Contract Law Case Study: MSC v Cottonex

This legal assignment examines the landmark case of MSC Mediterranean Shipping Company SA v Cottonex Anstalt. It analyzes whether a contract was frustrated due to market fluctuations, investigates the application of good faith principles under English contract law, and determines the appropriate period for applying demurrage charges. The assignment delves into legal concepts such as repudiatory breach and the interplay between frustration and affirmed contracts, drawing upon relevant case law and legislation.

Case 4
MSC Mediterranean Shipping Company SA v Cottonex Anstalt1
Background
In this case, the situations in which the innocent party was given the entitlement to confirm a
contract by the Court of Appeal in fact of repudiatory contravention for insisting on the
performance. The plaintiff had agreed upon to ship thirty five containers of the cotton of
Cottonex to Bangladesh. Upon reaching the shore, the company had fourteen days to return these
containers to the plaintiff and if the same was not done, the contract deemed an imposition of
daily demurrage charges. While the cotton was in transit, the market price of cotton collapsed
and the buyer of Cottonex refused to collect the cotton upon arrival, even though he paid for it2.
There was a refusal by the port authority to allow access to these containers, without a court
order, which prevented Cottonex from returning these to MSC. Cottonex communicated to MSC
on September 27th, 2011 that it lacked the legal title over the cotton and even then, MSC
continued with the levying of demurrage charges. MSC offered to sell the containers on February
2012 to Cottnoex for putting an end to the rising demurrage charger, but this sale could not take
place. And so, a case was made by MSC for claiming the demurrage charges from 14 days from
delivery, till the time the containers were returned3.
The matter went to the High Court where it was held that these demurrage charges were entitled
to MSC as the contract had been repudiated by Cottonex through their message of September
1 [2016] EWCA Civ 789
2 St John’s Chambers, Contract Law Case Law Update (July – September 2016)
<http://www.stjohnschambers.co.uk/dashboard/wp-content/uploads/Contract-Law-Case-Law-Update-September-
2016.pdf>
3 Ibid

27th, 2011. It was also held by the court that the choice of terminating in response of the
repudiatory contravention had to be undertaken in good faith and that MSC was to be restrained
from keeping the contract afoot by claiming more demurrage4.
When the matter went to appeal, it was held that the plaintiff was entitled to demurrage from
expiry of 14 days but only till the date on which the containers were offered to be sold to
Cottonex, i.e., till February 02nd, 2012. Though, the contract could not be held open for further
performance as it was held that MSC did not have the option of affirming the same. And on
February 02nd 2012 the court held that the contract had become frustrated whereby the same had
to be terminated without giving the option of affirming the same to MSC5.
Question 1
Whether the contract was frustrated in this case?
Answer 1
Frustration of contract takes place when the contract loses its commercial viability6. When the
conditions are changed in such a manner, where no party is at fault, and where the contract is
rendered impossible to be performed, the contract is deemed to be frustrated7. The case is based
on White and Carter (Councils) Ltd v McGregor8 where it was stated that if it can be shown that
the person lacks legitimate interest in performance of contract, instead of claiming damages, the
person is not to be permitted to saddle the other party with additional burden particularly when
no burden is attained for himself.
4 Ibid
5 Ibid
6 Jeffrey A. Helewitz, Basic Contract Law for Paralegals (Aspen Publishers Online, 5th ed, 2007)
7 Linda Mulcahy, Contract Law in Perspective (Routledge, 5th ed, 2008)
8 [1961] UKHL 5

This principle could not be applied in this case as the Court of Appeal stated that this was only
applicable where the party in breach, was denying the performance of the obligations under the
contract at a future date. Here, the task become frustrated as the further performance was not
possible, and this was evidenced from the offer to sell the container by MSC. The reason from
distinguishing the quoted case was that the nature of adventure had changed in a radical manner,
and there was no legitimate interest in performance as the legitimate interest of the parties was
present in the performance of contract.
Question 2
Whether good faith based on English contract law, applies here?
Answer 2
This case had interesting contributions towards the evolution of good faith under English
contract law9. The Court of Appeal, on appeal poured cold water on the enthusiasm of the judge
for developing good faith and held it was better for the law to be developed based on the
established lines instead of the judges to go forward with the general organising principle, which
is often drawn from disparate kind cases. Thus, there was no enthusiasm showed by the Court of
Appeal for developing of good faith, as was done by the previous court.
Question 3
For what period should the demurrage charges be applied?
Answer 3
The demurrage charges had to be applied from 14 days until 02nd February 2012.
9 Brian A. Blum, Contracts: Examples & Explanations (Aspen Publishers Online, 4th ed, 2007)

Question 4
Was there a repudiatory breach or frustration in this case?
Answer 4
In this case, there was an interface between frustration and repudiatory breach. Earlier, there was
a rarity in occurrence of these two concepts in a single case. Though, this case covered both
these aspects as the repudiatory breach created an option of terminating or affirming and the
result of this was frustration. The court thus was of the view that when a repudiatory breach
persisted for such a long period of time, where the nature of the contractual adventure of the
parties was changed in a radical manner, the contract would be deemed to be frustrated and the
right of affirming would no longer be available with the innocent party.
Question 5
Could MSG be successful in claiming the demurrage charges?
Answer 5
As per the verdict given by the Court of Appeals, MSG would be successful in claiming the
demurrage charges from 14 days until 02nd February 2012.

Bibliography
Articles/ Books/ Journals
Blum BA, Contracts: Examples & Explanations (Aspen Publishers Online, 4th ed, 2007)
Helewitz JA, Basic Contract Law for Paralegals (Aspen Publishers Online, 5th ed, 2007)
Mulcahy L, Contract Law in Perspective (Routledge, 5th ed, 2008)
Cases
MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789
White and Carter (Councils) Ltd v McGregor [1961] UKHL 5
Legislations
Contract Law
Others
St John’s Chambers, Contract Law Case Law Update (July – September 2016)
<http://www.stjohnschambers.co.uk/dashboard/wp-content/uploads/Contract-Law-Case-Law-
Update-September-2016.pdf>