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Anticipatory Breach

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Law and Sea.
Law of Contract: Repudiation and Rescission

Imperfection of terminology concerning to repudiation and rescission is well known. It is said that owing to the historical difference between common law and equity, the language adopted is far from uniform: while common lawyers usually use the word repudiation, equity lawyers inclined to employ words rescission or setting a contract aside.

Repudiation of Contract
Last updated: 28-Nov-2015

Per Lord Wilberforce in Johnson v Agnew [1980] AC 367 at p. 396

Hain Steamship Company Ltd v Tate & Lyle Ltd [1936] 2 All ER 597 per Lord Wright MR. at p.608:

But however fundamental is the condition, it may still be waived by the goods owner. For this purpose the case is like any other breach of a fundamental condition, which constitutes the repudiation of a contract by one party; the other party may elect not to treat the repudiation as being final, but to treat the contract as subsisting and to that extent may waive the breach, any right to damages being reserved. One party to a contract cannot end it by his wrongful act against the wish of the other party. In the present case, the charterers elected to waive the breach, with the result that the charterparty was not abrogated, but remained in force. The appellants were thus entitled to the benefit of the contract conditions and in particular to rely on the exception of perils of the sea and thus vindicate any lien for contribution to general average and also enforce the charterers' liability in respect thereof.

Heyman v Darwins Ltd [1942] AC 356, per Lord Macmillan at p.374 :

I am, accordingly, of opinion that what is commonly called repudiation or total breach of a contract, whether acquiesced in by the other party or not, does not abrogate the contract, though it may relieve the injured party of the duty of further fulfilling the obligations which he has by the contract undertaken to the repudiating party. The contract is not put out of existence, though all further performance of the obligations undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract.

And per Lord Wright at p.378:

Repudiation of a contract is sometimes used as meaning that the defendant denies that there ever was a contract in the sense of an actual consensus ad idem. If that is the case, a submission of disputes under the contract never comes into operative existence any more than the contract to which it was to be ancillary. Short of this, one party, though not denying that there was the appearance of assent, might claim that the consent was vitiated by fraud or duress or mistake or illegality, and in that sense it is often said that he repudiates the contract. There, again, it would be a question of construction whether the collateral arbitration clause could be treated as severable and could be invoked for settling such a dispute. There is, however, a form of repudiation where the party who repudiates does not deny that a contract was intended between the parties, but claims that it is not binding because of the failure of some condition or the infringement of some duty fundamental to the enforceability of the contract, it being expressly provided by the contract that the failure of condition or the breach of duty should invalidate the contract. A dispute on such an issue would generally be within an ordinary submission of disputes under or arising out of the contract or similar words, though the award in a certain event might have the effect of declaring that the contract had ceased to be, or even had never become, binding. Another case to which the word repudiation is applied is when the party, though not disputing the contract, declares unequivocally that he will not perform it and, admitting the breach, leaves the other party to claim damages.

… But perhaps the commonest application of the word "repudiation" is to what is often called the anticipatory breach of a contract where the party by words or conduct evinces an intention no longer to be bound and the other party accepts the repudiation and rescinds the contract. In such a case, if the repudiation is wrongful and the rescission is rightful, the contract is ended by the rescission but only as far as concerns future performance. It remains alive for the awarding of damages either for previous breaches or for the breach which constitutes the repudiation.

Per Lord Porter at p.398:

Indeed, the word "repudiation”, accepted or unaccepted, is an ambiguous expression. As Scott LJ pointed out in Toller v Law Accident Insurance Society, Ld. [1936] 2 All E. R. 952:

"It may mean: repudiate the original existence of the contract. It may mean: disclose an intention to disregard it in toto and refuse to be bound by its terms altogether. Or it may mean: a mere contention that under the terms of the contract the defendant is completely free from liability by reason of some fact."

