WK 10 - Termination- repudiation, frustration PDF

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week 10 Termination- repudiation, frustration...

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TERMINATION – REPUDIATION Repudiation of a contract occurs when a party's conduct indicates that it no longer intends or able to abide by the contract. Repudiation may be made manifest in several ways:  By words or conduct.  Carr v JA Berriman Pty Ltd (1953) 89 CLR 327  By a combination of small breaches, adding up to total repudiation  Progressive Mailling House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17  By an insistence upon an erroneous interpretation of the contract.  DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 A repudiation of a future term or obligation entails that the repudiating party is deemed to have breached it regardless of whether the time for performance has come or not (thus repudiation is also termed 'anticipatory breach'). If a party is deemed to have repudiated the entire contract, the aggrieved party will be entitled to terminate.  Repudiation of the contract by one party entitles the other to terminate and receive damages. However, it is possible that the repudiating party does not repudiate the entire contract but only certain obligations. In this case, the Aggrieved party will only acquire the right to terminate if the repudiating party repudiated an obligation which, if breached, would grant a right to terminate ANTICIPATORY BREACH An anticipatory breach is when a contract is already repudiated before it is to be performed (i.e. a party makes it clear that it will not transfer the money on the date set). The Aggrieved party will be entitled to terminate even before the the actual breach, and damages will not be affected. Note that a party which elects not to terminate upon an anticipatory breach will still be entitled to terminate again when the breach actually occurs. CONDUCT AMUNTING TO REPUDIATION Repudiation is measured objectively and discounts the subjective intention of the party. This means that the fact that a party 'wishes' to perform but can't does not excuse it from being deemed as repudiating the contract.  Universal Cargo Carriers Corp v Citat [1957] 2 QB 401, 437 Repudiation can be expressed in a number of ways. 

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Express statement - a party may expressly notify the other party that it is no longer willing or able to perform his obligations. In the case of an express statement, the Aggrieved party will be required to mitigate its loss. Repudiation inferred from words or conduct - When there is no express statement, a party's conduct or words may signify repudiation.

It may be inferred, through the actions and words of a party, that it has repudiated the contract. For example, if a party sells the subject matter of the contract to a third party, it can be inferred that it is repudiating the contract. This is given illustration in  Carr v JA Berriman Pty Ltd Repudiation may also be inferred from a combination of small breaches. This occurs when one party repeatedly breaches the contract in small ways, which, when added up, show that the party does not comply with the agreement. This was discussed in  Progressive Mailling House Pty Ltd v Tabali Pty Ltd  As long as a breach or repudiation has indeed occurred, the Aggrieved power will be entitled to damages regardless of whether it chose to terminate the contract because of a common law right (the right to terminate by breach) or because of a contractual power to do so (the right to terminate by agreement).  This means that if repudiation or a breach has occurred, a party can still obtain damages if it terminates the contract as per its power to do so under the contract. It does not have to terminate using the breach/repudiation.

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While minor breaches viewed in isolation may not be considered to amount to repudiation of the contract, several consecutive minor breaches may amount to repudiation.

 Repudiation due to an erroneous interpretation of the contract. In other words, a party will be repudiating if it insists that it has certain rights which the contract (by its true construction) doesn't entitle it to, or if it requires performance to be done in a way which the contract does not call for. The insistence of the repudiating party on the erroneous interpretation can be deemed by the courts as and indication that the party is unwilling to act in accordance with the actual contract, and therefore it is repudiating. This was discussed in  DTR Nominees Pty Ltd v Mona Homes Pty Ltd Repudiation may be implied from the promisor’s words or conduct, if a reasonable person in the shoes of the innocent party would clearly infer that the other party would not be bound by the contract, or would fulfill it only in a manner substantially inconsistent with that party’s obligation, and in no other way: Laurinda v Capalaba Park Shopping Center.

