Acre 1127 Ltd (In Liquidation) v De Montfort Fine Art Ltd

In a rolling supply agreement with interdependent quarterly obligations, a party’s insistence on performance of an order which both parties believed to be binding, but which was later found unenforceable, does not alone amount to repudiation. Accompanying dishonesty has the same character unless it destroys a necessary relationship of trust or indicates an intention not to be bound. Repeated non-performance is repudiatory only where, in context, it unequivocally shows an intention not to perform. A party who neither accepts repudiation nor remains ready and willing to perform cannot recover loss-of-profit damages for the other party’s repudiation where its unwillingness pre-dated that repudiation.

De Montfort claimed damages from Castle, later Acre 1127 Ltd, for breach of a rolling agreement requiring minimum quarterly purchases of artwork. After a ten-day trial, Her Honour Judge Alton found that no binding initial order had been placed, but held that Castle had repudiatorily breached the Supply Agreement by failing to place orders in later quarters. She awarded De Montfort £1,320,364.81 and dismissed Castle’s counterclaim.

Castle appealed, arguing that De Montfort had repudiated the agreement by insisting on the nonexistent initial order, relying on a recreated order document, and refusing access to artwork. It also relied alternatively on common mistake. The central issues were whether either party had repudiated the agreement and what damages, if any, were recoverable.

1. Disposition. Lord Justice Tomlinson delivered the leading judgment, with which Lord Justices Jackson and Maurice Kay agreed. The appeal was allowed in part. De Montfort could recover loss of profit for the second, third and fourth quarters, but the award had to be reduced accordingly. Castle’s appeal against dismissal of its counterclaim was dismissed. Further submissions were invited on quantum, interest and costs.

2. The trial judge’s findings of fact were upheld. No binding initial order had been placed on 19 January 2005. Castle had not been denied access to inspect artwork, and access had not been made conditional upon taking the disputed order. The Court applied the established caution required before disturbing findings based on a trial judge’s assessment of witnesses, including the approach in SS Hontestroom v SS Sagaproack [1927] AC 37.

3. De Montfort’s insistence on performance of the disputed first-quarter order was not repudiatory. Both relevant parties had believed that a binding commitment had been made. In the circumstances, De Montfort was asserting what both parties believed to be a contractual obligation, rather than unequivocally indicating an intention not to be bound by the agreement as a whole. Non-performance which is neither repudiatory nor renders later performance impossible cannot create an intermediate justification for the other party’s non-performance.

4. The interdependence of the quarterly obligations, the seasonal nature of the artwork, the unresolved status of the first-quarter order and the absence of overt discussion about later orders meant that Castle’s failures in the second, third and fourth quarters did not unequivocally evince an intention not to perform. De Montfort’s clear letter of 18 April 2006, purporting to accept Castle’s repudiatory breach and refusing further performance, was itself repudiatory.

5. Dishonesty accompanying contractual conduct does not ordinarily convert conduct which is not repudiatory into repudiation. It may be material where it destroys a necessary relationship of trust or indicates an intention no longer to be bound. The recreated order and misleading account of its despatch did not satisfy that test. De Montfort’s claim for the later quarters had accrued before its repudiation. After 18 April 2006, however, De Montfort’s own breach prevented Castle’s obligations from falling due or justified Castle’s non-performance.

6. Castle could not recover damages for De Montfort’s repudiation. Castle did not promptly accept the repudiation, seek performance or remain ready and willing to perform. Its settled unwillingness to perform pre-dated De Montfort’s repudiation and was not caused by it. That settled intention also defeated any loss-of-profit claim based on performance which would not have occurred. The Court relied on the principles discussed in Braithwaite v Foreign Hardwood Company (1905) 2KB 543 and Cooper, Ewing & Co Ltd v Hamel & Horley Ltd (1923) 13 Ll L Rep 590.

7. For completeness, the Court considered whether the Supply Agreement was avoided for common mistake. It stated the five conditions identified in Great Peace Shipping Limited v Tsavliris Salvage (International) Limited 2003 QB 679, but declined to conclude that performance was impossible. The issue had not been raised below and had never been tested in practice.

8. Castle could not advance on appeal an unpleaded and untried mitigation argument that substitute sales would have eliminated De Montfort’s loss. Evidence concerning stock set aside for the first quarter could not simply be transposed to later quarters, where no stock had been set aside.

• Court of Appeal (Civil Division): [2011] EWCA Civ 87. Appeal allowed in part by reducing the damages award; appeal against dismissal of the counterclaim dismissed.
• Birmingham Mercantile Court: Her Honour Judge Alton, sitting as a Judge of the High Court, awarded De Montfort £1,320,364.81 after a ten-day trial and dismissed Castle’s counterclaim.