Except in the first case the contract is not repudiated. Even in the second all that is repudiated is the defendant’s future liability under it. Where the contract itself is repudiated in the sense that its original existence or its binding force is challenged, e.g., where it is said that the parties never were ad idem, or where it is said that the contract is voidable ab initio (e.g., in cases of fraud, misrepresentation or mistake), and that it has been avoided, the parties are not bound by any contract and escape the obligation to perform any of its terms including the arbitration clause unless the provisions of that clause are wide enough to include the question of jurisdiction. Where, however, the existence of the contract is acknowledged but one of its terms is relied on as disentitling the claimant to recover, the arbitration clause is effective.

Asquith LJ’ dictum in Howard v Pickford Tool Co. [1951] 1 K.B. 417 at p.420 says:

An unaccepted repudiation is a thing writ in water and of no value to anybody: it confers no legal rights of any sort or kind.

In Decro-Wall International S.A. v Practitioners in Marketing Ltd [1971] 1 WLR 361 Buckley LJ. said atp. 380:

Each party to an agreement is entitled to performance of the contract according to its terms in every particular, and any breach, however slight, which causes damage to the other party will afford a cause of action for damages; but not every breach, even if its continuance is threatened throughout the contract or the remainder of its subsistence, will amount to a repudiation. To constitute repudiation, the threatened breach must be such as to deprive the injured party of a substantial part of the benefit to which he is entitled under the contract. The measure of the necessary degree of substantiality has been expressed in a variety of ways in the cases. It has been said that the breach must be of an essential term, or of a fundamental term of the contract, or that it must go to the root of the contrac. …I venture to put the test in my own words as follows: Will the consequences of the breach be such that it would be unfair to the injured party to hold him to the contract and leave him to his remedy in damages as and when a breach or breaches may occur? If this would be so, then a repudiation has taken place.

Moschi v Lep Air Services Ltd [1972] 2 All ER 393, per Lord Reid (pp.398-399):

The contract may have been to deliver say 100 tons of wheat. If the party fails to deliver somehow that obligation disappears and by operation of law is replaced by an obligation to pay money. So it appears to me that when a contract is brought to an end by repudiation accepted by the other party all the obligations in the contract come to an end and they are replaced by operation of law by an obligation to pay money damages. The damages are assessed by reference to the old obligations but the old obligations no longer exist as obligations. Were it otherwise there would be in existence simultaneously two obligations, one to perform the contract and the other to pay damages. But that could not be right. The only legal nexus remaining is the obligation to pay the damages; so here when the respondents elected to end the company’s contract by treating their fundamental breach as a repudiation and accepting it, their right against the company became a right to get damages. The respondents did not recover these damages from the company so they were part of the loss suffered by the respondents as a result of the company’s breaches of contract. The appellant as guarantor had undertaken that the company would carry out its contract so the damages which the company have not paid were part of the loss flowing from the appellant’s breach of contract for which the appellant is liable.

The owners argued that their conduct was not repudiatory because they had acted on the advice of their lawyers in New York and London, and they were under an honest misapprehension as to their rights. In the Court of Appeal, (Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri, Benfri and Lorfri), [1978] QB 949, [1979] AC 757) Lord Denning, rejecting that argument and distinguishing those three cases, said (at p. 979E-p. 980A):

I have yet to learn that a party who breaks a contract can excuse himself by saying that he did it on the advice of his lawyers: or that he was under an honest misapprehension. Nor can he excuse himself on those grounds from the consequences of a repudiation. In those three cases the conduct of the party concerned was entirely innocent. It did not evince any intention to break his contractual obligations. I would go by the principle as I have always understood it that if the party’s [conduct] - objectively considered in its impact on the other party – is such as to evince an intention no longer to be bound by his contractual obligations, then it is open to the other party to accept his repudiation and treat the contract as discharged from that time onwards. A most important point here is that the conduct of the owner was such as to lead the charterers reasonably to believe that the owners would issue such orders again in the future whenever they, the owners, wished to force the charterers to comply with the owners’ demands in similar circumstances. In short, the owners were determined to give orders to the masters – in flat contradiction of the charterparty – time and time again so long as the contract continued so as to enforce their demand that hire should be paid in full without any deductions unless the owners agreed. To my mind such conduct amounted to a repudiation of the contract within the principles laid down by Lord Blackburn in Mersey Steel and Iron Co. Ltd. v Naylor, Benzon & Co. (1884) 9 App.Cas. 434 , 442–444 and followed ever since. It was open to the charterers to accept the repudiation, as they did, and to treat themselves as discharged from any further performance. It was then at an end for the future. It cannot be revived by any subsequent "without prejudice" agreement.

