scl_d173_termination - the pitfalls-robb+connors+hennessey_oct14

TERMINATION: THE PITFALLS

A paper presented to the Society of Construction Law at meetings in Southampton on

27th November 2013, Birmingham on 2nd April and Leeds on 11th September 2014

Adam Robb, Jess Connors and Patrick Hennessey

October 2014

D173

www.scl.org.uk

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TERMINATION:

THE PITFALLS

Adam Robb, Jess Connors

and Patrick Hennessey

A INTRODUCTION

1. Termination why is it important?

1. Termination disputes are often very bitter, expensive and hard fought.

They usually arise when there has been a complete breakdown in

relationship between the employer and the contractor. If the party who

believes that it is entitled to terminate the contract gets it wrong, it is

very likely that its conduct will be regarded as repudiatory and the other

party will be entitled to accept that breach and claim damages.

2. In addition, the swing between winning and losing a termination dispute can be very significant. There will nearly always be a

counterclaim. If the employer wins, it will generally be entitled to

recover the additional cost of completion, which is often very

substantial. If the contractor wins, then it will generally be entitled to

recover losses, including loss of profit or margin.

3. There is another reason why termination disputes can be hard fought. In

many cases, in the run up to a decision to terminate, one or both parties

will have been taking legal advice. The party which is considering

whether to seek to terminate a contract may well take legal advice not

only as to whether it has the right but also how to frame the notices

which are often required before the contract can be terminated.

Inevitably, that advice is usually given against a tight timetable and

incomplete information. It is often those same legal advisers who will

be conducting the subsequent dispute.

2. Other means by which a contract can come to an end

4. Contracts can come to an end in a number of ways:

4.1. Completed performance;

4.2. Frustration;

4.3. By agreement;

4.4. Termination under the contract before completion of performance:

(1) Termination for convenience;

(2) Termination for cause;

4.5. Discharge by breach at common law.

5. This paper does not consider completed performance, frustration,

termination by agreement or termination for convenience.

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B. TERMINATION OF A CONTRACT FOR FAULT

AT COMMON LAW

1. The basic rules

6. As a matter of common law, one party to a contract may, by reason of

the others breach, be entitled to treat itself as discharged from its liability further to perform its own unperformed obligations under the

contract and from its obligation to accept performance by the other party

if made or tendered.1

7. Although all breaches of contract give rise to a right to damages, not all

breaches of contract give rise to a right in the innocent party to treat

itself as discharged from further performance or acceptance. The

innocent party must show that the breach of contract by the defaulting

party gives rise to that right, in other words that the guilty party is in

repudiatory breach of contract.

8. Contractual terms are traditionally divided into conditions and warranties.

9. Where a term of the contract is a condition, any breach of that term will entitle the innocent party to treat the contract as at an end. Where a

term of the contract is a warranty, a breach by the defaulting party only entitles the innocent party to claim damages.

10. However, there is a third category of contractual term, the intermediate or innominate terms.2 In construction contracts, most terms are considered to be innominate terms.

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11. Where the term is an intermediate or innominate term, breach will only

entitle the innocent party to treat the contract as repudiated if the

defaulting partys breach is sufficiently serious so that the innocent party is deprived of substantially the whole benefit which it was intended that

it would obtain from the contract.

12. As such, in most cases involving construction contracts, the question of

whether there has been a repudiatory breach is highly fact sensitive.

13. Where a party is entitled to and does accept a repudiatory breach of

contract, the position is that:

13.1. The contract is brought to an end;

13.2. Both parties are discharged from future performance;

13.3. Both parties retain rights which had accrued as at the date of

termination;

13.4. The innocent party is entitled to damages.

1 Hugh Beale (general ditor), Chitty on Contracts (31st edition, Sweet & Maxwell, London

2012), para 24-001.

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

[1962] 2 WLR 474, [1962] 1 All ER 474, [1961] Lloyds Rep 478 (CA). 3 Hayes (t/a Orchard Construction) v Gallant [2008] EWHC 2726 (TCC).

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14. Where a party commits a repudiatory breach of contract, the other party

may choose not to accept the repudiation, in which case the contract

remains in full force and both parties are required to continue to

perform. Such a party is often said to have affirmed the contract. Once that party has affirmed the contract, it is no longer permitted to

accept the repudiatory breach so as to bring the contract to an end. The

circumstances in which an innocent party will be taken to have elected

to have affirmed the contract will be considered below in section D,

page 86.

15. Termination for fault at common law can be divided into two categories.

16. Firstly, where a party is in breach of contract and the breach of contract

is sufficient to entitle the innocent party to treat itself as discharged.

17. Secondly, where an objective assessment of the circumstances leads to

the conclusion that a party intends not to perform its obligations when

they become due or will be unable to perform its obligations when they

become due. There may be no actual breach of contract because the

time for performance has not yet arisen and as such this type of

repudiatory breach is referred to as anticipatory breach.

2. The test for repudiatory breach of contract in respect of

innominate terms

18. In determining whether a breach of an innominate term entitles the

innocent party to terminate the contract, a test which is frequently

applied is that stated by Diplock LJ in The Hongkong Fir:

... does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole

benefit which it was the intention of the parties as expressed in the

contract that he should obtain as the consideration for performing

those undertakings.4

19. Repudiatory breach in respect of innominate terms has also been

described in the following terms:

19.1. One which goes to the root of the contract;5

19.2. The breach must affect the very substance of the contract;6

19.3. The breach must frustrate the commercial purpose of the contract.7

20. The fact that a breach was deliberate or intentional may be relevant in

assessing that intention of the defaulting party but does not of itself

necessarily render the breach repudiatory.8 Similarly, the fact that the

4 Hongkong Fir Shipping, note 2, page 66.

5 Suisse Atlantique Societe dArmement SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361; also [1966] 2 WLR 944, [1966] 2 All ER 61, [1966] 1 Lloyds Rep 529 (HL), page 442.

6 Wallis, Son and Wells v Pratt & Haynes [1910] 2 KB 1003 (CA), page 1012.

7 Trade and Transport Inc v Iino Kaiun Kaisha Ltd [1973] 1 WLR 210; also [1973] 2 All

ER 144, [1972] 2 Lloyds Rep 154 (QBD), page 223. 8 Suisse Atlantique, note 5, page 435.

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breach of contract was part of dishonest conduct on the part of the

contract breaker may well be material in determining whether the breach

was repudiatory but not does not necessarily mean that the breach will

be treated as a repudiatory breach.9

3. Renunciation/anticipatory breach

21. Particular difficulties arise when, before the time fixed for performance,

the innocent party becomes concerned that the other party does not

intend or is not able to perform its contractual obligations in a material

respect.

22. If one party clearly and expressly states that it refuses to perform its

contractual obligations, then the other party will be entitled to accept

that renunciation or anticipatory breach.

23. However, it is rare that a party will behave in such an unequivocal and

absolute fashion. As such the question is whether the defaulting partys actions or words are such as to lead a reasonable person to conclude that

it no longer intends to be bound by its provisions.

24. In relation to that question the following sub-issues arise:

24.1. Is the party evincing an intention only to perform accordance with

a wrongful interpretation of the contract?

24.2. Is the party evincing an intention only to perform if the other party

complies with certain conditions which are not required by the

contract?

24.3. Is the party evincing an intention not to perform only some of its

obligations whilst stating that it will or actually performing other

obligations?

4. Examples of repudiatory breach and/or renunciation:

disputes as to interpretation

25. It is not uncommon for the contracting parties to be in dispute as to the

proper interpretation of one partys obligations. As is set out below, the question of whether a partys insistence upon its interpretation of the contract, which is subsequently determined to be wrong, can amount to

repudiatory breach of contract is highly fact sensitive.

The Nanfri

26. We start with The Nanfri, in which the House of Lords held that it is no

defence to a party who has repudiated a contract to say that he acted in

good faith under a mistaken understanding of the law.10

27. The Nanfri concerned time charters by which ships were let for periods

of about six years. Most of the cargoes were carried on cif terms, the

shippers paying the freight in advance and receiving freight pre-paid

9 Tullett Prebon Plc v BGC Brokers LP [2011] EWCA Civ 131.

10 Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1979] AC

757; also [1978] 3 WLR 991, [1979] 1 All ER 307, [1979] 1 Lloyds Rep 201 (HL).

