A repudiatory breach of contract occurs where one party refuses to perform its contractual obligations in a manner that goes to the root of the contract. It entitles the injured party to terminate the contractual relationship at once and to sue for damages.
However, identifying whether a breach is repudiatory is not always easy and termination of a contract in reliance on a breach creates its own risks. Should the court decide that the breach was not repudiatory, the wrongful termination of the contract would, of itself, constitute a repudiatory breach of the parties’ agreement. In such circumstances, the original contract-breaker can accept the repudiation and seek damages for breach of contract.
The issue in Eminence Property Developments Ltd v Heaney [2010] EWCA Civ 1168; [2010] PLSCS 268 was whether a seller that had served notices making time of the essence of the completion of contracts to sell 13 flats and then mistakenly treated the contracts as having ended before the notices to complete had expired had repudiated the agreements. If so, the buyer would be entitled to walk away from his obligation to buy the flats at prices that exceeded their market value and to demand the return of his deposits.
The Court of Appeal overturned the High Court decision that the seller had repudiated the contracts by terminating the agreements prematurely. It ruled that the courts should declare a breach as repudiatory only in clear cases where the refusal to perform contractual obligations goes to the root of a contract and the contract breaker has shown an obvious intention to abandon its agreement. Their lordships acknowledged that this may sound simple but that the test is not always easy to apply.
The seller’s solicitor had included a covering letter with its notices to complete, stating that it calculated the final date for completion to be 15 December 2008. Its letter made it clear that it had attempted to calculate the date by reference to the provisions of the standard conditions of sale (which were incorporated into the contracts with the buyer).
A reasonable recipient would have realised that the seller was not attempting to vary or abandon the contractual provisions or to refuse to comply with them. None the less, the buyer’s solicitor failed to draw attention to the error (even though it was obvious that the seller’s solicitor would have conceded the point immediately) and subsequently seized on the premature service of rescission notices to try to extricate its client from his contractual obligations.
The recent economic climate has sparked a series of disputes in which parties have relied on repudiatory breaches of contract to extricate themselves from contractual obligations that are too onerous to perform. This decision reminds us that the doctrine is available only in the most serious of cases and that the outcome is not guaranteed. Cases on repudiatory breach are always highly fact-sensitive and comparisons with previous decisions are of limited value.
Allyson Colby is a property law consultant