Lord Wilberforce, like the Court of Appeal, dismissed as irrelevant any subjective intention or desire of the party in breach not to abandon the contract. He said at (p. 780E-F):

It is thirdly irrelevant that it was in the owners’ real interest to continue the charters rather than to put an end to them. If a party’s conduct is such as to amount to a threatened repudiatory breach, his subjective desire to maintain the contract cannot prevent the other party from drawing the consequences of his actions.

Safehaven v Springbok [1996] 71 P&CR 59 at p.68 per Jonathan Sumption QCsitting as a deputy high court judge:

It does not follow from this analysis that the innocent party may in all cases change his mind after affirming the contract. If, for example, after he had affirmed it, the repudiating party’s conduct suggested that he proposed to perform after all, then that party’s previous repudiation is spent. It has no further legal significance. If, on the other hand, the repudiating party persists in his refusal to perform, the innocent party may later treat the contract as being at an end. The correct analysis in this case is not that the innocent party is terminating on account of the original repudiation and going back on his election to affirm. It is that he is treating the contract as being at an end on account of the continuing repudiation reflected in the other party’s behaviour after the affirmation.

Stocznia Gdanska SA v Latvian Shipping Company (No 2), [2002] EWCA Civ. 889 per Rix LJ at para 87:

In my judgment, there is of course a middle ground between acceptance of repudiation and affirmation of the contract, and that is the period when the innocent party is making up his mind what to do. If he does nothing for too long, there may come a time when the law will treat him as having affirmed. If he maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his contract partner persists in his repudiation, then he has not yet elected. As long as the contract remains alive, the innocent party runs the risk that a merely anticipatory repudiatory breach, a thing ‘writ in water’ until acceptance, can be overtaken by another event which prejudices the innocent party’s rights under the contract—such as frustration or even his own breach. He also runs the risk, if that is the right word, that the party in repudiation will resume performance of the contract and thus end any continuing right in the innocent party to elect to accept the former repudiation as terminating the contract.

In Eminence Property Developments Ltd. v Heaney [2010] EWCA Civ 1168 per Etherton LJ at paras 61–64:

61.…First, 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. 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, or, as Lord Wilberforce put it, "perspicuous". 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.

62. Secondly, whether or not there has been a repudiatory breach is highly fact sensitive. That is why comparison with other cases is of limited value. The innocent and obvious mistake of Mr Jones in the present case has no comparison whatever with, for example, the cynical and manipulative conduct of the ship owners in The Nanfri.

63. Thirdly, all the circumstances must be taken into account insofar as they bear on an objective assessment of the intention of the contract breaker. This means that motive, while irrelevant if relied upon solely to show the subjective intention of the contract breaker, may be relevant if it is something or it reflects something of which the innocent party was, or a reasonable person in his or her position would have been, aware and throws light on the way the alleged repudiatory act would be viewed by such a reasonable person.…

64. Fourthly, although the test is simply stated, its application to the facts of a particular case may not always be easy to apply…

Telford Homes (Creekside) Ltd v Ampurius Nu Homes Holdings Ltd [2013] EWCA Civ 577 per Lewison LJ at paras 51-52:

