The recent case of Telford Homes (Creekside) Ltd v Ampurius Nu Homes Holdings considered how serious a breach of contract needs to be before it can be accepted as a repudiatory breach of contract.
The Court of Appeal identified the factors that need to be considered when making that assessment.
What is a Repudiatory Breach
A repudiatory breach of contract entitles the aggrieved party to treat itself as discharged from further obligations under the contract. It does not automatically terminate the contract but that party can elect to either:
. accept the repudiation and terminate the contract or,
. affirm the contract - which keeps the contract alive.
In either case, the aggrieved party should have an action in damages for breach of contract. Termination of the contract is done by giving notice to the other party and must be clearly communicated. It is important that any notice given is clear and unambiguous and the party giving the notice must not wait too long or it risks losing the right to terminate.
In contrast, an affirmation can be implied where the aggrieved party does something to indicate it intends to continue with the contract notwithstanding the breach. Affirmation can only take place if the aggrieved party is aware of the breach.
In 2008 Telford Homes (Creekside) Ltd - the landlord - entered into an agreement for lease for a 999 year lease of commercial units. The contract required the landlord to develop four blocks comprising residential flats and commercial units. Completion was to take place in two phases. The landlord agreed to use reasonable endeavours to meet the target dates for the respective blocks and to use due diligence in the construction of the development.
The target date for Blocks C and D was 21 July 2010 and for A and B, 28 February 2011.
Work on Blocks A and B was suspended in June 2009 due to funding difficulties. The work was resumed in April 2010.
On 20 October 2010 the tenant sought to terminate the agreement on the basis of a repudiatory breach arising from the landlord's delay in carrying out the works. The tenant did not know that the landlord's works had resumed.
Blocks C and D were completed behind schedule in January and April 2011 respectively. Practical completion for Block A was effectively achieved on 1 May 2012 and on 20 February 2012 for Block B.
Court of Appeal Decision
The landlord appealed against a High Court decision that its breach of contract in delaying the works amounted to a repudiatory breach. It did not argue that it was not in breach of contract, but that the breaches were not sufficiently serious to entitle the tenant to terminate the contract.
The Court of Appeal unanimously accepted the landlord's appeal. In making its decision, the court set out three important principles which arose from one of the key legal authorities in the area:
. the court must take account of the seriousness and character of the breach at the time of the purported termination of the contract and not at the date of the breach itself
. in looking at the position at the date of the purported termination, the court must take into account any steps taken by the "guilty" party to remedy the accrued breaches of contract
. the court must take account of likely future events, judged by reference to objective facts as at the date of the purported termination
The court found that the delay to the development had not caused the tenant any loss since market values had not decreased over the time frame and any future losses were not of a scale or magnitude sufficient to characterise it as repudiatory.
The delay of marginally over 12 months in the context of a 999 year lease did not deprive the tenant of a substantial part of the benefit of the contract. The landlord had made it clear, throughout the period of suspension that it had every intention of performing the contract and completing the development.
The tenant did not serve notice to terminate the contract until 22 October 2009, by which time work on Blocks A and B had been resumed. The uncertainty as to the lapse in the works was ended and there was no repudiatory breach then existing.
. The Telford decision has set out criteria which should be considered when deciding whether or not there has been a repudiatory breach of contract
. The case illustrates that it is important to have regard to all circumstances when deciding whether or not a breach is repudiatory - including the conduct of the breaching party between the date of the breach and the date on which the notice of termination is to be served
. The test for repudiatory breach remains difficult to assess but an aggrieved party should take care before alleging that there has been a repudiation - in the Telford case the tenant sought to terminate the contract at a time when there was no repudiatory breach available for acceptance
. At the point of negotiating a contract, parties should address any key aspects of performance so that provision can be made to document when termination will be permitted and the financial impact of that termination