06/03/24

Repudiation of Contract | Contract Disputes

Repudiation of Contract | Contract Disputes
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The repudiation of a contract involves the refusal to accept its terms, the casting off or disowning of obligations whereby the actions of one party prevent the contract from being capable of being fulfilled in the manner agreed.

A repudiatory breach affects the very core of the contract to such an extent that the innocent party has the right to treat it as being disregarded and to refuse to be bound by its terms.

Repudiation does not itself end the contract, it simply entitles the innocent party to decide whether or not to terminate the contract.

Stuart Southall explains the nature and potential consequences of a repudiatory breach.

Repudiatory Breaches | Commercial Contracts Disputes

Background

A repudiatory breach occurs where:

‘ …the contract breaker has clearly shown an intention to abandon and altogether refuse to perform the contract.’

As a matter of course, properly drawn written contracts will contain numerous clauses detailing the manner in which the contract is to be conducted. Some aspects of the proposed activities will be more important and significant than others and, in respect of those, may specifically state the nature and level of breach which will constitute repudiation, thereby providing the innocent party the opportunity to terminate the contract.

Accordingly, each written contract must be carefully examined for its content.

In the case of verbal contracts, it is essential that the terms and conditions can be sufficiently established before accepting any breach as a repudiation. It should be remembered that some terms and conditions may be implied by, for instance, statute and trade custom, which may impose their own requirements affecting repudiation.

In general terms:

  • the breach must have deprived the innocent party of the benefit the contract,
  • the time for the contractual obligation for the breaching party must have arisen and not been performed,
  • a court will wish to be certain that the breach has been inconsistent with an intention to adhere to the contract.

Frustration of Contract

In certain situations, the repudiating party may be unable to perform its obligations because it is impossible. ‘Contract frustration’ arises when an unforeseen event, or series of events due to neither party’s fault, has made performing the party’s obligations under the contract:

  • completely impossible,
  • unlawful, or
  • changing it significantly.

Examples of such events include:

  • technological disasters,
  • new government regulations coming into force,
  • serious economic fluctuations,
  • failures of supply chains,
  • force majeure.

In the event the contract is frustrated, the Court will discharge both parties to the contract from any outstanding contractual obligations, although liability remains for obligations performed prior to frustration.

Time is of the essence

The imposition in contracts of ‘time of the essence clauses’ results in numerous disputes given the constant disruption in modern society caused by such events as trade strikes and shortage of the supply of relevant materials required from around the world due to terrorist activity and other hostilities.

A contract may provide for ‘time of the essence’ from the outset or incorporate provisions for the same to become operative upon the service of Notice.

Whilst acceptance of such a breach as repudiation may seem easy from a strict interpretation of the contract, the reality is that a court may not be so easily convinced, and each situation needs careful consideration based on its discrete facts.

A contract will generally provide for A Notice to be served on the defaulting party making time of the essence where:

  • the party serving it has not contributed to the delay,
  • the defaulting party must be guilty of unreasonable delay,
  • the Notice should provide a reasonable period of time for completion.

Consequences of Repudiation

The innocent party may:

  • accept the breach as termination of the contract,
  • waive the breach and continue with the contract.

Acceptance of termination of contract:

The party accepting the breach should notify the other party accordingly in terms, not necessarily written, which are clear and unequivocal that the contract is at an end.

Thus, once the innocent party has accepted the defaulting party’s repudiatory breach, they:

  • are excused from further performance under the contract and
  • can sue the defaulting party for damages including loss of profits.

Waiver of breach:

If the innocent party waives that particular breach of the contract, it will continue to the extent that there can be no claim for damages for such breach although, any future claim arising from subsequent contractual breach will not be affected.

How Can We Help?

Terminating a contract at any time can be a risky business. Even when a breach is expressly stated to be repudiatory in the contract, the particular surrounding events require careful consideration.

For example, if you wrongfully form the view that the other party has repudiated the contract and you terminate it in response, you may be held to have repudiated the contract yourself, if you are wrong in your assessment.

The Team at KANGS is highly experienced in contractual dispute matters of every nature and would be delighted to hear from you. Please call or email us using the details below:

Telephone: 0333 370 4333

Email: info@kangssolicitors.co.uk

We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester.

Hamraj Kang

Hamraj Kang
Senior Partner

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Tim Thompson

Tim Thompson
Partner

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