Repudiatory breach of contract
Repudiatory breach of contract – do you have the right to terminate?
A repudiatory breach of contract is in simple terms a breach of contract which results in the innocent party having the legal right to terminate the contract.
It is a mistake to believe that all breaches of contract mean the other party has the legal right to end the agreement. In fact, most breaches of contract do not create such a right. As a result, if you have a contract where the other party is in breach, it is advisable to check your legal position before seeking to terminate.
If you terminate the agreement or refuse to comply with your obligations in a business agreement based on a breach by the other party, if you have misjudged your legal position, you may well find you are in breach of contract yourself.
What does the contract say?
A well drafted contract will usually have clear clauses defining situations which would lead to the parties having the right to terminate based on repudiatory breach. If this is the case, breaches which aren’t covered by such clauses are unlikely to be repudiatory and less likely to be implied as such by a court.
So, check your contract first.
Where a contract details what amounts to a repudiatory breach, the contract may well also have terms detailing what the innocent party must do. Typically, a formal notice of termination will need to be served and there may be other stipulations. Failing to comply with these can also lead to the loss of the right to repudiate.
Terminate or affirm after repudiatory breach?
Another key point to understand is that if there is a repudiatory breach the innocent party needs to decide what to do and to act on that decision. A failure to formally terminate within a fairly short period if time may well, in legal terms, be considered to an amount to an affirmation of the contract and loss of the legal right to terminate. Other actions which may imply affirmation, such as acting inconsistently with termination, may also amount to affirming the contract.
Contract silent? Is the breach repudiatory?
If you have a contract that doesn’t include clear termination events, the starting point is to think about which parts of the contract are the most important. Breach of these would be more likely to be found by a court as potentially repudiatory. Examples tend to include time of delivery of goods or services or failure to pay. Delay does not necessarily give the right to repudiate though.
Each situation needs to be assessed if the contract is silent and experienced lawyer advice is recommended in this situation.
In many contract situations, there is an ongoing relationship between the parties. So, if there is a pattern of late payment but the other party hasn’t terminated historically, it would be far more risky to then seek to terminate based on a “straw that broke the camel’s back” frustration after another another late payment.
Whether a breach is repudiatory is highly relevant in all types of contracts but especially in employment contracts. The implications here typically relate to constructive unfair dismissal and/or wrongful dismissal situations.
Classic examples will include where an employer seeks to unilaterally and fundamentally change the employment contract, such as pay or place of work. More complicated situations can arise with potential wrongful dismissal claims relating to discretionary bonuses, commissions or other non-salary contractual terms.
The right to terminate creates it’s own potential pitfalls. It is not always the right option. Consideration of all the options, the amount of damages that will be recoverable bearing in mind damages are loss based and not compensatory, and the duty to mitigate losses. Considering remedies, options and tactics is strongly recommended. Experienced advice can really help. We’d be happy to talk you through the options.
Claiming damages after repudiatory breach
If you need litigation solicitors to advise on your best options following a breach of contract please do get in contact with us.