REPUDIATION CASES Carr v J A Berriman (1953) 89 CLR 327 FACTS:  Berriman and Carr entered into a contract for Berriman to build a factory on Carr’s land in Sydney. The architect was Oser, who was an agent of Carr for the building contract. Carr was to level the land by 31 May and was to supply steel to Berriman for a contractor to process. The fabrication of the steel was a major part of the contract. Carr failed to level the land in time and contracted itself with Acos to fabricate the steel. Berriman claimed there were two breaches of the contract, and terminated the contract. Carr and Berriman sued each other for the breach of the contract. ISSUE:  Did Carr breach the contract when he failed to level the site and contracted with Acos to fabricate the steel. Was Berriman entitled to terminate the contract after the two breaches of contract by Carr? DECISION:  Carr had committed two breaches of the contract.  The contracting for fabrication of the steel to Acos amounted to a repudiation of the contract by Carr, and Berriman was entitled to end the contract.  A claim by Carr that Oser, the architect, had a direction to take work off Berriman, was rejected as Oser merely informed Berriman that the fabrication of steel would be done by Acos. Oser did not exercise a power to modify the works. JUDGENT: William J or Fullagar J  There were two breaches of the contract - the failure to make arrangements and the deliberate decision to do the steel work with a third party despite what was decided in the contract.  The conduct of the Plaintiff in both cases amounted to repudiation - he has given the Defendant “the right to believe that the contract would not be performed according to its true construction(@ 351) ]” and that "he did not intend to bound by the contract within the meaning of the authorities”(@ 350)  The Plaintiff can argue both that he didn't intend to repudiate his obligation to make the preparations (heavy rain out of his control stopped him from moving the machinery and making preparations) and that the Defendant forfeited his right to terminate for that breach because he kept on going with the contract.  However, the second breach is deliberate and definite repudiation. It also has even greater force combined with the first breach to display utter repudiation on behalf of the Plaintiff.  Thus, the Defendant had the right to terminate. RATIO:  A principal cannot unilaterally decide to take work off the contractor.  A variation clause will only be effective if the Superintendent is exercising his power to vary the works and not simply informing the contractor that the work had been taken away.  if a party sells the subject matter of the contract to a third party, it can be inferred that it is repudiating the contract.  A repudiation may arise from a single act or from a combination of acts 

A classic example of how the courts may interpret the conduct of a party to mean they had repudiated the contract came in

------------------------------------------------------------------------------------------------------------------------------------Progressive Mailing House v Tabali (1985) 157 CLR 17 FACTS:  Respondent [Tabali, lessor] leased a property to the Appellant [Progressive Mailing, lessee].  They had a lease in a registrable form which was left unregistered. A clause allowed the Respondent to retake possession of the property [re-enter] if rent was unpaid.

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Another clause required the Respondent to make certain arrangements before the Appellant enters, and then notify the Appellant. Appellant took possession of the property prematurely. He then contended that the Respondent failed to make the arrangements. The Appellant failed to make payments, and also made a number of other small breaches of the agreement, which the Respondent demanded remedy for. None was supplied by the Appellant. The Respondent sued in order to regain possession, obtain damages and outstanding rent.

