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. Repudiation of a contract, as it’s also known, attracts significant consequences and requires appropriate consideration.
What is Repudiation of a Contract?
At its simplest, 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. Repudiation is seen to be quite a serious matter and the court requires a ‘clear indication’ that a party is unready or unwilling to perform the contract. Because it is often before an actual breach of a contract, it can be referred to as an anticipatory breach.
The easiest example of repudiation is where a party openly states that they are either unwilling or unable to perform their obligations under the contract. 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 of itself end the contract, it 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’s then 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 fulfill their contractual obligations. After acceptance is made out, then the innocent party may consider whether they have a cause of action to obtain damages.
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 following this. Questions? Get in touch with our disputes team on 1300 544 755.