Repudiation

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Repudiation of a contract occurs when a party's conduct indicates that it no longer intends or able to abide by the contract.[1] Repudiation may be made manifest in several ways:

  • By words or conduct.[2]
  • By a combination of small breaches, adding up to total repudiation.[3]
  • By an insistence upon an erroneous interpretation of the contract.[4]

A repudiation of a future term or obligation entails that the repudiating party is deemed to have breached it regardless of whether the time for performance has come or not (thus repudiation is also termed 'anticipatory breach'). If a party is deemed to have repudiated the entire contract, the aggrieved party will be entitled to terminate.

  • If the party is deemed to have only repudiated an obligation, the aggrieved party will only be entitled to terminate if the breach of that obligation would confer a right to terminate.

This article is a topic within the subject Contracts.

Contents

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 541-8 [22.05-22.45]; 553-5 [22.60-22.65].

Introduction

[5] A party will be deemed as repudiating the contract when its conduct indicates that it no longer intends or able to abide by the contract. Thus, parties who wrongfully terminate (thus manifesting a unwillingness to continue the contract) will be deemed repudiating. Recently, the courts have decided to call this renunciation. However, for the purposes of this discussion, the traditional word repudiation will be used.

[6] Repudiation of the contract by one party entitles the other to terminate and receive damages. However, it is possible that the repudiating party does not repudiate the entire contract but only certain obligations. In this case, the Aggrieved party will only acquire the right to terminate if the repudiating party repudiated an obligation which, if breached, would grant a right to terminate[7] (see Termination - by breach)

Anticipatory breach

[8] An anticipatory breach is when a contract is already repudiated before it is to be performed (i.e. a party makes it clear that it will not transfer the money on the date set). The Aggrieved party will be entitled to terminate even before the the actual breach, and damages will not be affected. Note that a party which elects not to terminate upon an anticipatory breach will still be entitled to terminate again when the breach actually occurs.

Conduct amounting to a repudiation

[9] Repudiation is measured objectively and discounts the subjective intention of the party. This means that the fact that a party 'wishes' to perform but can't does not excuse it from being deemed as repudiating the contract.[10]. Repudiation can be expressed in a number of ways.

  • Express statement - a party may expressly notify the other party that it is no longer willing or able to perform his obligations. In the case of an express statement, the Aggrieved party will be required to mitigate its loss.
  • Repudiation inferred from words or conduct - When there is no express statement, a party's conduct or words may signify repudiation.
  • Repudiation due to an erroneous interpretation of the contract.

Repudiation inferred from words or conduct

[11] It may be inferred, through the actions and words of a party, that it has repudiated the contract. For example, if a party sells the subject matter of the contract to a third party, it can be inferred that it is repudiating the contract. This is given illustration in Carr v JA Berriman Pty Ltd:

  • The Plaintiff's conduct of not moving his machinery and contracting a third party for the steel fabrication has rightly given the Defendant “the right to believe that the contract would not be performed according to its true construction[12]” and that "he did not intend to bound by the contract within the meaning of the authorities[13]".
  • Thus, the actions and words of the Plaintiff implied that he is repudiating the contract. As a result, the Defendant is entitled to terminate the contract and seek damages.

Repudiation may also be inferred from a combination of small breaches. This occurs when one party repeatedly breaches the contract in small ways, which, when added up, show that the party does not comply with the agreement. This was discussed in Progressive Mailling House Pty Ltd v Tabali Pty Ltd, which decided other principles:

  • As long as a breach or repudiation has indeed occurred, the Aggrieved power will be entitled to damages regardless of whether it chose to terminate the contract because of a common law right (the right to terminate by breach) or because of a contractual power to do so (the right to terminate by agreement).
    • This means that if repudiation or a breach has occurred, a party can still obtain damages if it terminates the contract as per its power to do so under the contract. It does not have to terminate using the breach/repudiation.
  • While minor breaches viewed in isolation may not be considered to amount to repudiation of the contract, several consecutive minor breaches may amount to repudiation.

Erroneous interpretation of the contract

[14] A party can be deemed as repudiating the contract if it insists on an erroneous interpretation of the contract.

  • In other words, a party will be repudiating if it insists that it has certain rights which the contract (by its true construction) doesn't entitle it to, or if it requires performance to be done in a way which the contract does not call for.

The insistence of the repudiating party on the erroneous interpretation can be deemed by the courts as and indication that the party is unwilling to act in accordance with the actual contract, and therefore it is repudiating. This was discussed in DTR Nominees Pty Ltd v Mona Homes Pty Ltd:

  • "No doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms[15]."
  • However, it is possible that the erroneous party would be willing to perform the contract according to the actual interpretation once he is notified that he has misinterpreted the contract. In those cases, he will not repudiating.
  • In order to for a party to be repudiating when erroneously interpreting the contract, it need to manifest an unwillingness to act in accordance with the contract even after its error is pointed out to it.


References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. Carr v JA Berriman Pty Ltd (1953) 89 CLR 327
  2. Carr v JA Berriman Pty Ltd (1953) 89 CLR 327
  3. Progressive Mailling House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
  4. DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
  5. Casebook, p. 541 [22.05]
  6. Casebook, p. 542 [22.20]
  7. Foran v Wight (1989) 168 CLR 385
  8. Casebook, p. 541 [22.10]
  9. Casebook, p. 542 [22.25]
  10. Universal Cargo Carriers Corp v Citati [1957] 2 QB 401, 437
  11. Textbook, pp. 337-8 [22.45-22.50]
  12. (1953) 89 CLR 327, 351
  13. (1953) 89 CLR 327, 350
  14. Textbook, pp. 337-8 [22.45-22.50]
  15. (1978) 138 CLR 423, 432
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