Repudiation of Contract – The Search for a Cure

Legal Case Reports

A repudiation of contract is a breach by one party to the contract that is so serious that it entitles the other party to treat the contract as terminated and to sue for damages.

For example, if a contractor makes it clear that it no longer intends to be bound by the contract and walks off site. The test, as expounded in the case of Hong Kong Fir Shipping Co Ltd –v- Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, is whether the breach deprives the innocent party of substantially the whole benefit of the contract or goes to the root of the contract, such that it makes further performance of the contract impossible.

An innocent party, faced with repudiation, is entitled to choose whether to accept the repudiation (and bring the contract to an end) or to affirm the contract and treat it as continuing.

An issue then arises as to when the innocent party is entitled to make that choice. Does he have to do so at the time of the original repudiation, or can he wait until later to see what happens? If he waits until later, can the repudiation be “cured” in the meantime, such that his right to terminate is lost?

That was the issue faced by the Court of Appeal in the recent case of Ampurius Nu Homes Holdings Ltd –v- Telford Homes (Creekside) Ltd [2013] EWCA Civ 577.

The facts

In that case, Telford Homes, a property development company, entered into an agreement for lease with Ampurius, also a property developer. The proposed lease was a 999 year lease of commercial and residential properties to be constructed by Ampurius at a site in London. The development consisted of four blocks (A, B, C and D).

Under the terms of the agreement, Ampurius agreed to build the blocks with “due diligence”, and to use “reasonable endeavours” to procure completion of the works by target dates. The target dates were 21 July 2010 in the case of blocks C and D, and 28 February 2011 in the case of blocks A and B.

However, in June 2009, due to the economic downturn, Ampurius stopped work on blocks A and B to ease cashflow. Telford Homes told Ampurius that it was in repudiatory breach of its obligation to ensure that works on blocks A and B were carried out by the target date and that it reserved its position whether to accept that repudiation.

Subsequent negotiations broke down and, on 22 October 2010, Telford purported to terminate the contract as a result of the alleged repudiation. However, Ampurius had in fact already recommenced work on blocks A and B earlier in the month.

At the date of purported termination, there were still four months to go before the target date for blocks A and B and, accordingly, Ampurius denied that there had been a fundamental breach.

Thereafter, Ampurius continued with the development of all four blocks. Block C was certified as practically complete on 19 January 2011 and block D on 4 April 2011. That part of the development was therefore completed approximately nine months later than the target date. Had Telford Homes not purported to terminate the contract, practical completion would have been achieved on 1 May 2012 for block A and 20 February 2012 for block B; just under one year later than the target dates for those blocks.

At first instance

Telford Homes issued proceedings claiming that there had been a repudiatory breach of contract and seeking damages. The judge at first instance found that it had been uncertain, at the date of the initial breach in 2009, that the works to blocks A and B would ever have been started. He concluded that, by the end of 2009, Ampurius’s breach had become sufficiently substantial to be repudiatory. He therefore found in favour of Telford Homes. Ampurius appealed.

On appeal

Ampurius argued that the judge at first instance had had been wrong to find that the breach had amounted to a repudiatory breach. In particular, it submitted, the judge had been wrong to determine that the issue of whether or not the breach of contract had amounted to a repudiation had to be judged at the date of the breach.

The Court of Appeal first looked at whether the effect of the breach (in this case a one year delay) had deprived Telford Homes of the substantial benefit of the whole contract. It decided that, in the context of a 999 year lease, it had not.

However, Ampurius argued that the correct date at which to assess whether there had been a repudiation was the date of the repudiation itself. The Court of Appeal disagreed and decided that the assessment should take place when the repudiation was accepted and the contract purportedly terminated.

Thus, the Court of Appeal found that the repudiation had been cured and that Telford had no right to terminate the contract when it did. Its recourse was restricted to the delay caused by the suspension of the work, which was not a breach of sufficient severity to amount to a repudiation of the contract.

Commentary

The Court of Appeal has confirmed that an innocent party does not have to decide immediately whether to accept a repudiation of contract, but can wait and see what happens. However, this entitlement comes with the risk that the repudiation can subsequently be cured, such that the right to terminate is lost. As long as he holds back from accepting the repudiation, he runs the risk that it will be overtaken by events. Thus, it can be seen from this case that the analysis of whether a breach is serious enough to amount to a repudiation must take place at the time of the innocent party’s acceptance of that repudiation and that even repudiatory breaches have the potential to be cured.

By John Starr, Consultant, Stepien Lake. A version of this article has previously appeared in the Property Law Journal, published by Legalease Ltd