Prioritising Proof over Speculation: Resolving the Prospective Inability Problem in Contract Damages

Abstract

Where one contracting party accepts the other party's repudiation should the former party's entitlement to substantial damages depend upon proof of its future ability to perform? The relevant case law is notoriously complex, and the question remains unsettled. This article identifies the reasons for this complexity and uncertainty and proposes a way forward. It is first established, consistently with the decision in Bunge v Nidera, that when the parties’ obligations are dependent or concurrent the innocent party's ability to perform in the post-termination period must be relevant to any damages assessment. Next, the critical question of which party should be allocated the burden of proving the innocent party's future ability (or inability) to perform is confronted. It is argued that, subject to two specified exceptions, considerations of both principle and practicality favour the law's adoption of a rebuttable presumption that the innocent party would have performed its remaining obligations.