, as it was not part of Apt Ltd’s normal market when the contract was signed. If Victoria Laundry Ltd v Newham Industries Ltd were to be applied, it is unlikely that Apt Ltd would be able to claim that loss of profit from Bel. However, it is equally plausible that the contract was an ordinary commercial one and that Bel would have to recompense Apt Ltd for any losses suffered from its failure to complete contractual performance.

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