A repudiatory breach of contract occurs when one party refuses to perform its contractual obligations in a manner that goes to the root of the contract. It entitles the injured party to terminate the contractual relationship with immediate effect and to sue for damages.
However, identifying whether a breach is repudiatory is not always easy and termination of a contract in reliance on a breach creates its own risks. If the court were to decide that the breach was not repudiatory, the wrongful termination of the contract would itself constitute a repudiatory breach of the parties’ agreement. In such circumstances, the original contract breaker can elect to accept the repudiation and seek damages for breach of contract.
A repudiatory breach of contract occurs when one party refuses to perform its contractual obligations in a manner that goes to the root of the contract. It entitles the injured party to terminate the contractual relationship with immediate effect and to sue for damages.
However, identifying whether a breach is repudiatory is not always easy and termination of a contract in reliance on a breach creates its own risks. If the court were to decide that the breach was not repudiatory, the wrongful termination of the contract would itself constitute a repudiatory breach of the parties’ agreement. In such circumstances, the original contract breaker can elect to accept the repudiation and seek damages for breach of contract.
The issue in Hooper v Oates [2010] EWCA Civ 1346; [2010] PLSCS 301 was whether a seller who served a notice making time of the essence of the completion of a contract, and then mistakenly treated the contract as having ended on the day before the notice to complete had expired, had repudiated his agreement with the buyer. If so, the buyer was entitled to walk away from his obligation to complete the purchase and to demand the return of the deposit paid on exchange of contracts.
The point that arose was almost identical to the point that was decided in Eminence Property Developments Ltd v Heaney [2010] EWCA Civ 1168; [2010] 43 EG 99 (CS) and the buyer’s attempts to distinguish the decision were unsuccessful. The court ruled that it was clear from the correspondence that the seller had miscalculated the expiry date of the notice to complete. It also accepted that the seller would have abandoned the notice of rescission had the error been drawn to his attention and would have transferred the property to the buyer had he been ready, able and willing to perform his part of the bargain.
In reality, therefore, completion did not occur because of the buyer’s conduct – and not as a result of the seller’s refusal to honour his contractual commitments. Consequently, the seller was entitled to rescind the contract and forfeit the buyer’s deposit.
The litigation highlights the importance of taking into account all the relevant conditions of sale when serving notices in respect of contracts for the sale of land. Where notice to complete is served under the standard conditions of sale or the standard commercial property conditions, the recipient must complete the transaction within 10 working days of the service of the notice (excluding the day on which the notice is given). In this case, the miscalculation appears to have occurred because the seller overlooked a provision in the standard conditions of sale that had the effect of deeming that the faxed notice to complete, which was sent at 4.02pm, was not served until the following day. Consequently, the notice of rescission was served a day too soon.
Where time permits, parties would be well advised to add a couple of days to notice periods and to allow the full period of a notice to complete to elapse before serving a notice of rescission.
Allyson Colby is a property law consultant
