Two recent Court of Appeal cases have provided helpful guidance on what amounts to a repudiatory breach of contract and how delay may limit the innocent party’s options when responding to such a breach.
A repudiatory breach of contract is a breach by one party which is sufficiently serious to entitle the other party to treat itself as discharged from further obligations under it. Crucially, a repudiatory breach does not automatically bring the contract to an end. As the innocent party you will have two options, either to continue with the contract or bring it to an end and claim damages. Two recent Court of Appeal cases have provided helpful guidance on what amounts to a repudiatory breach and how delay in responding to such breach may limit the innocent party’s freedom to choose between those two options.
Eminence Property Developments Ltd v Heaney  EWCA Civ 1168
In this case Eminence entered into a contract to sell 13 flats to Mr Heaney. The agreed Standard Conditions of Sale stated that time would not be of the essence unless a notice to complete was served. As the completion date in the contract neared, the market value of the flats dropped. Eminence wished to complete the contracts on 4thDecember, the contractual completion date, but Mr Heaney did not. On 5th December, the day after the agreed completion date, Eminence served a notice to complete within 10 working days, with time being of the essence. Due to an error on the part of Eminence, this notice incorrectly calculated the final date for completion as 15th December, rather than 18th December. Mr Heaney took no steps to complete the contract and Eminence sent notices of rescission on 17th December. Mr Heaney responded on 18th December stating he still had one day to comply with the contract and that by sending the notices of rescission Eminence was in repudiatory breach of contract, which he accepted as bringing the contract to an end.
On the facts, the Court of Appeal held that Eminence sending the rescission notices on 17th December did not constitute a repudiatory breach because it was clearly not the intention of Eminence to abandon the contract. The Court accepted it was common ground that Eminence was “ready, able and willing to complete” and Mr Heaney was very much aware of Eminence’s intention to enforce the contract in accordance with its original terms. The Court was at pains to stress that whether or not a breach amounts to a repudiatory breach will turn on the facts of each case.
The test for repudiatory breach is therefore whether, looking objectively at all of the circumstances from the perspective of a reasonable person in the innocent party’s shoes, the other party has clearly shown an intention to abandon and altogether refuse to perform the contract.
Conclusion and recommendations
In order to establish that a party you have contracted with is in repudiatory breach, you must find a clear intention of that party to abandon the contract in the particular circumstances. Once a repudiatory breach is identified, you will then need to assess your legal and commercial options when deciding how to respond to such breach. We would urge caution at this point because if you get it wrong, and the other party was not in fact in repudiatory breach and you elect to accept the "repudiation" and terminate the contract, you may actually be in repudiatory breach yourself and the other party could be entitled to sue you for damages. It can be a fine line to tread and we would always recommend you seek legal advice before taking any action.
Force India Formula One Team Ltd v Etihad Airways PJSC  EWCA Civ 1051
In this case an F1 Racing team changed its name to exclude the sponsor's name and changed its livery to promote a rival of the sponsor. The original sponsor became fully aware of all of these actions by 13th November 2007 and arranged a meeting with the F1 team, which took place in mid-December 2007. At that meeting, the F1 team agreed to provide its commercial proposals to the sponsor, which it not did do until mid-January 2008. On 27th January 2008 the sponsor wrote to the F1 team terminating the contract for its repudiatory breach of 13th November 2007.
In addition to denying that the breach was repudiatory, the F1 team argued that in any event the sponsor had delayed too long in communicating acceptance of such alleged repudiatory breach and therefore this inactivity by the sponsor had affirmed the contract.
The Court of Appeal held on the facts that the three months’ delay did not amount to affirmation of the contract. The Court identified two instances in which delay may well amount to affirmation. Firstly, where timing of completion is of the essence making an urgent decision necessary, and secondly where silence may mislead the other party as to the outcome of that decision. The Court found this case to be different in that breaches came to light over time, the F1 team would have known the sponsor was considering its position and the circumstances of the racing season’s winter break meant that no urgent response was required at this time.
Conclusion and recommendations
Although the sponsor in this case received the outcome they required, by delaying they did run the risk of losing their right of termination. When faced with a repudiatory breach of contract, a party should begin dialogue with the other party in default at the earliest opportunity. By supplying that other party with clear timeframes in which you expect to be in a position to decide either to terminate or affirm the contract, you face less exposure to arguments that your delay amounts to affirmation. If however you find yourself on the other side of the fence, requiring a swift resolution following your repudiatory breach, you should provide the other party with all the information they need to decide and then suggest a deadline for that decision, with reasons where possible. Whichever side you are on, you will have a better chance of staying in control if you face the issue head on rather than allowing it simply to drift.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.