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bills of lading. The charters provided for the payment of hire twice

monthly in advance; the owners to have the right to withdraw the vessel

in default of payment.

28. The charters also contained provision for permissible deductions from

hire; and stipulated that the masters were to be under the orders of the

charterers as regards employment, agency or other arrangements.

Accordingly, the bills of lading were issued and signed by the charterers

on behalf of the master and freight was paid to the charterers or their

agents.

29. The charterers made deductions from hire which the owners did not

accept were permissible. The owners informed the charterers that the

authority of the charterers or their agents to sign any bill of lading was

being withdrawn. The owners also instructed the masters not to sign any

bill of lading endorsed freight pre-paid or not bearing an indorsement incorporating a lien in favour of the owners on all cargoes and sub-

freights belonging to the charterers and any bill of lading freight.

30. If the order to the masters had been implemented, it would have had

disastrous consequences for the charterers. The charterers treated the

totality of the owners conduct as a repudiation of the charters, which they accepted.

31. On a case stated in respect of each ship from arbitrators, it was held by

the Court of Appeal and the House of Lords that the charterers were

entitled to make the deductions, and that the owners had by their conduct

repudiated the charters, which repudiation had been accepted by the

charterers.

32. The owners argued that their conduct was not repudiatory because they

had acted on the advice of their lawyers in New York and London, and

they were under an honest misapprehension as to their rights.11

33. In the Court of Appeal, Lord Denning, rejecting that argument said:

I have yet to learn that a party who breaks a contract can excuse himself by saying that he did it on the advice of his lawyers: or

that he was under an honest misapprehension. Nor can he excuse

himself on those grounds from the consequences of a repudiation.

In those three cases the conduct of the party concerned was

entirely innocent. It did not evince any intention to break his

contractual obligations. I would go by the principle as I have

always understood it that if the partys [conduct] objectively considered in its impact on the other party is such as to evince an intention no longer to be bound by his contractual obligations, then

it is open to the other party to accept his repudiation and treat the

contract as discharged from that time onwards. A most important

point here is that the conduct of the owner was such as to lead the

charterers reasonably to believe that the owners would issue such

orders again in the future whenever they, the owners, wished to

11 They relied on James Shaffer Ltd v Findlay Durham & Brodie [1953] 1 WLR 106 (CA),

Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699(CA) and Ross T

Smyth & Co Ltd v TD Bailey, Son & Co [1940] 3 All ER 60 (HL).

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force the charterers to comply with the owners demands in similar circumstances. In short, the owners were determined to give

orders to the masters in flat contradiction of the charterparty time and time again so long as the contract continued so as to

enforce their demand that hire should be paid in full without any

deductions unless the owners agreed. To my mind such conduct

amounted to a repudiation of the contract ...12

34. Goff LJ emphasised the need for an objective assessment. He said:

The question is not what the owners wanted or wished in the recesses of their minds, but did they by their conduct evince an

intention no longer to be bound by the contract or to perform it

only in a way inconsistent with their obligations under the

charter?13

35. Goff LJ quoted the following findings of fact by the arbitrators, which

he described as entirely destructive of the owners case:

The issuing of the order of October 4, 1977, was not to secure their claim for disputed deductions (the offer for an escrow deposit

having been rejected by owners as meritless) but rather to compel the charterers to pay over all sums deducted from hire by

the charterers which the owners disputed, irrespective of whether

such deductions should ultimately be determined to be valid or

invalid, in whole or in part, and to ensure that in the future the

charterers made no deductions whatever from hire unless they had

previously been expressly approved by the owners or they were

supported by vouchers signed by the master or a proper tribunal

had pronounced on their validity. At the same time, the owners

knew that part of the amounts, payment of which they were

demanding as a condition of the withdrawal of their orders, were

due to the charterers.14

36. He concluded that:

... the irresistible inference is that they were saying, We will only perform the contract upon our terms and not on yours and, as Lord Denning MR has said, they were holding a pistol to the heads

of the charterers and we have the finding as to their true purpose

which I have read from the award.15

37. On appeal to the House of Lords Lord Wilberforce described the law in

this area as perspicuous. He said the following:

Was this breach, or threatened breach, repudiatory or not? I shall not set out at any length the numerous authorities on anticipatory

breach: this is one of the more perspicuous branches of the law of

contract and the modern position is clear. The form of the critical

12 Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1978] QB

927; also [1978] 3 WLR 309, [1978] 3 All ER 1066, [1978] 2 Lloyds Rep 132 (CA), pages 979E 980A.

13 The Nanfri, note 12, page 991D.

14 The Nanfri, note 12, page 991E.

15 The Nanfri, note 12, page 992E.

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question may differ slightly as it is put in relation to varying

situations:

... an intimation of an intention to abandon and altogether to refuse performance of the contract or evince an intention no longer to be bound by the contract (Freeth v Burr ... per Lord Coleridge CJ I do not say that it is necessary to show that the party alleged to have repudiated should have an

actual intention not to fulfil the contract. He may intend in

fact to fulfil it, but may be determined to do so only in a

manner substantially inconsistent with his obligations, and

not in any other way (Ross T Smyth & Co Ltd v T D Bailey, Son & Co ... per Lord Wright) such as to deprive the charterers of substantially the whole benefit which it was the

intention of the parties ... that the charterers should obtain

from the further performance of their own contractual

undertakings (Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd ... per Diplock L.J.). To constitute repudiation, the threatened breach must be such as to deprive

the injured party of a substantial part of the benefit to which

he is entitled under the contract. ... Will the consequences of

the breach be such that it would be unfair to the injured party

to hold him to the contract and leave him to his remedy in

damages ...? (Decro-Wall International SA v Practitioners in Marketing Ltd ... per Buckley LJ).

The difference in expression between these two last formulations

does not, in my opinion, reflect a divergence of principle, but

arises from and is related to the particular contract under

consideration: they represent, in other words, applications to

different contracts, of the common principle that, to amount to

repudiation a breach must go to the root of the contract.16

38. Lord Wilberforce, like the Court of Appeal, dismissed as irrelevant any

subjective intention or desire of the party in breach not to abandon the

contract. He said:

It is thirdly irrelevant that it was in the owners real interest to continue the charters rather than to put an end to them. If a partys conduct is such as to amount to a threatened repudiatory breach,

his subjective desire to maintain the contract cannot prevent the

other party from drawing the consequences of his actions. The

two cases relied on by the appellants (James Shaffer Ltd v Findlay

Durham & Brodie ... and Sweet & Maxwell Ltd v Universal News

Services Ltd ...) do not support a contrary proposition, and would

only be relevant here if the owners action had been confined to asserting their own view possibly erroneous as to the effect of the contract. They went, in fact, far beyond this when they

threatened a breach of the contract with serious consequences.17

16 The Nanfri, note 10, pages 778F-779C.

17 The Nanfri, note 10, page 780E-F.

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39. So far, so clear. However, as we shall in the next case, although the

principles may be clear, their application is highly fact dependent.

Woodar v Wimpey

40. The next case, Woodar v Wimpey, is often relied upon by the defaulting

party in support of an argument that insistence on an erroneous

interpretation does not constitute a repudiatory breach.18

41. The appellant was the purchaser under a contract of sale and the

respondent was the vendor. The contract contained a term which

entitled to the appellants to rescind the contract in certain defined

circumstances. The appellants considered that those circumstances had

arisen and purported to rescind the contract. The respondents contended

that the circumstances under which the appellants were entitled to

rescind the contract had not arisen and the judge at first instance agreed.

The appellants did not dispute this finding but appealed against the

finding that in issuing the relevant notice they were in repudiatory

breach of contract.

42. There were three key findings of fact:

42.1. The possibility of the appellants serving a notice of rescission was

discussed at a meeting between the appellants and the respondents.

It was found that at that meeting the respondents had stated that if

the appellants attempted to rescind the contract then the

respondents would go to court and let the judge decide whether the contract could be rescinded as claimed by the appellants.

42.2. The appellants stated that the notice was protective and the

respondents stated that they would not consider the notice to be a

hostile act;

42.3. The correspondence between the parties following the issue of the

notice indicated that both sides would simply await the decision of

the court and abide by such decision.

