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We know that most parties enter into contracts with the greatest of intentions to fulfil the contract. But for whatever reason, sometimes a party cannot or will not perform their obligations. This can sometimes result in a contract dispute. Repudiation of a contract, as it’s also known, attracts significant consequences and requires appropriate consideration.

Repudiation of a contract occurs where one party renounces their obligations under a contract. It can be that they are unwilling or unable to perform their obligations under a contract. The Court sees repudiation as a serious matter. Therefore, they require a ‘clear indication’ that a party is unready or unwilling to perform the contract. This often occurs before an actual breach of a contract. For this reason, the Court often refers to it as an anticipatory breach.

The easiest example of repudiation is where the repudiating party states they are unwilling or unable to perform their obligations. A party’s conduct can also amount to an act of repudiation.

What Do You Do In Response?

If you are the ‘innocent party’ (that is, the contracting party that is willing and able to perform your contractual obligations), then you need to tread carefully and respond appropriately.

If you believe the other party has repudiated the contract, you have a choice to either:

  • continue on with the contract; OR
  • accept the repudiation and elect to terminate the contract.

Remember, repudiation does not itself end the contract. Repudiation simply allows you, as the innocent party, to make an election on how you want to proceed.

You should also ensure that you do not conduct yourself in a way that you accept the repudiation or continue performance of the contract without actually meaning to.

A cautionary warning: if you wrongfully form the view that the other party has repudiated the contract and terminate the contract based on this, and you are not entitled to do so, you could be held to have actually repudiated the contract yourself. It is critical that you analyse the circumstances carefully.

What Happens If You Elect to Terminate the Contract?

Once parties terminate the contract, then they obviously don’t need to fulfil their contractual obligations. After acceptance is made out, then the innocent party may consider whether they have a cause of action to obtain damages.

What Is Contract Frustration? 

In certain situations, the repudiating party may be unable to perform because it is impossible. ‘Contract frustration’ is when an unforeseen event, or series of events due to neither party’s fault, has made performing the party’s obligations under the contract impossible. To establish this, the frustrated party must prove the event was unforeseeable, that is, both parties did not anticipate it. This event must make the obligations either impossible to perform or materially different. If your contract does not have a force majeure clause, the repudiating party may be able to establish frustration. 

Examples of frustrating acts include: 

  • a change in the law, making the performance of a contract illegal;
  • excessive delay in performance due to unforeseen circumstances;
  • physical destruction of the subject matter of the contract; 
  • death of one of the parties to the contract;
  • natural disasters;
  • war; and 
  • terrorist attacks.

If your contract is frustrated, the Court will discharge both you and the other party to the contract from any outstanding contractual obligations. However, liability remains for any obligations that parties to the contract performed prior to frustration. 

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Key Takeaways

Repudiation is a complex area of law. The test of whether a party has repudiated is an objective test that the court undertakes, and depends on the facts of each matter. Put simply, whether there is an anticipatory breach or repudiation of a contract will involve careful analysis of the actual terms of the contract and the obligations of each party, and then the conduct/statements of the parties.

If you believe an act of repudiation has occurred, then it is important you obtain legal advice on whether it has actually occurred and what steps you should take next. If you need assistance with the repudiation of a contract, contact LegalVision’s commercial contract lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is repudiation of a contract?

Repudiation occurs when one party illustrates that they no longer intend to be bound to their obligations under the contract.

What happens after repudiation?

If the other party had repudiated their contract with you, you can either continue with the contract or elect to terminate the contract.

What happens after termination?

After the contract is terminated, neither party needs to continue on with the contractual obligations. You may also be able to consider whether you have a cause of action to claim compensation from the other party.

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