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When is a breach repudiatory?

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08/10/2013

The background to the case

In October 2007, Ampurius and Telford entered into a contract for the development of property on a site in south London. The contract included clauses requiring Telford to ensure the work was carried out with “due diligence” and that Telford would use “reasonable endeavours to procure” that the work was completed by the target dates or as soon as reasonably possible thereafter.

Set against the backdrop of the “credit crunch” and collapse of the property market, in March 2009 Telford put part of the development on hold. In October 2010 – just after Telford had recommenced work – Ampurius sought to end the contract on the basis that the cessation of work amounted to a repudiatory breach (i.e. a breach which entitles the aggrieved party to terminate the contract and sue for damages).

The High Court agreed that there had been a repudiatory breach. Telford appealed.

Court of Appeal judgment

The Court of Appeal [1] reviewed the leading authorities on the test for repudiatory breach and that the test was whether the breach deprived the injured party of substantially the whole of the benefit of the contract. However, the court went further and stated that there was also authority for the test being whether the innocent party was deprived of a “substantial part of the benefit”, as opposed to substantially the whole benefit. The court said that, in practice, these were merely different applications of the same test.

The court said that, irrespective of the precise wording for the test for repudiation, the court should consider:

  • what benefit the injured party was intended to obtain from the performance of the contract
  • the effect of the breach on the injured party, including:
    • its financial losso how much of the intended benefit under the contract it had already received
    • whether it could be adequately compensated by an award of damages
    • whether the breach was likely to be repeated
    • whether the guilty party was going to resume compliance with its contractual obligations
    • whether the breach had fundamentally changed the value of future performance of the guilty party’s outstanding obligations.

In the context of the contract in issue, the breach was not repudiatory. In particular, the delay had caused Ampurius little, if any, loss.

Date of assessment of breach

The court stated that it should look at the position on the date of purported termination of the contract, even in the case of an actual, as opposed to, an anticipatory breach. In doing so, the court must take into account any steps taken by the guilty party to remedy accrued breaches of contract and the court must also take into account likely future events, judged by reference to objective facts as they stood on the date of purported termination.

This aspect of the Court of Appeal’s decision is particularly noteworthy. The court has effectively said that it is possible to cure an actual breach; previous authority suggested that only an anticipatory breach could be cured. More precisely, it seems that a cure can be relevant to determining whether or not a breach was repudiatory in the first place.

Points to consider

The decision is also noteworthy for showing how high the bar is in order to establish the existence of a repudiatory breach. Innocent parties should think twice before accepting what they perceive to be a repudiation – it may very well not be and they may end up finding themselves the party in repudiatory breach.

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[1] Telford Homes (Creekside) Ltd v Ampurius Nu Homes Holdings [2013] EWCA Civ 577

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