43. In these circumstances, the House of Lords, by a majority, held that

there was no intention to abandon and to refuse performance of the

contract, even though the notice of rescission was found to be invalid.

44. Lord Wilberforce said:

In my opinion therefore the appellants are entitled to succeed on the repudiation issue, and I would only add that it would be a

regrettable development of the law of contract to hold that a party

who bona fide relies upon an express stipulation in a contract in

order to rescind or terminate a contract should, by that fact alone,

be treated as having repudiated his contractual obligations if he

turns out to be mistaken as to his rights. Repudiation is a drastic

conclusion which should only be held to arise in clear cases of a

refusal, in a matter going to the root of the contract, to perform

contractual obligations. To uphold the respondents contentions in

18 Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR

277; also [1980] 1 All ER 571 (HL).

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this case would represent an undesirable extension of this

doctrine.19

Chilean Nitrates Sales v Marine Transportation

45. In Chilean Nitrate Sales v Marine Transportation Donaldson LJ, giving

the judgment of the court, said that the following propositions could be

taken from Woodar and elsewhere:

(a) Dissolution of a contract upon the basis of renunciation is a drastic conclusion which should only be held to arise in clear

cases of a refusal to perform contractual obligations in a

respect or respects going to the root of the contract.

(b) The refusal must not only be clear, but must be absolute.

Where a party declares his intention to act or refrain from

acting in a particular way on the basis of a particular

appreciation of his obligations, either as a matter of fact or of

law, the declaration gives rise to a right of dissolution only if

in all the circumstances it is clear that it is not conditional

upon his present appreciation of his obligations proving

correct when the time for performance arrives.

(c) What does or does not amount to a sufficient refusal is to be

judged in the light of whether a reasonable person in the

position of the party claiming to be freed from the contract

would regard the refusal as being clear and absolute? ...

(d) [T]he conduct relied upon is to be considered as at the time

when it is treated as terminating the contract, in the light of

the then existing circumstances. These circumstances will

include the history of the transaction or relationship. Later

events are irrelevant, save to the extent that they may point

to matters which the parties should have considered as

hypothetical possibilities at the relevant time.20

Dalkia Utilities Services v Celtech International

46. In Dalkia v Celtech one of the issues was whether the defendant,

Celtech, was in material breach of contract under which it was obliged to

pay the claimant, Dalkia, charges under agreements by which Dalkia

would construct a paper mill for Celtech and would provide electricity

and steam to the mill.21

Celtech failed to pay three instalments of the

charges and informed Dalkia that it was not within its power and cash

resources to make the payments and it was facing insolvency. Dalkia

served a notice of termination on Celtech pursuant to a contractual

provision that Dalkia had the right to terminate the principal agreement

immediately if Celtech was in material breach of its obligations to pay

the charges.

19 Woodar v Wimpey, note 18, page 283.

20 Chilean Nitrate Sales Corporation v Marine Transportation Co Ltd (The Hermosa)

[1982] 1 Lloyds Rep 570 (CA, page 572. 21 Dalkia Utilities Services Plc v Celtech International Ltd [2006] EWHC 63, [2006] 1

Lloyds Rep 599, [2006] 2 P & CR 9 (Com Crt).

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47. Although Christopher Clarke J held that Dalkia was entitled to terminate

the contract under its terms, he went on to consider whether, if he were

wrong in that conclusion, Dalkias notice of termination was a repudiation that Celtech was entitled to accept. Dalkia relied on

Woodar.22

48. Christopher Clarke J contrasted Woodar with The Nanfri23

and

distinguished Woodar on the facts as follows:

48.1. In The Nanfri, the act of repudiation consisted of an act which had

the immediate effect of substantially depriving the charterers of

virtually the whole benefit of the charter;

48.2. By contrast, the notice of termination in Woodar did not have that

or a similar consequence;

48.3. The majority in Woodar felt able to conclude that, despite the

unqualified terms of the notice, the circumstances in which it was

given did not manifest an intention to refuse further performance.

The time for performance had not yet arisen, Woodar needed to

serve a notice in order to reserve its position, and the discussions

between the parties had proceeded on the basis that the service of

the notice would not be regarded as a hostile act, and that the

entitlement or otherwise of Woodar to serve the notice would be

determined by the court, to which Woodar would apply, by whose

decision both parties would abide;

48.4. In the present case, none of these factors were present:

(1) Although Dalkias obligations were in suspense, the time for their performance had arrived and termination was a means

of bringing them to an end permanently;

(2) There were no discussions between the parties similar to those in Woodar;

(3) Dalkia relied and continued to rely on the notice as having brought the agreement to an end;

(4) There was no understanding that Dalkia would continue to perform should its interpretation prove to be wrong.

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Mayhaven Healthcare v Bothma

49. In Mayhaven Healthcare v Bothma Ramsey J was required to consider

whether a contractors wrongful suspension of work constituted a repudiatory breach of contract.

25 It should be noted that this dispute

came before Ramsey J as a challenge to the award of an arbitrator.

50. DAB undertook to demolish part of Mayhavens nursing home and construct initially a three-storey extension which would provide new

22 Woodar v Wimpey: note 18.

23 The Nanfri: note 10.

24 Dalkia v Celtech, note 21, paras 145-151.

25 Mayhaven Healthcare Ltd v Bothma (t/a DAB Builders) [2009] EWHC 2634, [2010]

BLR 154, 127 Con LR 1 (TCC).

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facilities and increase the number of beds from 43 to 49. Further phases

of redevelopment would increase the number of beds further to 75.

51. Disputes arose between the parties which were referred to adjudication.

In an adjudication decision issued on 12 June 2006, the adjudicator

directed Mayhaven to pay DAB certain sums.

52. DAB believed, as Mayhaven was aware, that those sums had not been

paid although it later transpired that they had.

53. In light of its belief that the sums had not been paid, DAB suspended

work. The same day, Mayhaven notified DAB that it considered its

suspension as wrongful and constituted a repudiatory breach of contract

which Mayhaven purported to accept.

54. DAB commenced an arbitration against Mayhaven. The arbitrator found

that there was no repudiatory breach by DAB. In particular, he found

that DAB had made a genuine mistake as to whether the sums ordered

by the adjudicator had been paid, that Mayhaven knew that the sums had

been paid and that DAB was operating under a mistake and that if DAB

had been aware of the true position, it would not have suspended work.

55. Mayhaven challenged the award and raised the following issue:

If a Contractor under a construction contract breaches that contract by wrongfully suspending the works, does such conduct

amount to repudiatory breach of contract?

56. Ramsey J held that:

56.1. Whether a refusal to perform unless the other party complies with

an invalid condition amounts to a repudiation depends on the

circumstances and not every indication of an intention not to

perform under an invalid condition will amount to repudiation;

56.2. The arbitrator had not erred in law in concluding that on the facts

of this case, DABs suspension of work did not constitute a repudiatory breach of contract. The arbitrator was entitled to rely

upon the fact that DABs suspension of work was based upon an error of which Mayhaven was aware and which, if it was

corrected, would have led to DAB resuming work.

Jim Ennis Construction v Combined Stabilisation

57. Jim Ennis Construction (JEC) sought declaratory relief against Combined Stabilisation (CSL) in relation to a final account agreement allegedly made between the parties on 28 July 2009.

26 CSL were

engaged by JEC to carry out ground works. The works were completed

on or about 12 May 2009 and thereafter the parties engaged in

negotiations to settle the amount of CSLs final account.

58. CSL initially offered without prejudice to settle the final account value

in the sum of 735,000 whilst maintaining its true entitlement was much

higher. The offer was made on the express understanding that the outstanding sums are certified with immediate effect. After further

26 Jim Ennis Construction Ltd v Combined Stabilisation Ltd [2010] CILL 2820 (TCC).

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negotiations between the parties a compromise figure of 707,500 was

agreed in principle. By an email dated 24 July 2009 CSL stated that the

agreement excluded the outstanding issue of damage an item of CSLs plant and confirmed that the outstanding sum due for payment under the

agreement was 142,910.13 to be paid within 10 days. By reply dated

27 July 2009, JEC confirmed that the agreement excluded the damage

referred to and that the sum due for payment was 142,910.13. The 27

July email was silent as to the date for payment.

