Commercial law

What is Repudiation of a Contract?

Repudiation of a contract occurs when one party to the contract demonstrates that it is unwilling or unable to fulfill its obligations under that contract. Repudiation of a contract is viewed by courts as a serious matter and as such requires a clear intention to no longer be bound by the terms of the contract.

Repudiation of a contract often occurs prior to any actual breach of any contractual obligations and as such is also sometimes referred to as ‘anticipatory breach’.

There are many forms of conduct that may amount to repudiation of a contract.

The two most common forms of repudiatory conduct are:

1. Where a party renounces a contract and/or demonstrates a clear intention not to be bound by its obligations under the contract;
2. Where a party’s actions (or failure to act) prevent it from performing its obligations under a contract to such an extent that it would be impossible for it to meet its obligations under the contract. The party seeking to claim repudiation must prove that this conduct has rendered performance of the contract impossible in order to demonstrate a repudiatory breach.

What should I do if a Contract is Repudiated?

If the other party to a contract repudiates the contract, you may:

1. Continue on with the contract; or
2. Elect to accept the other party’s repudiation and terminate the contract. After acceptance of termination has been communicated to the repudiating party, the innocent party may consider whether they have a cause of action to obtain damages.

It is important to note that repudiation does not of itself end a contract, it merely allows the non-repudiating party to terminate the contract.

Whichever option you elect to choose, it is crucial that your conduct is in accordance with the option you have elected. This means that if you elect to continue on with the contract, you must continue to fulfill your contractual obligations. Conversely, if you elect to terminate the contract for repudiation, you must clearly communicate this to the other side and continue to act as though the contract has been terminated.

It is also important to note that claiming to terminate the contract for repudiation where there is insufficient evidence of repudiatory conduct could leave you exposed to a claim that you have repudiated the contract. For this reason, it is important that you seek legal advice before doing so.

What Happens if I Repudiate a Contract?

If you have already repudiated a contract and you wish to continue with the contract, the best way to do so is to clearly and unequivocally communicate this to the innocent party. You may do so by telling the other party (in writing) that you are ready, willing, and able to perform the contract.

Please note that this remedy is only available where the other side has not yet communicated that they have elected to accept your repudiation and have terminated the contract.

How is Repudiation Proven?

The test to prove repudiation of a contract is an objective test that will be determined on the facts of each case.

The High Court has stated that the test for repudiation “is to be found in the conduct, whether verbal or other, of the party in default which conveys to the other party the defaulting party’s inability to perform the contract or promise or his intention not to perform it or to fulfil it only in a manner substantially inconsistent with his obligations and not in any other way.”

What are some unfair examples of Contract Repudiation?

• Where one party has expressly stated its inability or unwillingness to perform is obligations under a contract;
• Where a purchaser under a contract of sale of a specific property may conclude that the seller has repudiated the contract where the seller disposes of the property to a third party before the date of sale under the contract; and
• Sustained, continued breaches of a contract, which individually may not amount to repudiatory conduct, but taken together, amount to a fundamental breach of the contract to such an extent that the conduct demonstrates a clear intention not to be bound by the terms of the contract.

How Rosendorff Can Help

The friendly team at Rosendorff Lawyers can assist you with all manner of contract repudiation issues, whether you believe that another party has repudiated their contract with you or whether you are unable/unwilling to perform your contractual obligations. Contact us today for a free consultation. Whether you need a property lawyer or commercial lawyer, Rosendorff can help.

References

 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623.