Two days before the start of the 2022 FIFA World Cup, it was confirmed that the host country Qatar had banned the sale of alcohol from its World Cup stadiums, despite FIFA previously entering into a sponsorship deal with Budweiser worth $75 million. As a result of this U-turn, Budweiser are now allegedly demanding from FIFA a sum of $47 million in compensation for alleged breach of the sponsorship deal. The announcement, seen as a potential anticipatory breach of contract, raises questions as to the options available to a contractual party where their counterparty indicates that they do not intend to honour their side of the bargain.
What is an anticipatory breach of contract?
An anticipatory breach is one where a party to a contract has shown (whether by their express words or their behaviour) that they do not intend to perform their contractual obligations. This usually involves a renunciation of the contract and a refusal to honour the agreement prior to the agreed date of performance. An anticipatory breach may also occur where it has become impossible for the other party to perform their obligations as a result of its own actions.
The breach of contract itself would not actually occur until the date of scheduled performance, assuming the other party fails to perform their obligations. The date of the actual breach of contract would also be the relevant date for limitation purposes.
Responding to an anticipatory breach
If a party to a contract has made it clear that they do not intend to perform their contractual obligations, there are a number of options available to the innocent party.
- Wait for performance
One option is to simply wait for performance, in the hope that the other party delivers on its obligations. This may be because the issue preventing performance is resolved, or because the threat of a dispute prompts a change of heart.
Waiting to see if the contract is performed may be a good option where there is a longstanding business relationship between the parties and both sides are willing to 'team up' and work together to resolve any issues. If the date of key date comes and goes without performance, it would still be possible to take action for breach of contract against the defaulting party at a later date.
- Terminate the contract
Once it has become clear that the contract will not be performed, an innocent party is entitled to terminate the contract prior to the time for performance. In doing so, it will be entitled to claim damages from the defaulting party. However, termination must be carried out in accordance with the relevant notice and termination provisions in the contract and it is important to get it right. A failure to properly terminate the contract will mean that it will still be in operation and an innocent party may find that the 'football boot is on the other foot' when it is faced with a counter-claim for breach of contract!
- Accept the breach
It is also possible to simply accept the anticipatory breach and treat the contract as repudiated. This will entitle the innocent party to again seek damages for breach of contract in due course.
However, when assessing the entitlement to damages, a Court would expect the innocent party to show that it would have been able to perform its side of the contract, had the breach not occurred. For example, if Budweiser did not have the required stocks of alcohol ready to distribute and sell in Qatar, it is possible that a Court would reduce the level of damages awarded to it for FIFA's alleged breach.
- Seek injunctive relief
Depending on the contract, it may be possible to take urgent legal action in the form of injunctive relief, to force the other party to perform their side of the contract. Seeking an injunction is a fast-paced and expensive process but may be required to protect a party's position.
If it is clear that a party intends to breach the contract, an urgent application can be made to the Court seeking a mandatory injunction requiring performance of the contract. However, there needs to be real cause for the urgency and the type of remedy sought. For further details on seeking injunctive relief, see our recent podcast on obtaining an interim injunction in England and Wales.
Navigating breaches (both actual and anticipatory) can be tricky and contractual parties can easily find themselves falling foul of their obligations. If you have any concerns or questions about a potential breach of contract, please do not hesitate to get in touch with our English Litigation team or your usual Brodies contact.