 ISSUE:  was repudiation inferred from words or conduct DECISION:  In this case, the combination of the unwillingness to pay rent as well as other minor breaches formed a conduct which amounted to repudiation. JUDGENT: Mason J, with whom Wilson and Dawson JJ agreed  Repudiation is important here because the Respondent can only recover damages for the loss of benefit (rather than just the outstanding rent etc) through repudiation.  The issue is whether the fact that the agreement contains the re-entry clause mean that the Respondent uses that clause and thus cannot claim repudiation.  However, this isn't the case. As long as a breach or repudiation has indeed occurred, the Aggrieved power will be entitled to damages regardless of whether it chose to terminate the contract because of a common law right (the right to terminate by breach) or because of a contractual power to do so (the right to terminate by agreement). "this does not mean that such damages are recoverable only in the event of discharge for breach...This essential foundation may be established by a common law rescission of the contract...or by a termination of the contract in the exercise of a contractual power...In either event, assuming repudiation or fundamental breach by the defendant, he...is liable for damages for the loss of bargain(@31)." "The well-recognised distinction between common law rescission and termination pursuant to a contractual power supplies no reason in principle why such damages are recoverable by the innocent party in one case and not the other, provided of course that the exercise of the power is consequent upon a reach or default of by the defendant which would attract an award for such damages(@31)."  In this case, the combination of the unwillingness to pay rent as well as other minor breaches formed a conduct which amounted to repudiation. "It is not suggested that the breaches so far discussed that the breaches so far discussed, viewed in isolation, amounted to a repudiation or fundamental breach of the lease. It is the breach of the covenant to pay rent, in association with the other breaches...(@35-36) " RATIO:  While minor breaches viewed in isolation may not be considered to amount to repudiation of the contract, several consecutive minor breaches may amount to repudiation. ------------------------------------------------------------------------------------------------------------------------------------Maple Flock v Universal Furniture Products (Wembley) [1934] 1 KB 148 FACTS: Instalments. There was a severable contract for the sale of 100 tons of flock to be delivered by instalments. The first 15 instalments of the flock were satisfactory but the 16th was defective. This was followed by four more satisfactory instalments. The buyers sought to repudiate the entire contract. ISSUE:  Is one unsatisfactory delivery worth of repudiation ? DECISION:  Contract was not able to be repudiated JUDGENT: The Court of Appeal held that they could not do so. The Court of Appeal said that where there is a sale of goods under a severable contract and only some of the instalments are defective, whether the buyer will be entitled to reject the entirety of the goods and regard the entire contract as

repudiated will turn on the true meaning of s 31(2) with the main tests to be considered being, first, the quantitative ratio which the breach bears to the contract as a whole and, second, the degree of probability that such a breach will be repeated. RATIO: In Maple Flock Co. Ltd v .Universal Furniture Products (Wembley) Co. Ltd [1934] 1 KB 148, it was held that factors that might usefully be considered are: (1) the proportion the failure bears to the whole contract one missed delivery out of twenty might not suggest repudiation whereas one out of three very well might; (2) the likelihood of a failure recurring. ------------------------------------------------------------------------------------------------------------------------------------DTR Nominees v Mona Homes P/L (1978) 138 CLR 423 FACTS:  The Vendor [DTR] had a contract for sale of land with the Purchaser [Mona].  The Vendor was supposed to subdivide the land before the transaction took place.  The Vendor interpreted the contract incorrectly, assuming that he can subdivide the land in two stages.  The Purchaser wanted to rescind the contract because of the Vendor's way of differing from the contract.  Both parties argued that the other repudiated the contract (the Purchaser arguing that the Vendor acted inconsistently and insisted on an erroneous view, the Vendor arguing that the termination of the Purchaser was wrongful and therefore he is deemed as repudiating). ISSUE:  Repudiation - Erroneous interpretation of the contract DECISION:  In finding for DTR Nominees, the court stated that although a breach of a condition of the contract had occurred, this did not justify recision. No attempt was made by Mona to calrify the situation. There for repudiation was not justified because had mona calrified with DTR they may not have purachesd the property to begin with JUDGENT:  The Purchaser claims that the conduct of the Vendor shows that he has an erroneous interpretation of the contract and is not willing to act in accordance with the true construction on the contract. Therefore, he is repudiating.  This principle of law is true in some cases - "no doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms [1]."  However, it is possible that the erroneous party would be willing to perform the contract according to the actual interpretation once he is notified that he has misinterpreted the contract. In those cases, he will not repudiating.  In this case, the Vendor did not realise that the Purchaser insists on a different way. No attempt was made by the Purchaser to tell the Vendor that he has misinterpreted the contract and therefore could be deemed repudiating. Maybe of the Purchaser has told him, he would have acted properly.  The Vendor thus did not repudiate the contract, and the termination was wrongful.  Similarly, the Vendor claimed that the termination was wrongful and thus the Purchaser is repudiating.  However, the Purchaser wasn't repudiating the contract...he was only rescinding the contract on the basis that his assumption that the Purchaser is repudiating.  This means they did not actually repudiate the contract...they repudiated the Vendor's misinterpreted version of the contract.  This repudiation, when the Vendor is the party at error, does not entitle the Vendor to the right to terminate, because he is not 'an innocent party'.  This means neither sides repudiated, and the contract was still ongoing at the time they thought it was over.  However, by now, the parties should be deemed as having mutually abandoned the contract. RATIO: HOWEVER A RIGHT TO TERMINATE FOR REPUDIATION WILL NOT ARISE WHERE ;

