UK: Court Of Appeal Clarifies And Restates Test For Repudiatory Breach Of Contract

Last Updated: 22 February 2011
Article by Elliot Woodruff and Chris Ward

Eminence Property Developments Ltd v Kevin Christopher Heaney [2010] EWCA Civ 1168

Is a party, who served a notice to complete making the time for completion of the essence of the sale contract, and then, mistakenly, treated the contract as at an end prior to the expiry of that notice itself in repudiatory breach thereby entitling the other party to terminate the contract? The English Court of Appeal in Eminence Property Developments Ltd v Kevin Christopher Heaney has decided that it is not. By holding that an innocent mistake made by a party in its grounds for declaring the sale contracts to be at an end was not a repudiatory breach of contract because it did not demonstrate a clear intention by that party to abandon the contracts and/or refuse altogether to perform them, the Court of Appeal has brought some comfort to those of us who find the whole area of repudiatory breach of contract a potential minefield.

Background to the dispute

The dispute in Eminence arose out of a set of contracts for the sale and purchase of property made between the owner of an apartment block in Bristol (Eminence) and a property developer (Mr. Heaney). While the contractual completion date was not in dispute, the contract provided that time was not of the essence until a notice to complete had been served by one of the parties. Following the conclusion of the contracts the UK property market suffered a severe downturn, as a result of which, by December 2008 Mr. Heaney was having difficulty raising the capital to complete the purchase. Unsurprisingly, he entered negotiations with Eminence to try and obtain a lower purchase price. No agreement was ever reached and the day after the contractual completion date had passed, Eminence's solicitors served notices to complete on Mr. Heaney's solicitors. However, in drafting the notices they made a "human error" and incorrectly calculated the final date for completion, stating that it was 15 December when, in fact, it should have been 19 December 2008. Mr. Heaney took no steps to complete.

On 17 December, Eminence's solicitors served notices of rescission in respect of each contract on Mr. Heaney and sought to exercise its termination rights under the contract, including claiming damages and retaining the deposits. On 18 December, Mr. Heaney's solicitors wrote back, alleging that Eminence (as vendor)'s act of rescinding the contracts constituted a repudiatory breach of contract which was consequently accepted by Mr. Heaney, who then elected to rescind the contracts to consider himself discharged from all obligations under the contracts.

At first instance, the judge found that the notices of rescission sent on 17 December 2008 constituted a repudiatory breach of contract and that the covering letter of 17 December 2008 accompanying the notices of rescission showed a clear refusal by Eminence to perform its future obligations that went to the very root of the contract. Eminence appealed.

The Court of Appeal

The Court of Appeal allowed Eminence's appeal, holding that the notices of rescission did not constitute a repudiatory breach of the contract. In handing down judgment, Lord Justice Etherton helpfully set out the basic underlying principles for repudiatory breach from the existing case law. These are:

1. The legal test for repudiatory breach is whether, looking at all the circumstances objectively from the perspective of a reasonable person standing in the position of the innocent party, the contract breaker has shown an intention to abandon and altogether refuse to perform the contract or to deprive the innocent party of a substantial part of the benefit to which he/she is entitled under the contract.

2. The question of whether there has been a repudiatory breach is highly fact sensitive and comparison with other cases is of limited value. Etherton LJ therefore distinguished the case from the decision of the House of Lords in The Nanfri [1979] AC 757. The Nanfri was a shipping case in which charterers made deductions from hire that owners did not accept were permissible. The owners instructed the master not to sign any freight pre-paid bills of lading and withdrew the authority of charterers and their agents to do so. The House of Lords held that charterers had been entitled to make the relevant deductions from hire and that by their conduct the owners had repudiated the charters, which repudiation the charterers had accepted. Etherton LJ observed that the innocent mistake of the vendor in Eminence could not be compared with owners' "cynical and manipulative conduct" in The Nanfri. Owners' conduct in the Nanfri was such as to lead the charterers reasonably to believe that the owners would issue similar orders again in the future whenever they wished to force the charterers to comply with their demands in similar circumstances. On the other hand, in the present case, Eminence was willing and able to complete. Furthermore, Mr. Heaney's solicitors knew, and a reasonable person would have realised, that Eminence's solicitors had made something that was analogous to a clerical error. Objectively, the mistake was "screamingly obvious" and had it been pointed out to them, Eminence's solicitors would have conceded the mistake. Instead, Mr. Heaney's solicitors chose to do nothing but wait for the opportunity to "fortuitously extricate" their client from a bad bargain.

