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.


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.

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