59. The Certificate of Final Agreement was signed by CSL agreeing to

accept the sum of 707,500 in full and final settlement. Under cover

letter of 29 July 2009, that Certificate was said to be signed on the

express understanding that the 27 July email was incorporated. No

reference was made to the 24 July email.

60. On receipt of the signed Certificate of Final Agreement from CSL, JEC

notified CSL that a problem had arisen with regard to damage to a gas

main for which it was suggested CSL were responsible and in respect of

which deductions would be made from the outstanding 142,901.13.

After a further exchange of emails, JEC paid the sum of 135,538.25 to

CSL (thus having unilaterally deducted 7,362.88 from the previously

stated amount).

61. By email dated 14 August 2009, CSL informed JEC that it considered

the final account agreement was no longer applicable.

62. By email dated 21 August 2009, CSL stated:

As a direct consequence of [JEC]s failure we [will] comply with the agreed terms of the Final Account CSL consider that the

settlement is now null and void.

63. CSL subsequently submitted a revised final account to JEC claiming an

increased value of 1,030,000.

64. JEC subsequently paid the unpaid balance of the previously agreed sum

(7,362.88) which was accepted by CSL not in full and final settlement

of the revised final account but on a purely account basis.

65. CSL subsequently served Notice of Adjudication; JEC challenged the

validity of the Notice on the basis that CSL was bound by the Final

Account Agreement to accept the final account value of 707,500.

66. CSL denied this on the following bases:

66.1. There was no binding settlement agreement between the parties

because the agreement was incomplete, no agreement having been

reached on an essential term, namely time for payment;

66.2. CSL had made a counter-offer in respect of the provisional

agreement which had not been accepted by JEC;

66.3. Alternatively, if there was a binding agreement it was conditional

CSL accepting payment of the sum (as opposed to accepting the

promise of payment) and that in not paying the agreement was

wrongfully repudiated by JEC and that repudiation was accepted

by CSL thereby determining the agreement;

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66.4. Further alternatively, if there was a binding agreement it was a

condition of such agreement that the sum of 142,901.13 which

was breached by JEC entitling CSL to determine and be

discharged from the final account agreement.

67. HHJ Raynor QC decided as follows. He:

67.1. rejected the argument that the Final Account Agreement was void

for uncertainty noting the reluctance of the courts to make such

findings. It was clear JEC and CSL intended their arrangements to

have legal effect, JEC when it submitted the Certificate of Final

Agreement and in the confirmation it gave in the 27 July email,

CSL when it signed and returned the Certificate under the cover

letter 29 July 2009;

67.2. held that although no express agreement was reached as to when

payment would be made, he was in no doubt that a term fell to be

implied and accepted the submission for JEC that no time having been expressly agreed, it was implicit that payment would be made

within a reasonable time having regard to all the circumstances;27

67.3. considered that there had been no counter-offer.

68. In respect of JECs withholding of the sum of 7,362.88, HHJ Raynor QC held:

68.1. the agreement of the final account value was not made in

consideration for the actual payment of the sum but the agreement

to pay the sum;

68.2. the agreement of the final account was not conditional upon the

agreed sum being paid in full.

69. HHJ Raynor QC rejected the submission that JEC had wrongfully

repudiated the final account agreement:

69.1. Relying on Woodar v Wimpey the judge found that JECs conduct in withholding the sum did not indicate an intention to abandon and altogether refuse performance of the final account

agreement;28

69.2. He rejected the submission that not only was it a term of the

agreement that the full sum be paid but that that term amounted to

a condition with the consequence that threatened failure to perform

ie anticipatory breach entitled CSL to elect to treat the agreement at an end;

69.3. He rejected the submission that the parties were to be regarded as

having agreed that any failure of performance, irrespective of the

gravity of the event that has in fact resulted from the breach,

should entitle the other party to elect to put an end to the contract.

70. As such, CSL remained bound by the Final Account Agreement and JEC

were entitled to the declaratory relief sought.

27 Ennis v Combined Stabilisation, note 26, para 35.

28 Ennis v Combined Stabilisation, note 26, para 45; Woodar v Wimpey: note 18.

14

Eminence Property Developments v Heaney

71. In Eminence Property Developments v Heaney29

71.1. The appellant (Eminence) appealed against a decision that it had acted in repudiatory breach of contract in relation to the sale of 13

flats to the respondent (Mr Heaney);

71.2. The contractual completion date having passed, Eminences solicitors served notices to complete on Mr Heaneys solicitors pursuant to condition 6.8 of the Standard Conditions of Sale. They

stated in a covering letter that they had calculated that the final

date for completion under the notices was 15 December 2008.

That was incorrect: given the definition of working day in the Standard Conditions, the final date for completion was 19

December 2008;

71.3. Heaney took no steps to complete the contracts, and on 17

December 2008, Eminences solicitors sent notices to Mr Heaneys solicitors purporting to rescind the contracts;

71.4. The notices were premature, and the recorder held that in serving

them Eminence had acted in repudiatory breach of contract;

71.5. Eminence appealed.

72. Etherton LJ, with whom Sullivan and Mummery LJJ agreed, held that

Eminence was not in repudiatory breach. The respondent submitted that

Woodar30

was authority that an act or declaration wrongly terminating a

contract will not be a repudiatory breach only where the parties have

agreed in advance that, if and when the act is done or the declaration

made, the question of the validity and effectiveness of the act or

declaration will be brought before the courts and the parties will abide

by the courts decision.

73. Etherton LJ disagreed and set out the following principles:

73.1. In this area of the law, there was a danger in attempts to clarify the

application of a legal principle by a series of propositions derived

from cases decided on their own facts;

73.2. The test remained whether, looking at all the circumstances

objectively, that is from the perspective of a reasonable person in

the position of the innocent party, the contract breaker has clearly

shown an intention to abandon and altogether refuse to perform the

contract;

73.3. Whether or not there has been a repudiatory breach is highly fact

sensitive. An innocent and obvious mistake may well be viewed

differently from cynical and manipulative conduct;

73.4. All the circumstances must be taken into account insofar as they

bear on an objective assessment of the intention of the contract

29 Eminence Propety Developments Ltd v Heaney [2010] EWCA Civ 1168, [2011] 2 All

ER (Comm) 223 (CA).

30 Woodar v Wimpey: note 18.

15

breaker. This means that motive, while irrelevant if relied upon

solely to show the subjective intention of the contract breaker, may

be relevant if it is something or it reflects something of which the

innocent party was, or a reasonable person in his or her position

would have been, aware and throws light on the way the alleged

repudiatory act would be viewed by such a reasonable person.

74. Etherton LJ applied these principles to the facts of the case before him:

74.1. Eminence was ready, willing and able to complete the sale and

entitled to serve notices to complete;

74.2. Completion did not take place because of Mr Heaneys default;

74.3. The notices to complete served by Eminence contained an obvious

error as to the date of the required completion. There was no

attempt by Eminence to vary the terms of the contract;

74.4. Mr Heaneys solicitors did not point out the obvious error. Either they did not notice the error or they wanted to rely on the error so

that they could fortuitously extricate Mr Heaney from the

contracts. There was no reason to think that if the error had been

pointed out, Eminence would not have corrected it;

74.5. As a result of the error, the notices of termination were served

prematurely, ie before the expiry of the contractually stipulated

period;

74.6. This was not a case where the two parties maintained different

interpretations of the contract, but where one party had made an

error based on an agreed interpretation;

74.7. In these circumstances, it was not possible to find an intention by

Eminence to abandon and altogether to refuse to perform the

contracts;

74.8. Indeed, the notices themselves were internally inconsistent and as

such it was not possible to spell out a clear intention to abandon

the contracts.

Conclusion

75. How are the two approaches (Woodar, Eminence on the one hand and

The Nanfri, Dalkia on the other31

) to be reconciled?

76. It may be that the key issue is that in The Nanfri the repudiation

consisted of an act the instruction of the master not to sign pre-paid bills of lading which had the immediate effect of substantially depriving the charterers of virtually the whole benefit of the charter

since the issue of the bills was essential to the maintenance of the

charterers trade. By contrast, the notice of termination in Woodar did not have a similar consequence.