3. All the circumstances must be taken into account insofar as they bear on any objective assessment of the intention of the contract breaker. Thus (as Lord Wilberforce had observed in Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277), subjective intention is not necessarily decisive. It may supply a motive but it does not remove the requirement to test whether, on an objective basis, the conduct showed an intention to abandon the contract.

4. Therefore, the application of the legal test to the facts of a particular case may not always be easy to apply (as was demonstrated by the divergent interpretations advanced by their Lordships in Woodar itself).

On the particular facts of the case before him, Etherton LJ added that the first instance judge had erred in focusing solely on the rescission notices issued by Eminence. He held that all the circumstances must be taken into account insofar as they bear on an objective assessment of the contract breaker. While the contract breaker's motive might be irrelevant if relied upon solely to show his intention, it may be relevant if it reflects something that the innocent party ought reasonably to have been aware of and throws light on the way the alleged repudiatory breach ought to be viewed. In this case, the economic reality was that the downturn in the property market had made it highly advantageous for the vendor and commensurately onerous to the buyer to perform their respective contractual obligations. Therefore, it was impossible on the facts clearly to find any intention on the part of the Vendor to abandon and refuse to perform the contracts.

Furthermore, Etherton LJ pointed out that the notices of rescission were stated to be served in accordance with the terms of the contracts and purported to exercise the vendor's remedies under those contracts. Far from seeking to repudiate the contracts, therefore, Eminence was intending to implement the contractual procedure for terminating the contracts and exercising the remedies specified in the contracts. The fact that their service was inconsistent with those contracts because it was premature did not mean that Eminence was evincing an intention to abandon and refuse to perform the contracts.

Comment

Advising a client or colleague on whether or not a counterpart's actions can be treated as repudiatory and sufficient to entitle the contract to be terminated must rank as one of the most stressful and nerve-wracking aspects of commercial practice. A wrong decision could see yourself, your company or your client on the receiving end of a claim for damages for repudiatory breach of contract from the purported contract breaker. This was the situation that Eminence and its solicitors found themselves in.

Any case that sets out the circumstances that may give rise to repudiatory breach is therefore to be welcomed. Elation should however be tempered because the down side of finding that such cases must be considered on their individual facts and with regard to their particular circumstances is that the test cannot be reduced to a simple "tick box" exercise.

Nevertheless, Lord Justice Etherton's observations still come as a helpful restatement of the factors that need to be taken into account when analysing whether or not a particular action by a contractual counterpart amounts to a repudiatory breach. It is a particularly helpful guide to interpretation given the controversial majority decision of the House of Lords in Woodar. Contracting parties everywhere can draw some comfort that innocent mistakes will not automatically give rise to a finding of repudiatory breach. That said, there is considerable ground between the "screamingly obvious" mistake in Eminence and "cynical manipulation" in Nanfri – and thus plenty of scope for future legal argument. Indeed, such troubles were flagged up in Woodar itself. In his dissenting judgment, Lord Salmon observed that where a mistake is alleged to be honest, but not acknowledged to be so (especially where the market price had moved, making it onerous for the "mistaken" party to perform) it could be very difficult to prove that such a "mistake" was dishonest. Eminence's mistake was obvious. Future mistakes may not be. Lord Salmon's misgivings survive for another day and another "mistaken" counterparty.

Therefore, any party seeking to terminate a contract should continue to exercise extreme caution in the way it does so and that it seeks legal advice before taking any steps that may in due course prove prejudicial.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.