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Repudiatory breach cases should rest on principle, not precedent, says Court of Appeal

Companies claiming that a business partner walked away from a contract should pay less attention to previous cases and more attention to the basic principles behind the law of repudiation, the Court of Appeal has said.01 Nov 2010

One party is said to have 'repudiated' a contract if they act in a way so completely against the agreements in the contract that their actions mean that if the other party accepts that repudiation, it is as if the contract never existed.

Lord Justice Etherton ruled in a dispute over a property deal that companies arguing about whether or not repudiation had taken place or not would be better advised to look at the basic principle than at the specifics of previous cases.

"In this area of the law, as in many others, there is a danger in attempts to clarify the application of a legal principle by a series of propositions derived from cases decided on their own particular facts," he said. "Instead of concentrating on the application of the principle to the facts of the case in hand, argument tends to revolve around the application of those propositions, which, if stated by the Court in an attempt to assist in future cases, often become regarded as prescriptive."

"So far as concerns repudiatory conduct, the legal test is simply stated," said Lord Justice Etherton. "It is whether, looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of the innocent party, the contract breaker has clearly shown an intention to abandon and altogether refuse to perform the contact."

Eminence Property Developments sold 13 flats to Kevin Heaney before those flats were built in 2007. As they became ready in late 2008 the property market had suffered a severe downturn and Heaney was having problems raising the money he needed to pay for the flats as they were completed.

Lawyers for Eminence wrote to Heaney's lawyers saying that it would rescind the contracts because they had not been completed, and final payment made, by 15th December.

Eminence's lawyers had miscalculated, though, and the date by which it should have taken that action was 18th December.

When it wrote to Heaney's lawyers rescinding the contracts on 17th December, then, Heaney's lawyers said that this action was a repudiatory breach of the contract. It said that it accepted that breach and was thus released from the demands of the contract and demanded the return of Heaney's deposits, which he would otherwise have lost.

The Court of Appeal said that Heaney was wrong, that the rescission of the contracts was too innocent a mistake to count as a repudiation, and that the act of bringing a contract to an end was not a repudiation of the agreement but was done in line with its provisions, except for the error in calculating the time when it was to happen.

Lord Justice Etherton said that this case demonstrated why reference to other disputes can be of limited use in repudiation cases.

"Whether or not there has been a repudiatory breach is highly fact sensitive," he said. That is why comparison with other cases is of limited value. The innocent and obvious mistake of [Eminence's lawyer] in the present case has no comparison whatever with, for example, the cynical and manipulative conduct of the ship owners in [party to a previously cited repudiation case] The Nanfri."

Lord Justice Etherton said that in this case it was obvious that Eminence wanted to abide by and enforce the contracts because it was profitable for it to do so. It said that a lower court that had said that repudiation had taken place had not taken enough account of the context of the deal.

"It is, in my judgment, impossible clearly to find on those facts an intention by Eminence to abandon and altogether to refuse to perform the contacts, which, in view of the state of the market, had become highly advantageous to Eminence and onerous to Mr Heaney," he said. "The error of [the lower court] was to concentrate on the rescission notices without taking into account all the circumstances. To do so results in a lack of reality."