Repudiatory breach of contract
Thu 5 October 2023
Repudiatory breach - what is it and what are the implications?
One of the most common misunderstandings about contracts and contract law relates to rights to terminate. The ability to terminate a contract is often expressly stated in the contract but if the breach that’s happened is not covered under express contractual termination rights, you will need to consider whether there has been a repudiatory breach and that means considering whether the breach goes to the essence of the purpose of the contract
The approach generally adopted by the courts if they have to decide (i.e where the contract doesn’t specify) whether a breach is repudiatory, centres around whether the default indicates that the other party is unwilling or unable to carry out it’s obligations.
Where you are confident the breach is repudiatory, or the contract states that it is this gives you the option, but not the requirement, to terminate the agreement. In some situations, this is not the best option and you may decide to still continue with the contract and claim damages. You may also claim damages if you do decide to terminate.
Starting point - check the contract and formalities
You should always check any written contract you have and look for the events of default and/or termination clauses. Consider whether the factual situation is covered by these clauses and also whether there could be any argument that you have varied the contract or waived any breach.
A common breach of contract is where the other party misses a contractual deadline. Your contract may state that time is of the essence and that a missed deadline is a repudiatory breach. IOf the contract doesn't say this, missing a deadline, even a deadline for payment, is unlikely to be a repudiatory breach. If deadlines have been missed previously and you did not terminate the agreement or clearly reserved your rights to do so, you may have waived your rights to terminate.
Even where you have the contractual right to terminate the agreement, most contracts will state that you must first serve notice of breach and give the other party the chance to remedy the breach. A common form of wide ranging clause of this type will typically be along the lines of :-
“ Either party may terminate this Agreement immediately upon failure of the other party to observe any of the terms herein and to remedy the same where it is capable of being remedied within twenty (20) days of being formally notified of the breach”
Should you terminate the contract after a repudiatory breach?
Discovering that the other party is not performing their part of your contract leads to disappointment, frustration and often anger. When weighing up your next steps, and if you have the right to terminate, whether you should, in our experience it’s important to think about :-
- Practicalities – how easy would it be to find an alternative supplier or customer? What if you are half way through a project such as a construction or building project. Could the position get worse not better?
- What are the risks of terminating? – are you sure the other party will be found to have repudiated? What if the contract is silent? The way a court may interpret the matter can never be 100% guaranteed.
- Will you actually receive any damages? – it’s 1 thing having the legal grounds to sue, but another matter actually getting money out of the opponent.
- Can you prove loss? – the rules on damages are complex and the starting point is that even where you are wholly in the right, you will need to mitigate your losses. Proving that all your losses are directly consequent on the other party’s breach is complex as well.
- Is there a negotiating position? – if you would rather continue with the contract but clearly have significant and understandable concerns about the other party’s breach, can you negotiate to vary your agreement to your benefit or to protect you better in the event of any further breach?
If you need experienced legal advice on any breach of contract issue or specifically on whether a repudiatory breach of contract applies, please do telephone or email us. It may also assist to read our more general guide on what to do after a breach of contract.