Repudiation of Contract

Repudiation generally

The word “Repudiation” is most conveniently term to describe circumstances where “ one party so acts or so express himself as to show that he does not mean to accept the obligation of a contract any further.

Every breach of contract entitles the other party to damages to compensate for the loss sustained in consequences of the breach. But with the exceptions and subject to express contractual rights of determination, breach of contract by one party does not discharge the other party from performance of his unperformed obligations. (Photo Production vs Securicor (1980) A.C. 827 at 849 (H.L.).

There are 2 circumstances in which breach of contract by one party entitles the other to elect to put an end to all remaining primary obligations of both parties. These are:

1. Where the contracting parties have agreed, whether by express words or implication of law that any breach of the contractual term in question shall entitle the other party to elect to put an end to all remaining primary obligations of both parties, i.e. where there is a breach of condition;
2. Where the event resulting from the breach of contract has the effect of depriving the other party of substantially the whole benefit, which it was the intention of the parties that should obtain from the contract, i.e. where there is a “fundamental breach”.

Operation of the election to put an end to all remaining primary obligations of both parties is variously referred to as the “determination” or “rescission” of the contract or as “treating the contract as repudiated” or “accepting the repudiation” of the contract breaker.


Acceptance of repudiation

Repudiation by one party standing alone does not terminate the contract. It takes two to end it, by repudiation on the one side, and acceptance of the repudiation on the other. The innocent party must make it plain that “ in view of the wrongful act of the party who has repudiated he claims to treat the contract as an end (i.e. rescind a contract). Acceptance of repudiation by the employer does not affect the contractor’s accrued rights to the payment of installments of the contract price unless the contract otherwise provides. (Hyundai Industries vs Papadopoulos (1980) 1 W.L.R. 1129 (H.L.)

“The contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired… the contract is discharged so far as it is executory only."”(Dixon J. in McDonald vs Dennys lascelles Ltd> (1933) 48 C.L.R. 457 at 476.

But advance payment may be recoverable if the contractor has provided no consideration in the nature of part performance. (Rover International vs Cannon Film (1989) W.L.R. 912 at 932 (C.A.)

A full arbitration clause will normally continue to apply to disputes arising upon the acceptance of repudiation.(Heyman vs Darwin (1942)A.C. 356 (H.L.)


Repudiation and contractual determination clause

A party who purports to operate a contractual determination clause when he is not entitled to do so either factually or legally is likely to repudiate the contract.(AchitecturaInstallation Services vs James Gibbons (1989) 16 L.R. 68 at 73. This is because a party who acts upon a contractual determination clause usually refuses or ceases to perform his own obligations. If this is not in accordance with the contract, he will usually himself be in fundamental breach.

Contractual determination clause do not exclude common law remedies available upon repudiation unless the agreement expressly provides that the contractual rights are to be exclusive remedy for the breach in question.(Modern Engineering(Bristol) vs Gilbert-Ash(1974 A.C. 689 (H.L.)


Repudiation by contractor

Refusal or abandonment. An absolute refusal to carry out the work or an abandonment of the work before it is substantially completed, without any lawful excuse, is a repudiation. (Mersey Steel & Iron Co. vs naylor (1884) 9 App. Cas. 434(H.L.); Marshall vs mackintosh (1898) 78 L.T. 750 ; Hoeing vs Isaacs (1952) 2 All E.R. 176 (C.A.).


Defects

A breach consisting of mere negligent omissions or bad workmanship where the work is substantially completed does not go to the root of the contract in the ordinary lump sum contract, and is therefore not a repudiation.(Hoeing vs Isaacs (1952) 2 All E.R. 176 (C.A.)

Omissions and bad work that occur during the course of the work cannot be considered as repudiation if they are not such as to prevent substantial completion. There is a repudiation where, having regard to the construction of the contract and all the facts and circumstances, the gravity of the breaches is such as to show that the contractor does not intend to or cannot substantially perform his obligation under the contract. (Swisse Atlantique vs N.V. Rotterdamsche Kolen Centrale (1967) 1 A.C. 361 at 422(H.L.)


Delay

Delay on the part of the contractor where time is not of the essence of the contract does not amount to a repudiation unless it is such as to show that he will not, or cannot, carry out the contract. In Hill vs London Borough of Camden, it was held on the facts that a contractor, who has reduce his workforce to such an extent that it might have been said that they were not proceeding “ regularly and dilligently” within the meaning of clause 25 of the JCT Form, had not by such conduct repudiated the contract.

In most cases it is desirable to give notice that continuance of the delay will be treated as repudiation before purporting to accept the repudiation by dismissing the contractor.

When time is the essence either by the terms of the contract, or as a result of a notice making it of the essence, and the contractor fails to complete to time the employer is entitled to treat the contract as at an end and to dismiss the contractor from the site.(Rickards vs Oppenheim (1950) 1 K.B. 616 at 628 (C.A.)


Repudiation by employer

Refusal. An absolute refusal by the employer to carry out his part of the contract, whether made before the works commenced or while they are being carried out is a repudiation of the contract.(Hochster vs de la tour(1853) 2 E & B 678; Steel & Iron Co. Ltd. Vs Naylor (1884) 9 App.Cas.434(H.L.)


Rendering completion impossible

It is, in general, a repudiation if the employer wrongfully by his own acts, and without lawful excuses, renders completion impossible. ( Stirling vs Maitland (1864) 5 B.& S. 840 and 852


Possession of site

The employer repudiates the contract if he fails to give possession of the site at all, or without lawful excuse ejects the contractor from the site before completion. (Felton vs Wharnie (1906) H.B.C. (4th edition), Vol 2, p.398(C.A.)


Order not to complete

A clear unjustified order not to complete the works is a repudiation.(Cort vs Ambergate Railway (1851) 17 Q.B. 127.


Under-certification

It has been settled that the architect is the employer’s agent when giving his certificate. (Sutcliffe vs Thackrah (1974) A.C. 727(H.L.). It has been held that an employer cannot stand by and take advantage of his architect applying a wrong principle in certifying.(Panamera,etc vs Frederick Leyland & Co. Ltd. (1947) A.C. 428 (H.L.)


No general right to suspend work

Although particular contracts may give the contractor express rights if certificates are not paid, there is no general right to suspend work if payment is wrongly withheld. (Lubenham vs South Pembrokeshire D.C. (1986) 33 B.L.R. 39 at 70 (C.A.). This is consistent with the principle that, except where there is a breach of condition or fundamental breach of contract, breach of contract by one party does not discharge the other party from performance of his unperformed obligation. (Wells vs Army & Navy Co-op Soceity (1902) 86 L.T. 764.)


Party cannot rely on own wrong

It applies to a party seeking to obtain a benefit under a continuing contract on account of his own breach as much as to a party who relies on his own breach to avoid a contract and thereby escape his obligation.

A similar principle is applied to the construction of contracts which provide that, upon the happening of certain events, either party may declare the contract void provided that he has himself in breach of a duty owed to the other party been the means of bringing about the event; for example, an insolvent contractor cannot rely on his own insolvency to escape from the contract. ( New Zealand Shipping Co. vs Ateliers,etc.,de France (1919) A.C. 1 at 13 (H.L.)