It is well known that the purpose of an award of damages is to compensate the victim of the breach for the loss of his contractual bargain (described by Lord Bingham in the Golden Victory [2007] 2 AC 353 as the "compensatory principle"). This is achieved by putting the innocent party in the same position as if the contract had been performed. However, where the innocent party, at the time of accepting an anticipatory breach of contract, is unable to perform its own obligations, an award of anything more than nominal damages would put it in a better position than if the contract had been performed. The question for the Commercial Court in Flame SA v Glory Wealth Shipping PTE Ltd [2013] EWHC 3153 (Comm) was whether it could, on the assessment of damages for anticipatory breach, take into account the innocent party's inability to perform.
As there was no clear appellate decision on the exact question raised, the court looked to the compensatory principle. It held that it could take into account the innocent party's inability to perform its own contractual obligations. In assessing loss, the court necessarily had to make a hypothetical assessment of what would have happened had there been no repudiatory breach; only then could it assess the true value of the rights that had been lost. The burden was on the innocent party, as the party claiming damages, to prove its loss. It had to show that it would have been able to perform its obligations if the repudiatory breach had not occurred. If the court just assumed that the innocent party would have been able to perform, it might well put the innocent party in a better position than if the contract had been performed.