Lloyd's Maritime and Commercial Law Quarterly
IMPRACTICABILITY OF PERFORMANCE—IS IT GROUNDS FOR BREACH?
Manfred W. Arnold
Vice President, National Bank of North America; Vice President, Society of Maritime Arbitrators.
The following paper is an expansion on material presented by Mr. Arnold at the Second International Seminar of The Society of Maritime Arbitrators, Inc., held in New York on Nov. 16, 1976.
Since every case is different, it is difficult to deal in specifics. When I say that every case is different, I refer to different clauses, different circumstances and also different aspects of the law. But all the cases have one common fact, and that is the commercial aspect.
Without doubt, all contracts are entered into so that either, or hopefully, both parties can make a profit. What happens when one of the parties realizes that the anticipated profits will not materialise? Once this party has realized that the voyage results will not match the projections, termination of the agreement is considered as a way to minimize losses. But rather than finding itself in a condition of relief, the party finds itself in litigation or arbitration.
Why does this happen? Is it because the commercial considerations dictate the move and such actions have not been reconciled with the law? Is the question of equity placed above the law, or is the construction of the contract and the law applied without regard to the commercial feasibility and consequences?
The issue would be quite simple for the arbitrator if the decision by Lord Ellen-borough1 would still be applicable:
“Where the party by his own contract creates a duty or charge upon himself, he is bound to make it good if he may; notwithstanding any accident by inevitable necessity; because he might have provided against it by his contract.”
This decision clearly set the tone for a considerable period, but was finally modified when the court recognised the effects of implied contract terms2 which previously had been denied.
This interpretation was adopted in a United States decision3 stating:
“if a party by his contract charges himself with an obligation to be performed, he must make it good, unless its performance is rendered impossible by the act of God, the law, or the other party.”
This decision, in my opinion, disregards the law of equity and it does not consider the principle of commercial impracticability.
These are, in fact, the issues with which the arbitrator is confronted and on which he has to construct his decision. I feel the best guidelines for the New York scene have been established in The Christos case. In this decision, the Court of Appeals held4:
1 Atkinson v. Ritchie (1809) 10 East. 530 at p. 533.
2 Taylor v. Caldwell (1863) 3 B. & S. 826.
3 Pearce-Young-Angel Co. v, C. R. Allen 213 S.C. 578, 50 S.E. 2d 698 (1948).
4 Transatlantic Financing Corporation v. United States of America 363 F. 2d 312 (1966).
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