32

31 Woodar v Wimpey: note 18, Eminence Property v Heaney: note 29, The Nanfri, note 10,

Dalkia v Celtech, note 21.

32 The Nanfri, note 10; Woodar v Wimpey, note 18.

16

77. It also appears that where the innocent party is aware that the defaulting party is acting under a misapprehension of the legal or factual position, does not take steps to correct the misapprehension and

if the misapprehension had been corrected the defaulting party would have remedied its breach, the courts are unlikely to be sympathetic to the

innocent party.

5. Examples of repudiatory breach: delay

78. The question of whether delay in the performance of contractual

obligations can constitute a repudiatory breach of contract has been

considered in a number of cases.

79. The first question is whether time is of the essence, ie whether the relevant term as to time is a condition such that breach would give rise to a right to terminate the contract.

80. Generally terms as to time will not be construed as conditions unless

expressly stated to be such or are to be so construed in light of the

contract as a whole. It is said that in relation to mercantile contracts, the courts are readier to find that time is of the essence, this tends not to

be the case in relation to construction or engineering contracts.

Urban I and the Court of Appeals re-statement

81. In the case of Urban I v Ayres the Court of Appeal re-stated the rules in

relation to delay and repudiatory breach.33

The facts

82. On 25 January 2007 Mr and Mrs Ayres entered into a contract with

Urban I for the grant of a 125 year lease for 179,950 on a 2 bedroom

flat in Urban Is development (in Sheffield). The contract did not specify a fixed completion date but at the date of contract it was

envisaged that the development would start on 26 February 2007 and the

target for completion was December 2008. In fact the development

started one month late and in the minutes of the first progress meetings

with the contractor and project manager it was noted the development

programme envisaged completion on or before 26 January 2009 which

was later revised to February 2009.

83. In June 2008 the Ayres were advised that completion would be in

December 2008 and they were advised to arrange their mortgage. In

September 2008 the Ayres received a mortgage offer from Halifax of

90% of the purchase price subject to a number of conditions including a

satisfactory assessment made of the property before 8 March 2009. The

mortgage had to commence by 31 December 2008.

84. The Ayres were told of the anticipated February 2009 completion date

for the first time in October 2008. In November 2008, the Ayres were

informed that the mortgage needed to be completed and drawn down by

31 December 2008 as the lender was ceasing to offer 90% LTV

33 Urban I (Blonk Street) Ltd v Ayres [2013] EWCA Civ 816, [2014] 1 WLR 756, [2013]

BLR 505, [2014] 1 P & CR 1 (CA).

17

products. The Ayres attempted to extend the date and find alternative

mortgage, but were unable to do either. They also requested Urban I

allow access for their mortgage valuer. That request was not granted.

85. By the end of January 2009, completion was set for May 2009. In

March 2009 the Ayres wrote to Urban I terminating the contract due to

unreasonable delay stating that it was clear that completion had been

unreasonably delayed beyond the deemed completion date, that Urban I

were in repudiatory breach and giving notice that they accepted the

breach as discharging the contract.

86. The apartment was completed on 31 July 2009. On 13 August 2009

Urban I served the contractual 10 day notice on the Ayres and on 1

September 2009 they served notice to complete giving 10 days to

complete. Urban I issued a claim against the Ayres for specific

performance and/or damages for late completion. The Ayres

counterclaimed for return of the reservation fee and deposit alleging they

had successfully terminated the contract.34

The judgment at first instance

87. The trial judge concluded that viewed objectively the overall delay by the date of the [Ayres] solicitors letter of 20 March 2009 or by the time [Urban I] served its notice to complete on 1 September 2009 was such as

to amount to repudiation of the Contract entitling the [Ayres] to refuse to

complete. The trial judge relied on the following factors:

87.1. There had been six month period of delay against an overall

timeframe of 2 years;

87.2. Urban I were behind their own projected programming;

87.3. The contractors own financial circumstances caused by the delay should not be visited on the Ayres;

87.4. The Ayres were not told until long after it had become apparent

that the December 2008 completion date would not be met as a

result of which they lost their mortgage, about which they kept

Urban I informed;

87.5. The Ayres were given numerous dates for completion such that

any reasonable person in their circumstances would have

despaired;

87.6. Even after March 2009 there were further unexplained delays.

The appeal

88. Urban I appealed and the Court of Appeal allowed the appeal.

89. The Court of Appeal noted that the trial judge was in a difficult

situation:

This field of law is complex. The case law has developed in significant respects over time and it is not always consistent.

Observations by Lewison LJ and Rix LJ in the recent case of

34 They acted in person.

18

Samarenko show how even today, aspects of the law relating to

time provisions in contracts for the sale of land and the relevance

of notices to complete can be puzzling and that there is still room

for clarification of the law.35

90. The Court of Appeal extracted the following relevant principles under

the current law:

(1) It is necessary to distinguish between three types of contractual time provision. They are those which are

conditions in the technical sense that any breach of them,

however slight, is a repudiatory breach of contract which

entitles the other party to terminate the contract immediately;

those which are warranties in the technical sense that any

breach of them, however serious, will only ever entitle the

other party to damages and not to terminate the contract; and

those which are so-called innominate terms, breach of which

will only be a repudiation of the contract entitling the other

party to terminate the contract if the breach deprives him or

her of substantially the whole benefit which it was intended

they should obtain from the contract or, in simpler language,

which goes to the root of the contract: Hong Kong Fir

Shipping Co Ltd at 69 to 70. It is a matter to be determined

on ordinary principles of contractual interpretation into

which of those categories the term falls.

(2) Where a contract for the sale of land does not contain any

specified date for completion, and subject to any contractual

indication to the contrary, it is implied that completion will

be within a reasonable time. There is no breach of contract

until that that time has arrived: Behzadi at 12G-13A and

23E.

(3) The moment that the contractual date for completion has

passed the contract-breaker who has delayed completing is

liable in damages: Raineri.

(4) Where the contractual date for completion has passed the

contract-breaker is still entitled to specific performance of

the contract unless it would be inequitable to grant that

relief: Stickney at 416, Seton v Slade.

(5) It would be inequitable for there to be a grant of specific

performance to the contract-breaker if the parties have

expressly stated in the contract that the contract can be

terminated forthwith upon breach of the time provision or if

it is to be implied from all the circumstances that they so

intended: Parkin v Thorold at 66. Accordingly, if, on the

proper interpretation of the contract, the time provision is a

condition in the technical sense I have mentioned, it is

difficult to imagine that the court would grant the contract

breaker specific performance. I respectfully agree, in this

35 Urban I v Ayres, note 33, para 42.

19

regard, with the doubt expressed by Rix LJ in Samarenko at

[64] as to whether equity, as a distinct species of legal

principles, now has anything to add in the context of

contractual terms of fundamental importance.

(6) Service of a valid written notice to complete after the

contractual completion date has passed has the effect of

bringing to an end the possibility of equitys intervention by the grant of specific performance to the contract-breaker. A

valid notice is one which calls on the contract-breaker to

perform within a reasonable period, specifying exactly what

it is that party must do and what consequences will follow

(that is to say, exercise of the right to terminate if he or she

fails to do so): Re Olympia & York Canary Wharf Ltd (No 2)

[1993] BCC 159 at 169 C-F citing Behzadi at 12B-E.

Statements in many of the cases and some textbooks that the

service of a notice to complete makes time of the essence in

equity are incorrect. Absent any relevant express provisions

in the contract (as are to be found in the Standard

Conditions, for example), it is contrary to all principle for

one party to be able unilaterally to transform one type of

contractual provision (namely, an innominate term or a

warranty in the strict sense) into something different (a

condition in the strict sense). Equitys role, in this context, always has been to relieve a contract-breaker against the

strict legal rights of the other party, not to enhance them:

Parkin v Thorold at 71, Behzadi at 12 and 24.

