The doctrine of repudiation – when deals go bad

Contracting in business can get complicated, particularly if one party appears unwilling or unable to hold up their side of the bargain.   The common law doctrine of repudiation is one basis for terminating a contract and seeking appropriate damages for the other party’s ‘repudiatory’ conduct.

So just what is is repudiation?

In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd  [2007] HCA 61  (Koompahtoo) [44] Gleeson CJ, Gummow, Heydon & Crennan JJ set out the test for repudiation as:

“… 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.” [Emphasis added]

Professor John Carter in Contract Law of Australia, 6^th ed 2013 [697] notes that it is not necessary to prove that the promisor is in fact unable to perform their obligation(s) in order to terminate for repudiation, however, the unwillingness or inability to perform their obligations must be sufficiently serious that:

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

Carter provides that an anticipatory breach occurs “…if a repudiation and exercise of right of termination take place prior to the time appointed for performance by the promisor.” [Emphasis added]

How is repudiation proven?

Repudiation can be proven by:

• words or conduct that amount to an express or implied refusal to perform; or
• words or conduct showing the promisor’s inability to perform the whole contract or a fundamental obligation under it.
• Example circumstances that may be held as repudiation Assertion of incorrect view of contract’s construction – in DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12, it was held that the repeated assertion by a party to the contract of an incorrect view of the contract’s construction after the other party had given a clear explanation of the correct view was in fact repudiation of the contract.
• Wrongful termination – wrongful termination will ordinarily be held as a repudiation of the contract.^[1] However, there are exceptions, such as if the termination was due to a bona fide representation in the contract, it will most likely not be held as repudiation.^[2]

Ambiguity of application of doctrine of repudiation

In the recent case of Tonner v Delaporte [2018] WASCA 115 (Tonner) the trial judge concluded that the respondent had repudiated the contract.  However, the Court of Appeal Judges determined there was no repudiation, despite applying the same case law and prinicples of repudiation to the facts. They held that the parties had abandoned the contract, due to there being a twenty (20) month period where there was no performance or expectation of performance of the contract obligations by either party.  The trial judge had awarded damages to the applicant for the reduction in sale price to a subsequent buyer due to the respondent’s repudiation, whereas the Court of Appeal found that the applicant owed the respondent their $100,000 term deposit.

Damages

In order to sue for damages based on repudiation, the promisee must terminate the contract to accept the repudiation.  If the promisee elects to continue the contract despite the repudiatory conduct, they will lose the right to terminate for that particular conduct, but will still be entitled to sue for damages and may terminate for further repudiation.

Takeaways

• Terminating a contract because of repudiation can be risky, particularly in relation to anticipatory breaches. If repudiation is not established there is a risk the terminating party will in fact be repudiating the contract by its actions. Careful consideration of the facts should be obtained before electing to terminate a contract because the other side has repudiated.
• The case of Tonner highlights that whether or not there has been repudiation will turn on the specific circumstances of each case.

Links and further references

Cases

Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd  [2007] HCA 61

Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21

Tonner v Delaporte [2018] WASCA 115

Wimpey Construction (UK) Ltd [1980] 1 WLR 227

Further information about the doctrine of repudiation

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Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21.

[2] Wimpey Construction (UK) Ltd [1980] 1 WLR 227.

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