It is sought to be based on upon an anticipatory repudiation caused by the other party having an incorrect interpretation of the contract, so long as one of two scenarios apply 1. The first scenario occurs where there is bona fide dispute as to the true construction of a contract expressed in terms that are by no means clear 2. The second scenario occurs where, although there is continued adherence to an incorrect interpretation of the contract, it does not persist willy nilly in the face of clear enunciation of the true agreement OTHER Universal Cargo v Citati [1957] 2 QB 401 FACTS: The shipowners had cancelled a voyage charter-party because no cargo had been provided. The court asked what delay could lead to a claim for a repudiatory breach of a contract. ISSUE: DECISION: JUDGENT: Devlin J said: ‘This case gives rise to a difficult question. How long is a ship obliged to remain on demurrage, and what are the rights of the owner if the charterer detains her too long? Translated into the terms of general contract law, the question is: Where time is not of the essence of the contract – in other words, when delay is only a breach of warranty – how long must the delay last before the aggrieved party is entitled to throw up the contract? The theoretical answer is not in doubt. The aggrieved party is relieved from his obligations when the delay becomes so long as to go to the root of the contract and amount to a repudiation of it. The difficulty lies in the application, for it is hard to say where fact ends and law begins. The best solution will be found, I think, by a judge who does not try to draw too many nice distinctions between fact and law, but who, having some familiarity both with the legal principle and with commercial matters and the extent to which delay affects maritime business, exercises them both in a common-sense way. This is the sort of solution which, upon the supposition that it was acceptable to business men, the commercial court was created to provide.’ and ‘But a party to a contract may not purchase indefinite delay by paying damages . . When the delay becomes so prolonged that the breach assumes a character so grave as to go to the root of the contract, the aggrieved party is entitled to rescind. What is the yardstick by which this length of delay is to be measured? Those considered in the arbitration can now be reduced to two’ (as in the present appeal) ‘first, the conception of a reasonable time, and secondly, such delay as would frustrate the charter-party . . In my opinion the second has been settled as the correct one by a long line of authorities’. RATIO: a right to terminate can arise due to repudiation or anticipatory repudiation of the contract by the other party. -------------------------------------------------------------------------------------------------------------------------------------Woodar Investment Development v Wimpey Construction (UK) [1980] 1 WLR 277 FACTS: Wimpey Construction UK Ltd contracted to buy land from Woodar Investment Development Ltd for £850,000. On completion of the purchase, Wimpey was meant to pay a further £150,000 to a third party, Transworld Trade Ltd.[1] Wimpey terminated the contract alleging they were allowed where statutory authority had started a compulsory purchase. Woodar said this was a repudiatory breach and claimed the full £1m. The claimants argued that Jackson v Horizon Holidays Ltd should be followed so they could claim for a benefit to be given to a third party. ISSUE: DECISION: JUDGENT: The House of Lords held by a majority (Lord Salmon and Lord Russell dissentng) that there had in fact been no repudiatory breach. But as obiter dicta they discussed where the Court of Appeal was right that if Woodar did have a good claim for breach of contract, they could claim damages on behalf of Transworld Trade Ltd. Lord Wilberforce said that Jackson could be supported on its special facts, as a type of contract including family holidays, ordering meals in restaurants and hiring a taxi for a group. But here the ‘factual situation is quite different.’ RATIO: Bowes v Chaleyer (1923) 32 CLR 159

FACTS:  Under a contract Bowes agreed to purchase around 1800 yards of silk form Chaleyer. This was on the basis that half the total amount would be supplied as soon as possible and the other half 2 months later.  A short time after Bowes attempted to cancle the contract. Chaleyer continued on as if the contract was still in place and sent a number f shipments of silk, but these shipments did not compley with ...