(7) Accordingly, absent any relevant express terms in the

contract, where a completion notice has been served and

expired following breach of a time provision which is an

innominate term the question whether the other party can

terminate the contract depends upon that partys ordinary legal rights. This depends upon two matters which, again,

have often been confused in the case law. Firstly, the

contract-breaker will have repudiated the contract, entitling

the other party to terminate it, if and when the delay has been

such as in all the circumstances to deprive the other party of

substantially the whole benefit it was intended he or she

should obtain from the contract, that is to say it has gone to

the root of the contract. The delay may or may not have

reached that point at the time that the notice to complete has

expired: comp Peregrine Systems Ltd v Steria Ltd [2005]

EWCA Civ 239 at [15]. Secondly, the contract-breaker will

have repudiated the contract, or as it is sometimes put,

renounced the contract, entitling the other party to terminate

it, if the contract-breaker has demonstrated an intention

never to carry out the contract or, at any event, only to do so

in a manner substantially inconsistent with his or her

contractual obligations such as to deprive the other party of

substantially the whole benefit which it was intended they

20

should receive under the contract: Federal Commerce &

Navigation Co Ltd v Molena Alpha Inc (The Nanfri)[1979]

AC 757 at 778-779 (Lord Wilberforce citing passages from

several other cases). The failure to comply with the notice to

complete may be some evidence of that, but an intention to

renounce must be determined in the light of the evidence as a

whole: Eminence Property Developments Ltd v Heaney

[2010] EWCA Civ 1168 at [61] to [64]. I agree with

Lewison LJs further thoughts on this aspect when, in Samarenko at [42], he resiled from his earlier position in

Multi-Veste 226 BV v NI Summer Row Unitholder BV [2011]

EWHC 2026 (Ch) at 201.

(8) Where, in the case of a time provision which is an

innominate term, a completion notice has not been served on

the contract-breaker, an award of specific performance will

be available to the contract-breaker until such time as the

grant of that remedy would be inequitable. It is difficult to

see in principle why that would be any different to the time

when the breach due to the delay is such as to go to the root

of the contract.36

91. Applying those principles to the current case, the trial judge had been

correct that in the absence of any express stipulated date, it was an

implied term of the contract that completion of the apartment, and hence

the consequential completion of the contract, was to be within a

reasonable time. What is a reasonable time is a mixed question of fact

and law.

92. However, the judge did not expressly consider whether that implied term

was, in all the circumstances and on a proper interpretation of the

contract, a condition in the strict sense, a warranty in the strict sense or

an innominate term. It was clear from the judgment that he regarded it

as an innominate term which was plainly correct.

93. Contractual completion was to take place at the latest 10 days after a

reasonable time for building the apartment had elapsed. However the

judge did not identify that date. He plainly thought that it had elapsed

by the date of the Ayres letter in March 2009. The reasonable time for completion was highly fact-sensitive. It was clear that Urban I was not

in repudiatory breach of the contract by March 2009. The judge had

found that Urban I had not unreasonably delayed completion prior to

February 2009. The breach could only have been repudiatory in March

2009 if it went to the root of the contract at that date which was an

impossible conclusion. On the face of it, delay of approximately one

month, at most, between the earliest possible date for contractual

completion and the Ayres purported termination on 20 March 2009 could not possibly be said to have deprived the Ayres of a substantial

part of the benefit of the contract, let alone substantially the whole of the

benefit.

36 Urban I v Ayres, note 33, para 44.

21

94. The trial judge had been greatly impressed by the prejudice to the Ayres

in losing their mortgage, but they had lost that opportunity at a time

when the delay in completing the apartment was not unreasonable. Both

the Chancellor and Floyd LJ expressed some degree of sympathy for the

position the Ayres found themselves in, but noted that it was not caused

by Urban Is breach but because the contract they had entered into did not have a fixed long-stop date whereas their mortgage offer was

conditional on the commencement before the earliest date at which

completion was projected to take place.

Astea v Time Group

95. In Astea vTime Group HH Judge Seymour first had to consider what

constituted a reasonable time for an IT supplier to perform its contractual obligations.

37

96. He held that the court should give this issue a broad consideration, with

the benefit of hindsight, viewed from the time as at which one party

contends that a reasonable time for performance has been exceeded.

97. This broad consideration of the reasonable time for performance was

likely to include, but was not limited to:

97.1. Any estimate given by the performing party of how long it would

take it to perform;

97.2. Whether that estimate has been exceeded and, if so, in what

circumstances;

97.3. Whether the party for whose benefit the relevant obligation was to

be performed needed to participate in the performance, actively, in

the sense of collaborating in what was needed to be done, or

passively, in the sense of being in a position to receive

performance, or not at all;

97.4. Whether it was necessary for third parties to collaborate with the

performing party to enable it to perform; and

97.5. What exactly was the cause, or causes of the delay.

98. He then set out the circumstances in which it could it be said that a

contract had been repudiated by breach of an obligation to complete

performance within a reasonable time.

98.1. The application of the test of repudiation38

is most straightforward

in a case where no performance at all of the obligations of one of

the contracting parties has taken place and there is a

straightforward refusal of performance;

98.2. In any case in which there has been any degree of performance

before the alleged repudiation the application of the test required a

qualitative judgment of whether failure to perform the remainder

of the obligations of the relevant party would deprive the other

37 Astea (UK) Ltd v Time Group Ltd [2003] EWHC 725 (TCC.

38 The judge referred to the test formulated by Diplock LJ in Hongkong Fir (note 2): Astea

v Time Group, note 37, para 149.

22

party of substantially the whole benefit of the contract judged

against the commercial purpose of the contract;

98.3. It is likely to be necessary to consider not only what has been

done, but also the value of that to the other party if nothing else is

done;

98.4. A flat refusal to continue performance will probably amount to

repudiation however much work has been done;

98.5. It may be very difficult to conclude that what is being offered will

deprive the other party of substantially the whole benefit of the

contract if:

(1) considerable work has been done in performance of a partys contractual obligations; and

(2) what is alleged to amount to a repudiation is not a flat refusal to perform, but an indication of an intention to continue to

perform at a speed considered by the other party to be

unreasonably slow.

98.6. Indeed in the above circumstances it may well seem that the

innocent party will eventually gain exactly the benefit

contemplated. Then the question will be whether, by reason of the

time that will need to elapse before that happens, in commercial

terms the party entitled to performance will be deprived of

substantially the whole of the benefit that it was intended he

should derive from the contract.

99. The approach of HHJ Seymour was approved by the Court of Appeal in

Peregrine Systems v Steria.39

This was another case involving the

provision of IT services.

100. It was also followed in Automotive Latch Systems v Honeywell

International. Flaux J said:

Applying that principle, it is clear that the Court can and should look at all the material available, including looking at the

question with hindsight. On that basis, although none of the

cases specifically touches on this, I do not see why in principle,

the reasonableness of the partys conduct should not also be assessed, where appropriate, by reference to matters which ante-

date the entering of the contract.40

Gold Group Properties v BDW Trading

101. Judge Stephen Furst QC was required to consider whether a developer

was in repudiatory breach by reason of delay in Gold Group Properties

v BDW Trading.41

In this case, the repudiatory breach was made clear

by the fact that almost no work was done and the fact that the developer

was seeking to renegotiate the terms of the agreement.

39 Peregrine Systems Ltd v Steria Ltd [2005] EWCA Civ 239 (CA).

40 Automotive Latch Systems Ltd v Honeywell International Inc [2008] EWHC 2172 (Com

Crt), para 142.

41 Gold Group Properties Ltd v BDW Trading Ltd [2010] EWHC 1632 (TCC).

23

102. The claimant landowner (Gold) sought damages from the defendant developer (BDW) for breach of contract.

The facts

103. Gold and BDW had entered into an agreement whereby BDW was to

construct dwellings on land owned by Gold. Gold was to sell the

properties on long leases, sharing the revenue with BDW. Relevant

terms of the agreement included that:

103.1. BDW would begin work by June 2008;

103.2. BDW would proceed with the work with due diligence;

103.3. BDW would complete the work within 30 months of

commencement.

103.4. Minimum sale prices for each of the properties were set out in a

schedule;

103.5. Clause 10 of the agreement contained revenue-sharing

provisions; and

103.6. Clause 11 provided that each party should act in good faith.

104. In the event, BDW undertook little work on the site, its position being

that the fall in the property market caused by the recession meant that

the minimum prices were unlikely to be achieved and the agreement was

therefore frustrated.

