Repudiation of contract is a deceptively simple concept: one party breaches the terms of a contract to such an extent that the innocent party may terminate the contract. However, the difficulty lies in establishing whether or not the breach or breaches can amount to repudiation. Indeed, should it not amount to repudiation, the innocent party who terminated could find that they have committed a repudiatory breach when they fail to perform their obligations.
Repudiation occurs where the breach of contract goes to the “root of the contract” or “frustrates the commercial purpose of the venture”. The breach should in effect amount to an indication from the other party that it does not intend to be bound by the contract any longer. It is the establishment of the seriousness of the breach that can be problematic. Not only will the nature of the breach be relevant but also the circumstances in which it occurred and the reasons as to why.
This was brought sharply into focus in the recent case of Ampurius Nu Homes Holdings Ltd v Telford Homes (Creekside) Ltd. The parties entered into a development and long lease agreement with Telford agreeing to build the Creekside Development in Greenwich and Ampurius taking a long lease of part of the completed development. Due to funding difficulties, Telford postponed work from March 2009 until October 2010 resulting in Ampurius terminating the contract claiming the delay amounted to a repudiatory breach. Telford denied repudiation and, when Ampurius failed to make payment in November 2010, they argued Ampurius were in repudiatory breach and counterclaimed for their loss.
Delays on site and late/non-payment are commonplace but whether the extent of delay or lack of payment amounts to repudiation will vary from job to job. In this case, the court held that the extent of Telford’s delay did amount to a repudiatory breach and Ampurius was entitled to terminate the contract. The Judge considered 5 months of delay, with no sign of the works resuming, to be serious enough to establish a repudiatory breach. However, the decision could have been different had the facts varied slightly and Ampurius may have found itself in breach of contract.
The difficulties with recognising a repudiatory breach were recognised by the Judge when he stated: "I have to say that I do not find the established tests ... particularly easy to apply." So when considering the termination of a contract for repudiation, parties would be well advised to satisfy themselves that the breach relied upon is of a sufficiently "serious" nature to bring the contract to an end.
Case: Ampurius Nu Homes Holdings Ltd v Telford Homes (Creekside) Ltd [2012] EWHC 1820 (Ch).
