In Telford Homes (Creekside) Ltd v Ampurius Nu Homes Holdings Ltd (2013) the Court of Appeal considered what amounts to a repudiatory breach. The Court of Appeal held that a High Court judge had erred in finding that an investor had been entitled to terminate an agreement for a 999 year lease of the commercial units of four mixed-use blocks on the ground that the construction company's delay in building two of the blocks had been a repudiatory breach of contract. The Court held that the construction company's breach of certain terms under the contract could not be construed to constitute a repudiatory breach of the agreement at the time that the investor sought to terminate the contract.

Background

In 2007, Telford Homes (Creekside) Ltd ("Telford"), a property development and construction company, acquired a mixed-use development scheme which included the construction of four building blocks known as blocks A to D. Ampurius Nu Homes Holdings Ltd ("Ampurius") entered into a 999 year lease agreement with Telford for the lease of the commercial units in the four blocks. The target date for completion of blocks C and D was set for July 2010 with blocks A and B due for completion in February 2011.

Having completed the first phase of the construction, Telford was facing problems with securing further development finance and stopped works on blocks A and B in June 2009. Telford informed Ampurius of the cessation of work on 2 July 2009 and correspondence between the parties continued. In or around October 2009, Ampurius wrote to Telford to give notice that the cessation of work amounted to a repudiatory breach and that it reserved its rights in relation to termination.

Telford continued its efforts to secure financing and having initially informed Ampurius that work on blocks A and B would recommence in January 2011, on 15 September 2010, Telford informed Ampurius that work on blocks A and B would start in October 2010. Unknown to Ampurius, work on blocks A and B started on 4 October 2010. Ampurius purported to terminate the contract on 22 October 2010.

In the High Court, Roth J held that the delay in carrying out the works to blocks A and B and the deliberate decision to put the works to blocks A and B on hold resulted in breaches of the contract and that by the end of 2009, if not before, the failure to carry out the building works with due diligence "had become sufficiently substantial to be repudiatory". Further, he held that Telford's failure, by July 2010, to use reasonable endeavours to complete the works on or around the target date or as soon as reasonably possible thereafter, constituted a second repudiatory breach of the contract.

Telford appealed, and argued that its breaches of the contract had not been repudiatory. Telford argued that Roth J: (i) had not adequately analysed the benefit that Ampurius was intended to receive under the contract in order to decide whether the breaches of contract had deprived Ampurius of at least a substantial part of that benefit; and (ii) in assessing whether the breaches of contract were repudiatory, he should have concentrated on the date of 22 October 2010, being the date that Ampurius purported to terminate the contract.

Decision

The Court of Appeal held that the key benefit to Ampurius under the contract was the 999 year lease in blocks A to D and that the delay in completing the building works had deprived Ampurius of only a small fraction of the overall benefit under the agreement and accordingly, that it had not been deprived of "a substantial part of the benefit . . . let alone substantially the whole of that benefit". Further, that any financial loss suffered by Ampurius was quantifiable and "readily calculable" and set against the overall development cost was not of a "scale of magnitude" to warrant it being characterised as repudiatory.

The Court of Appeal disagreed with Roth J's view that the uncertainty at the end of 2009, with regards to whether the works to blocks A and B would recommence, was a separate and actual repudiatory breach of the contract. It permitted Ampurius to terminate the agreement even though the work had recommenced at the time that it purported to exercise its rights. The Court of Appeal held that Roth J should not have frozen his assessment of uncertainty to the situation as it stood at the end of 2009; but he should have taken into account the fact that works on blocks A and B had recommenced before the purported termination. The Court of Appeal found that any breach of contract, whether in relation to an anticipatory or actual repudiatory breach, was capable of remedy and if steps had been taken to remedy the breach before the right to terminate was exercised, then the position as at the date when the injured party sought to terminate the contract should be taken into account.

Comment

The Court of Appeal judgment highlights the importance of determining the core benefit to be derived under the contract before commencing any analysis of whether a breach goes to the root of an agreement and deprives the injured party of substantially the whole benefit to be obtained under the contract. Perhaps more importantly, the Court of Appeal also confirmed that where a breach of contract, whether anticipatory or actual, is capable of being remedied, the Court should give due consideration to whether the breach has been remedied at the time that an injured party seeks to exercise its right to terminate the contract. An injured party wishing to terminate a contract has always had to be careful not to "jump the gun" and strike too soon when seeking to exercise its right to terminate a contract for repudiatory breach.

This judgment indicates that when analysing a claim for repudiatory breach the Court will take into consideration whether steps have been taken to remedy the breach. Whilst the Court of Appeal did not go as far as saying that a reservation of rights would be treated as being waived if the delay between a breach and exercise of rights was such that it allowed for the breach to be remedied, it did state that the remedial steps taken by a party would be an important factor that should be taken into account in the final analysis. It also confirmed that the correct time to assess the effect of the breach should be the date at which the injured party seeks to exercise its rights (and not when it reserves it position).