105. On 19 November 2008, BDW wrote to Gold suggesting either that the

development be delayed or that the minimum prices and the payment

terms be reviewed. By a letter of 17 December Gold declined to review

the payment terms, indicated that it regarded BDW to be in breach of its

contractual obligations, and insisted that the breach be remedied. On 12

January 2009, BDW indicated that in its view the agreement was at an

end and was unenforceable. Gold responded on 12 September 2009

accepting BDWs repudiatory breach.

The judgment

106. Judge Stephen Furst QC held:

106.1. The obligation of good faith did not require Gold either to agree

to an adjustment of the revenue-sharing mechanism or to

negotiate such an adjustment as a free-standing obligation or as

part of any negotiation of the minimum prices;

106.2. While the obligation required the parties to act in a way that

would allow each to enjoy the anticipated benefits of the

contract, it did not require either of them to give up a freely-

negotiated financial advantage clearly embedded in the contract.

Delaying the project would defer Golds profits and would mean that the land would generate no income in the meantime, and a

revision of the revenue-sharing agreement would mean a

significant reduction in its profits. It could not be said that Gold

24

was in breach of its obligations of good faith in refusing to accept

or even negotiate on the basis of such proposals;42

106.3. BDW was in repudiatory breach of the agreement in:

(1) Failing to commence work by the date specified in the contract;

(2) Faiing to proceed with the work with due diligence; and

(3) There being no prospect of the work being completed within 30 months of commencement.

106.4. There was no doubt that the breaches were repudiatory. BDW

had manifested an intention no longer to be bound by the

agreement, its letters of 19 November 2008 and 12 January 2009

indicating that it was not prepared to proceed unless the revised

payment proposal was agreed. Although in its letter of 17

December 2008, Gold had wrongly asserted that the minimum

prices were solely for its benefit, that assertion was not causative

of the breakdown of negotiations and nor did it affect any

subsequent steps taken by BDW;

106.5. Gold had not accepted the repudiatory breach by failing to return

keys as this was not clear and unequivocal;

106.6. Golds letter of 26th March 2009 did not constitute an acceptance since it disagreed with Barratts assertion that the agreement was at an end and in the last sentence provided an agenda for a

meeting at which it was anticipated that either BDW would agree

to perform its obligations under the agreement or it would make

an acceptable offer to Gold to bring the agreement to an end.

This letter therefore presupposes the continuing existence of the

agreement;

106.7. The letter dated 14th August 2009 stated that provided BDW,

within 20 days, either remedied the breaches or demonstrated its

willingness to remedy the breaches and confirmed it would

honour and perform the terms of the agreement, Gold would

permit BDW to complete the development within a reasonable

period with an adjusted time scale for the remaining obligations.

This was intended to be a notice for the purpose of Clause 24 of

the agreement and therefore assumed the agreement to be still on

foot;

106.8. By letter dated 21 September 2009 Gold stated:

The pre action letter written to your clients on 14 August 2009 allowed your client a period to remedy their breach(es) of the

Development Agreement in accordance with the provisions of

Clause 24 of the Agreement. They have failed to take up that

opportunity. Additionally, your letter of 2 September makes it

plain that your client has no intention of performing the

42 Berkeley Community Villages Ltd v Pullen [2007] EWHC 1330, [2007] 3 EGLR 101

(Ch) and Automasters Australia (Pty) Ltd v Bruness Pty Ltd [2002] WASC 286.

25

Development Agreement and that it continues to consider the

Agreement to have already ended by reason of mistake and/or

frustration of contract. Accordingly, the Development

Agreement has now terminated absolutely and I have written to

your client confirming that to be the case. This will assist in

crystallising GGPs claim for damages.43

This letter constituted both an exercise of the right to terminate under

Clause 24 and acceptance of BDWs repudiatory breach.

Telford Homes v Ampurius

107. In the case of Telford Homes v Ampurius,44

the Court of Appeal was

required to consider whether delay in the completion of a construction

contract amounted to repudiatory breach and highlighted the importance

of:

107.1. identifying the nature of the benefit which was intended to be

conferred on the innocent party;

107.2. considering the consequences of the breach; and

107.3. (as part of this consideration) a detailed analysis of causation.

The facts

108. On 7 October 2008, Telford (a developer/landlord) and Ampurius

(investor/tenant) entered into an agreement for a lease under which

Telford was to develop four mixed-use blocks (A, B, C and D) and

Ampurius ultimately intended to take 999-year leases of commercial

units in the blocks. The target date for completion of blocks C and D was July 2010 and for A and B was February 2011. By clause 2.3(vi) of

the agreement Telford procured that the Landlords Works are carried out with due diligence.

109. Works proceeded successfully until early 2009 when the effect of the

credit crunch reduced the demand for flats. On 23 March 2009, Telford

decided to stop work on blocks A and B and to allow work on block C to

slip to assist with cash flow. In July 2009, Ampurius was told for the

first time inter alia that work on blacks A and B was on hold. Telford

managed to secure a cash injection to continue work on blocks B and C.

110. Work progressed on blocks C and D (for which the concrete frames

were certified complete in November and December 2009) but there

were further delays to work on blocks A and B because the necessary

funding was not in place. In June 2010, Telford informed Ampurius that

it was expecting the necessary finance to be confirmed within the

coming week to enable work to commence on blocks A and B in January

2011.

111. Ampurius stated that negotiations had come to a standstill and that the

failure of Telford to commence works on blocks A and B was in breach

of the agreement concluding:

43 Gold Group v BDW Trading, note 41, para [66].

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

577, [2013] 4 All ER 377; [2013] BLR 400; 148 Con LR 1 (CA).

26

Your clients will never carry out the works to Blocks A and B and/or your clients will carry out the works over a period of time

that would inflict damage and/or interfere with the business to be

set out in the commercial units.45

112. Telford responded denying this was the position and stating that it had

every intention of performing and completing the contract.46

113. It appears Telford secured further funding because despite a continued

lack of progress in negotiations between it and Ampurius, works on

blocks A and B restarted on 4 October 2010. The trial judge found this

was not simply done with a view to performance of the contract but

because Telford was itself deeply committed to the development of

which the sale of the commercial units to Ampurius was only a small

part. However, no one told Ampurius and it was to be inferred that it

had not asked and on 22 October 2010 (4 months before the target

completion date for blocks A and B) Ampurius purported to terminate

the contract stating that it was entitled to and did accept Telfords repudiatory breach.

The judgment at first instance

114. The trial judge held that Telfords delay in carrying out the works to blocks A and B was a breach of clause 2.3(vi) and that by the end of

2009, if not before, Telfords ongoing breach had become sufficiently substantial to be repudiatory.

The Court of Appeal

115. Having considered the judgment of Diplock LJ in Hongkong Fir,

Lewison LJ identified three points:

115.1. The task of the court is to look at the position as at the date of

purported termination of the contract even in a case of actual

rather than anticipatory breach;

115.2. In looking at the position at that date the court must take into

account any steps taken by the guilty party to remedy the accrued

breaches of contract;

115.3. The court must also take account of likely future events judged

by reference to objective facts as at the date of purported

termination.

116. Lewison LJ noted an apparent tension in previous authorities between

the test of deprivation of substantially the whole benefit (Diplock LJ) and a test of deprivation of a substantial part of the benefit47 but stated that whatever test was adopted, the starting point was to consider what

benefit the injured party was intended to obtain from performance of the

contract. In this case the trial judge had not given adequate weight to the

45 Telford Homes v Ampurius, note 44, para 16.

46 Telford Homes v Ampurius, note 44, para 17.

47 See Buckley LJ in Decro-Wall International SA v Practitioners in Marketing Ltd [1971]

1 WLR 361, page 380; also [1971] 1 WLR 361 (CA).

27

ultimate objective of the contract, viz the grant to Ampurius of 999 year

leases.

117. The next issue to consider was the effect of the breach on the injured

party. He said:

What financial loss has it caused? How much of the intended benefit under the contract has the injured party already received?

