A repudiatory breach of contract is a breach that goes to the root of the parties’ contract. It entitles the injured party to terminate the contractual relationship and sue for damages. If it decides to sue, it must do so unequivocally and without undue delay.
It is a question of fact whether a breach is repudiatory, which is not always easy to determine. In addition, termination of a contract in reliance on a breach creates its own risks. If a court decides that the breach was not, in fact, repudiatory, the wrongful termination of the contract will, of itself, constitute a repudiatory breach of the parties’ agreement. In such circumstances, the original wrongdoer can elect to accept the repudiation and seek damages for breach of contract.
Most commercial contracts therefore include provisions specifying the types of breach that will entitle an innocent party to terminate. What then is the effect of a provision that entitles either party to terminate if the other fails or neglects to perform any of its contractual obligations, however insignificant such failure or neglect may be?
The litigation in Dominion Corporate Trustees Ltd v Debenhams Properties Ltd [2010] EWHC 1193 (Ch); [2010] PLSCS 151 was triggered by the late payment by a landlord of a capital contribution due under an agreement for lease. The tenant refused to accept the payment when it was offered and claimed that the agreement was at an end.
The judge was unimpressed – and followed previous decisions that it would fly in the face of commercial commonsense to visit the same draconian consequences on any breach, however small, of any obligation in the parties’ agreement. A reasonable commercial person would have understood the contractual provision as entitling the injured party to terminate if the other were to fail to perform any obligation in a way that amounted to a repudiatory breach of the agreement.
The tenant was unable to persuade the court that the circumstances were such that late payment of the capital sum constituted a repudiatory breach of contract. The landlord had made it clear that it remained committed to the parties’ agreement and to paying the amount due.
The judge also rejected the tenant’s argument that timely payment was essential. The agreement catered for the possibility that the payment might be late (because it provided for the landlord to pay interest on the amount due) and there was nothing in the contract itself, or in its subject matter, or in the surrounding circumstances that made time of the essence of the payment.
The decision confirms the courts’ reluctance to allow termination clauses in contracts containing a myriad of terms of differing importance to provide parties with the right to terminate for any breach, however minor. It also demonstrates that it is essential to specify that time is of the essence of contractual obligations (unless, as a matter of law, it already is), if this is what the parties intend.
Allyson Colby is a property law consultant
