Doctrine of repudiation

The doctrine of repudiation is when a party to an agreement, or a contract, refuses to perform a duty or obligation owed to the other party under that agreement. Generally, a contract cannot be considered “breached” until after the time for performance. The doctrine of repudiation is an exception to that general rule.

Repudiation is seen to be as quite a “serious matter and is not to be lightly found”: Shevill v Builders Licensing Board (1982). Courts are hesitant to interfere in private agreements, and therefore it must be clear through conduct or communication that a party to an agreement has repudiated.

What is “repudiatory breach”?

The term “repudiatory breach” has been used to describe any breach which gives rise a contractual right to terminate, because of any such breach may be treated by the promisee as a repudiation of the whole contract: Forslind v Bechely-Crundall [1922]. In other words, if a party to a contract refuses or is unable to do things required of them under the contract, then the other party is entitled to accept their repudiation and elect to terminate the contract.

It is important to clarify that not every breach of contract is a “repudiatory breach”.

What is the difference between breach of contract and repudiatory breach?

The distinguishing feature between a breach of contract and a repudiatory breach is the focus on the nature of the term breached by the promiser and if the promiser breached an intermediate term. However, because an absence of readiness or willingness may manifest itself in a breach of contract there is some overlap between termination for breach of contractual term and termination for repudiation.

This can be pointed out in the case of Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007):

“There may be cases where a failure to perform, even if not a breach of an essential term … manifests unwillingness or inability to perform in such circumstances that the other party is entitled to conclude that the contract will not be performed substantially according to its requirements. (For example, Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 304–5 [per Latham CJ]); Associated Newspapers Ltd v Bancks (1951) 83 CLR 322.) This overlapping between renunciation and failure of performance may appear conceptually untidy, but unwillingness or inability to perform a contract often is manifested most clearly by the conduct of a party when the time for performance arrives. In contractual renunciation, actions may speak louder than words.”

Has the repudiation occurred?

To put it simply, in order for repudiation to occur, it requires that a party indicate an absence of readiness and willingness to perform the contract: Shevill v Builders Licensing Board (1982).

How can repudiation be proven?

The party asserting a right to terminate for repudiation must prove the repudiation, and to provide evidence of it.

A party is considered to have repudiated a contract only when there is evidence of:

• the promisor’s words and conduct; or
• the promisor’s inability to perform their contractual obligation.

In both cases the person alleging the repudiation must establish that the absence or willingness is or will be a serious matter: Honner v Ashton (1979). Repudiation may be established by a party’s words and or conduct or the party’s actual inability to perform their contractual duties as seen in the case of Sunbird Plaza Pty Ltd v Maloney (1988).

The requirement of seriousness

The requirement of seriousness is straightforward, the promise must prove that either:

• the absence of readiness or willingness relied on extends to all promisor’s obligations or;
• that it clearly indicates that the promisor will breach the contract in a certain way which gives rise to a right to terminate for breach.

The test of repudiation

The test of repudiation that is the words or conduct satisfying the requirement of seriousness has been stated in several ways, including that:

• the facts must indicate an anticipated breach of an essential or fundamental term of the contract or delay which will result in frustrating the performance of the contract;
• an absence of readiness or willingness must have been the fundamental effect;
• an absence of readiness or willingness must go to the “root” of the contract;
• an absence of readiness or willingness must indicate that the promisor will not perform the contract fundamentally;
• the circumstances of the case must show some form of indication that it would be “unfair” to hold the promisee bound by the contract;
• the circumstances of the case must indicate that the promisor is “wholly and finally” disabled from performing the contract.

The case of Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] sets out a detailed explanation of the test set out for repudiation:

“… conduct which evinces an unwillingness or an inability to render substantial performance of the contract.  This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party’s obligations.  It may be termed renunciation.  The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it.”

The refusal to perform all contractual obligation is a repudiation of obligations arising for the words or conduct. Refusal is the clearest case of a repudiation of obligation (Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004]). Although it may be easier to establish repudiation where the refusal is willful, the requirement of seriousness must be satisfied for the refusal to amount to repudiation.

Readiness and willingness to perform – concepts of repudiation

There are several features of the concept of readiness and willingness to perform relevant to the concepts of repudiation, including:

• the concept includes an ability to perform e.g. promisor is ready and willing to perform only if willing and able to perform and an absence of any one element is equivalent to the absence of all;
• the extent of willingness and readiness is determined by the terms of the contract;
• both a promisee not a promisor is obliged to plead expressly readiness and willingness;
• a promisee does not need to be ready and willing to perform until performance is due;
• proof that a promisee was not ready and willing to perform at the time when performance was in fact due will generally be sufficient proof of a breach of contract by failure to perform; and
• the question whether a party is ready and willing to perform is one of fact.

Example of how repudiation can be proven

Examples of how repudiation can be proven includes by showing that:

• words that amount to an implied or express refusal to perform;
• conduct that amount to an implied or express refusal to perform;
• words showing that the promisors inability to perform the whole contract or fundamental obligation under the contract; and
• conduct showing that the promisors inability to perform the whole contract or fundamental obligation under the contract.

Uncommon examples of how repudiation can be proven

Although not common, repudiation can also be proven by showing that:

• wrongful termination occurred; and
• there was an assertion of incorrect view of the contract’s construction.

However, whether repudiation has indeed occurred will depend on the facts of each individual case and terms of the contract.

How do you respond to repudiation of a contract?

If you are the “innocent party” e.g. the party that is willing and able to perform your contractual obligation, then you need to be cautious about how you respond.

There are two options available if you are satisfied that repudiation of your contract has occurred:

• elect to terminate the contract (therefore accepting the repudiation); or
• elect to continue performance of the contract.

As seen in the case of Chatterton v Maclean [1951], termination of the contract or continuing to perform the contract can be determined based on conduct or words and does not explicitly require an express declaration.

Elect to terminate the contract

If you elect to terminate the contract, then you do not need to fulfil the other parties’ contractual obligations. It is important to remember that repudiation itself does not end the contract. Repudiation simply allows the innocent party to make an election as to how you want to proceed.

Elect to continue performance of the contract

If you elect to continue the performance of the contract, then you must continue to satisfy the same contractual duties before the repudiation occurred.

Damages

Repudiation of a contract may entitle the other party the right to terminate and claim for damages. However, in order to claim for damages, the promisee must terminate the contract to accept the repudiation. The party in breach must of course compensate the other party for the damage inflicted, but the party in breach does not subject itself to a forfeiture.

The measure of damages for non-performance (refusal or inability to perform) is the value of the contract at the time for its performance or the profit of the contract. As expressed in Robinson v Harman (1848), the objective of contract damages is to place the plaintiff “in the same situation, with respect to damages, as if the contract had been performed”.

Conclusion

Key points to take out of this article:

• Repudiation of obligation occurs when a party to a contract clearly indicates an absence of readiness or willingness to perform the contractual obligations;
• Identifying whether repudiation has occurred is an issue of law, and will depend on the circumstances of each case; and
• The onus of proof of identifying the requirement of seriousness rests on the alleging party.

Repudiation is a complex area of law. If you believe that repudiation has occurred, then it is essential that you obtain legal advice as soon as possible about whether repudiation has occurred and what steps you should take following this.

For when you need help

If you have a contract dispute, one of our experienced team of solicitors will be happy to help you. Contact Gibbs Wright Litigation Lawyers today for a confidential initial consultation to explore your options and legal rights.