Can the injured party be adequately compensated by an award of

damages? Is the breach likely to be repeated? Will the guilty

party resume compliance with his obligations? Has the breach

fundamentally changed the value of the future performance of the

guilty partys outstanding obligations?48

118. Lewison LJ held that the trial judges application of the principles had been incorrect for the following reasons:

118.1. The trial judge had been impressed by the four blocks being

envisaged as a single project and by the potential that sub-letting

might be interfered with if Ampurius was compelled to take two

blocks while building work continued on the remaining blocks.

However, the contract had envisaged a staged handover and

seven months of such interference, so it overstated the case to say

that the consequences of any gap between handover dates would

be so serious as to amount to repudiatory breach;

118.2. It was not enough to say that a possible interference with

marketing was of itself sufficient to satisfy the test. Ampurius

accepted that the delay had not caused any actual loss and it

would be unusual that a breach that had caused no actual loss

was repudiatory;

118.3. If no actual loss had been caused by the breach, the future loss

the injured party was seeking to avoid had to be considered. Had

Ampurius delayed marketing of blocks C and D until

construction of A and B had caught up, it would have incurred

additional funding costs of the order of 100,000. Those costs

were readily calculable, and Ampurius could have been

compensated. Set against a purchase price exceeding 8 million,

and against overall development costs exceeding 100 million,

such loss was not of a scale sufficient to characterise it as

repudiatory.

119. The trial judge had erred in distinguishing Stocznia Gdanska v Latvian

Shipping on the basis that it dealt with anticipatory repudiatory breaches

as the same test applies to actual breaches, ie that in both cases, the

relevant time of assessment is when the innocent party seeks to accept

the repudiatory breach, not the time when the anticipatory or actual

breach is committed.49

120. Lewison LJ held:

48 Telford Homes v Ampurius, note 44, para 52.

49 Stocznia Gdanska SA v Latvian Shipping Company [2002] EWCA Civ 889, [2002] 2 All

ER (Comm) 768, [2002] 2 Lloyds Rep 436, [2003] 1 CLC 282 (CA).

28

A breach of contract, although serious, may be capable of remedy. If it is remedied before the injured party purports to

exercise a right of termination, then the fact that the breach has

been remedied is an important factor to be taken into account.

Likewise if there is delay in performance of the ongoing obligation

it may well be possible for the delay to be made up by faster

performance.50

121. Accordingly, the trial judge had applied the test to the wrong moment in

time.

122. Lewison LJ then reverted to Diplock LJs checklist in Hongkong Fir51 and applied it to the facts of the case:

122.1. The delay that had already occurred had caused Ampurius no

loss;

122.2. Future delay was likely to require Ampurius to fund the deposits

and the balance of the purchase price for blocks C and D no

longer than it otherwise would have done;

122.3. But Telford had offered to defer completion of the purchase of

blocks C and D for longer than it would otherwise have done;

122.4. Telfords conduct had been to make strenuous (and successful) efforts to find the necessary funding and to persuade its bank

(also successfully) to bring forward the release date of the funds;

122.5. Telford was committed to building the whole project.

123. Bearing in mind the absence of actual loss, and the limited future loss, it

was not possible to say, as at October 22, that the actual and reasonably

foreseeable effects of Telfords breaches were such as to deprive Ampurius of a substantial part of the benefit of the contract. The appeal

was allowed.

Conclusion

124. The key issues are:

Urban I52

124.1. The first issue is to determine whether the relevant term is a

condition, a warranty or an innominate term;

124.2. If the term is an innominate term breach will only be repudiatory

if the breach deprives the innocent party of substantially the

whole benefit which it was intended they should obtain from the

contract;

124.3. If the term is an innominate term a valid written notice calling for

performance will not turn the innominate term into a condition,

so a failure to comply with the written notice will not

50 Telford Homes v Ampurius, note 44, para 63.

51 Hongkong Fir: note 2.

52 Urban 1: note 33.

29

automatically give rise to a right to treat the contract as

discharged;

124.4. A valid written notice is one which call on the defaulting party to

perform within a reasonable period, specifying exactly what it is

that that defaulting party must do and what the consequences of

failure would be;

124.5. The question of whether there has been repudiatory breach

remains the same:

(1) The defaulting will have repudiated the contract, entitling the other party to terminate it, if and when the delay has been

such as in all the circumstances to deprive the other party of

substantially the whole benefit it was intended he or she

should obtain from the contract, that is to say it has gone to

the root of the contract;

(2) The defaulting party will have repudiated the contract, or as it is sometimes put, renounced the contract, entitling the

other party to terminate it, if the contract-breaker has

demonstrated an intention never to carry out the contract or,

at any event, only to do so in a manner substantially

inconsistent with his or her contractual obligations such as to

deprive the other party of substantially the whole benefit

which it was intended they should receive under the contract;

124.6. The failure to comply with the notice to complete may be some

evidence of that, but an intention to renounce must be determined

in the light of the evidence as a whole;

Astea v Time Group53

124.7. The reasonable time will be assessed at the date at which the

innocent party considers that the reasonable period has elapsed. It will require a broad consideration;

Gold Group Properties v BDW Trading54

124.8. A substantial failure to make progress based upon an erroneous

interpretation of the contract and/or an attempt to renegotiate is

likely to be considered repudiatory;

Telford Homes v Ampurius55

124.9. The relevant date for assessment of whether the innocent party is

entitled to accept an actual or anticipatory breach as repudiatory

is the date of acceptance and not the date of the relevant breach;

124.10. It is essential properly to analyse:

(1) What benefit the contract was intended to confer on the innocent party;

53 Astea v Time Group: note 37.

54 Gold Group Properties v BdW Trading: note 41.

55 Telford Homes v Ampurius: note 44.

30

(2) The impact of the breach on the innocent party;

124.11. If there is no loss, it is unlikely that the breach will be considered

repudiatory.

6. Examples of repudiatory breach: repeated breaches

125. In Rice v Great Yarmouth Borough Council, the Court of Appeal

considered the application of the test for repudiation where the

defaulting party was guilty of numerous breaches.56

The contracts

between the Council and the contractor were to provide leisure

management and grounds maintenance services for a four-year period.

The Council had purported to terminate the contracts after seven months.

Although the contract contained a termination clause which entitled the

Council to terminate following notice in writing upon any breach by the

contractor, the Court of Appeal construed this provision as simply

importing the common law test of repudiatory breach.

126. The Court of Appeal held:

126.1. There were in effect three categories of breach:

(1) those cases in which the parties had agreed either that the term was so important that any breach would justify

termination or that the particular breach was so important

that it would justify termination;

(2) those cases in which contractors walked away from their obligations thus clearly indicating an intention no longer to

be bound; and

(3) those cases in which the cumulative effect of the breaches which had taken place was sufficiently serious to justify the

innocent party in bringing the contract to a premature end.

126.2. The test of what was sufficiently serious to bring the case within

the third category was severe;

126.3. The contracts in this case contemplated a multitude of different

results at different times;

126.4. The accumulation of past breaches was relevant, not only for its

own sake, but also for what it showed about the future. The

judge was right to ask whether the cumulative breaches were

such as to justify an inference that the contractor would continue

to deliver a sub-standard performance, such that the council

would be deprived of a substantial part of the totality of that

which it had contracted for that year, subject to the additional

possibility that some aspects of the contract were so important

that the parties were to be taken to have intended that depriving

the council of that part of the contract would be sufficient in

itself.

56 Rice (t/a The Garden Guardian) v Great Yarmouth Borough Council [2003] TCLR 1 :

(2001) 3 LGLR 4.

31

7. Examples of repudiatory breach: late payment

127. In Alan Auld Associates v Rick Pollard Associates, the Court of Appeal

was required to consider whether repeated late payment under a contract

for consultancy services could amount to a repudiatory breach.57

128. The claimant and the defendant were chartered engineering companies.

The claimant had successfully tendered to provide project advice to an

authority in relation to the removal of radioactive waste. The claimant

entered into an oral agreement with the defendant to provide the

advisory work at an hourly rate with the defendant submitting monthly

invoices. It was agreed that the claimant would invoice the authority

and pay the defendant when it received payment. The defendant was

partially retired and the work provided his only income. The claimant

substantially delayed payment of 19 of the invoices despite the fact that

the authority were prompt payers and the fact that the defendant made

repeated complaints. As a result the