51. Whatever test one adopts, it seems to me that the starting point must be to consider what benefit the injured party was intended to obtain from performance of the contract. In our case, the benefit that Ampurius was intended to obtain from performance of the contract was, first and foremost, a leasehold interest of 999 years duration in four blocks. In other words, what Ampurius bargained for was the right to possession of those units for 999 years, and the right for a like period to exploitation of the rents and profits to be derived from them. It was to take the blocks in pairs, with a gap of seven months between each handover (although acknowledging that the seven month gap was dependent on meeting dates described as "Target Dates"). The first pair of blocks was to be handed over just over twenty one months after the contract was signed. I do not think that the judge gave adequate weight to the ultimate objective of the contract, viz. the grant to Ampurius of 999 year leases. He concentrated on the expected effects on the marketing period. This, in my judgment, permeates his consideration of what practical effect the breaches of contract had.

52. The next thing to consider is the effect of the breach on the injured party. What financial loss has it caused? How much of the intended benefit under the contract has the injured party already received? Can the injured party be adequately compensated by an award of damages? Is the breach likely to be repeated? Will the guilty party resume compliance with his obligations? Has the breach fundamentally changed the value of future performance of the guilty party’s outstanding obligations?

From dissenting judgement of Underhill LJ in Valilas v Januzaj [2014] EWCA Civ 436 at para 40:

40. I believe that the Judge should have held that the Claimant’s withholding of the August, September and October payments, understood in the light of his contemporary statements of his intentions, constituted a repudiatory and/or a renunciation of the facilities contract, which the Defendant plainly accepted by his e-mail of 2 November. I would thus for my part have allowed the appeal. However, Arden and Floyd LJJ take a different view. As I see it, the essential difference between us is that they attach less importance than I do to the fact that the Claimant deliberately declared that he would not, for an indefinite period, comply with the contract and more importance to the fact that the Defendant would be paid eventually and that there was no evidence that the delay would cause serious damage. I have considered whether, since the decision requires the balancing of various factors, I should treat the Judge’s assessment as legitimate even if I might myself have reached the opposite conclusion; but after careful reflection I still think that the factors to which I attach importance are such that his decision should indeed be regarded as wrong.

Per Floyd LJ with whom Arden LJ agreed:

53. Whether a breach or threatened breach does give rise to a right to terminate involves a multi-factorial assessment involving the nature of the contract and the relationship it creates, the nature of the term, the kind and degree of the breach and the consequences of the breach for the injured party.

54. The judge held at paragraph 29 of his judgment that it "would and should have been entirely obvious to the defendant that … the defendant would receive everything to which he was entitled, albeit some of it late". He went on to say that the claimant’s letter of 21 September 2010 represented an assurance to the defendant of satisfaction of his due entitlements arising from the PCT contract. His conclusion that the Claimant had not acted in renunciation or repudiation of the facilities contract was, he said, plain on the facts.

55. The nature of the relationship in the present case was an essentially commercial one, and thus very different from an employment contract. The payment from the Claimant was not the only source of income of the Defendant or the DSDP. Apart from the size of the ultimate indebtedness which would be built up before a final reconciliation was possible, Mr Clegg did not draw our attention to any consequences that the non-payment would have on the Defendant. It is true that the Defendant complained of the fact that he was continuing to pay the outgoings on the practice, but that was not something which I would necessarily infer was causing the Defendant significant harm.

56. The absence of any evidence about the consequences for the Defendant of the late payments from the Claimant may be explained by his insistence that the term as to time of payment was a condition, such that any breach entitled him to terminate the contract, whatever its consequences. Be that as it may, if the Defendant wished to establish that it involved serious consequences for him and his practice, the burden fell on him to establish it. It is clear that the judge considered that he had failed to do so.

57. The judge was better placed than we are to evaluate the impact of the Claimant’s breach and threatened further breaches on the Defendant, and weigh the other factors relevant to an assessment of whether the Claimant’s breach went to the root of the contract. For my part I would not disturb the judge’s conclusions that the Claimant was not in repudiatory breach of contract, and that the Defendant’s action in excluding the Claimant from the practice was wrongful.

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