Introduction to Repudiation in Contract Law
The general rule in contract law is that both parties are bound by all the terms and conditions in a contract and must see the agreement through. Contracts are usually in writing but there are also circumstances where contracts are formed verbally, which depends on whether a party’s actions demonstrate an intention to create contractual obligations.
Unless there is a written clause in the contract to validly terminate the contract, all parties are legally required to perform the contract in good faith and willingly at all times.
However, what happens when one party does not want to hold up their end of the deal? Depending on the facts of the case, this may be considered a repudiation of the contract.
What is Repudiation?
Repudiation occurs when a party’s conduct demonstrates an inability or unwillingness to perform the contract. This occurs if a party evinces an intention to no longer be bound by the contract or an intention to fulfil the contract in a manner that is substantially inconsistent with the fundamental obligations: Shevill v Builders Licensing Board (1982) 149 CLR 620, cited in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115.
This is determined through an objective test, turning upon the objective intention conveyed to a reasonable person by the acts and omissions of that party: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623. This means that a party can repudiate a contract even if they have every desire, or subjective intention, to perform the contract: Universal Cargo Carriers Corp v Citati [1957] 2 QB 401.
Repudiation can be established by either:
- Oral or written communications, actions or omissions: Carr v JA Berriman Pty Ltd (1953) 89 CLR 327
- A series of smaller breaches which amount to a total repudiation of the contract: Progressive Mailling House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
- A party insisting on an incorrect interpretation of the Contract: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
What Options are Available if a Party has Repudiated a Contract?
It is important to note that the repudiation itself does not bring the contract to an end. If an innocent party is satisfied that a party has repudiated the contract (amounting to an actual or anticipatory breach), they can choose to either:
- Accept the repudiation and then proceed to formally terminate the contract
- Demand that the other party continue performance of the contract. This is called affirming the contract, and the contract remains on foot. However, if the innocent party chooses to do so, both parties remain bound to the terms of the contract: Bowes v Chaleyer (1923) 32 CLR 159
The way an innocent party responds to a repudiation of a contract presents different avenues for remedies under the law.
However, termination of a contract for repudiation is fraught with dangers, which means that it is advisable to contact a legal professional before doing so. Most crucially, in the event a party wrongfully assumes repudiation has occurred and purports to terminate the contract, the party doing so can mistakenly repudiate the contract themselves, which amounts to a breach of contract.
Other issues that can arise in contractual disputes include:
- Frustration of the contract, where the contract cannot be performed due to an unforeseen event by both parties at the time of entering the agreement;
- Abandonment of the contract, where the actions of all parties show an objective intention on the part of all parties to no longer to treat the Contract as binding; and
- Concepts of good faith, which includes considering what actions constitute the legal obligation to act in good faith at all times and what is considered bad faith.
How We Can Help
Repudiation is a complex area of contract law and relies on the specific facts of each case. Given this complexity and the severe consequences of wrongfully terminating a contract for repudiation, we strongly advise you contact us before terminating any contract for repudiation.
At Valorum Law Group, we can assist by providing advice if you believe that you have a claim for repudiation, including providing commercially minded advice as to the best route to take in order to enforce your rights in light of all the relevant business matters affecting you. We can also assist you if someone has claimed that you have repudiated a contract.
If you have any queries, please do not hesitate to contact us at admin@valorumlaw.com.au or voregan@valorumlaw.com.au. Our expert contracts lawyers are on hand to provide advice on a wide range of contractual matters.
The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.
Contributors: Valentina O’Regan, Harry Chen
