Determining whether and when a party's failure to perform in strict accordance with contract terms can be treated as a repudiatory breach sufficient to entitle the other party to terminate the contract is one of the most difficult issues under English contract law. An incorrect decision can turn the tables and result in a claim for damages for repudiatory breach by the purported contract breaker.
A recent case, Eminence Property Developments Ltd v Kevin Christopher Heaney  EWCA Civ 1168, involved just such a question: Is a party in repudiatory breach if it serves a notice to complete, attempting to make time of the essence under contracts of sale, and then mistakenly treats the contracts as terminated prior to the expiry of the notice period, thereby enabling the other party to terminate the contract and seek damages for breach? The English Court of Appeal, in addition to making some useful observations on the test for repudiatory breach, decided that an innocent mistake in the grounds for declaring the sale contracts to be at an end was not a repudiatory breach of contract, as it did not objectively demonstrate a clear intention to abandon the contracts and refuse entirely to perform. This conclusion may be of some comfort in certain situations, but the area remains one of continuing difficulty and fraught with peril.
Put simply, under English contract law repudiatory breach occurs where a party commits a serious breach of contract or has indicated an intention not to perform the contract in the future. Such a breach entitles the other party to discharge itself from further obligations, instead of, or in addition to, claiming damages. It is for the innocent party to choose (i) to treat its future obligations as discharged and claim damages; or (ii) to affirm the contract and claim damages.
If a party chooses to discharge its obligations it must follow the correct contract procedure, lest the other side argue that the wrongful termination was itself a repudiation of the contract and in turn seek damages.
English law does not provide a tool for unraveling the factual issues presented, such as that found in Section 2-609 of the Uniform Commercial Code in the United States. Pursuant to that provision, when reasonable grounds for insecurity arise with respect to the performance of either party, the other may in writing demand adequate assurance of due performance and, until he receives it, may if commercially reasonable suspend any performance for which he has not already received the agreed return.
Eminence arose out of a set of contracts for the sale and purchase of an apartment block, made between the owner Eminence and a property developer Mr. Heaney. While the stated contractual completion date was not itself in dispute, the contracts required that a notice to complete had to be served before time for completion became of the essence. Otherwise, absent such a time of the essence provision, any failure to meet the stated completion date would not be considered a material breach. After the contracts were nego tiated and agreed, the UK property market went into a steep decline and Mr. Heaney entered into negotiations with Eminence for a revised and lower purchase price, but agreement could not be reached. The day after the stated contractual completion date passed, Eminence had its solicitors serve notices to complete on Mr. Heaney's solicitors, attempting to make time of the essence. However, in drafting the notices they incorrectly calculated the final date for completion, stating that it was 15 December when, in fact, it should have been 19 December 2008. Mr. Heaney took no steps to complete by either date.
On 17 December, apparently in reliance on the incorrect 15 December date having passed without com pletion, Eminence's solicitors served notices of rescission and sought to exercise termination rights under the contracts, including claiming damages and the right to retain and apply the deposits. On 18 December, Mr. Heaney's solicitors countered that Eminence's act of prematurely rescinding the contracts constituted a repudiatory breach of contract by Eminence that was accepted by Mr. Heaney, and he therefore now considered himself discharged from all further contractual obligations.
In the High Court litigation that followed, the first instance judge found for Mr. Heaney and determined that the premature notices of rescission sent on 17 December 2008 on their face constituted a repudiatory breach of contract and that the accompanying letter of the same date evidenced a clear refusal by Eminence to perform its future obligations.
The Court of Appeal
Eminence appealed to the Court of Appeal which allowed the appeal, holding that the notices of rescission did not constitute a repudiatory breach of the contract. In handing down judgment, Lord Justice Etherton made the following observations regarding repudiatory breach:
- On the issue of identifying if a repudiatory breach has taken place: whether, looking objectively at all the circumstances from the perspective of a reasonable person in the position of the innocent party, the alleged contract breaker has shown such an intention to abandon and altogether refuse to perform the contract as to deprive the innocent party of a substantial part of the benefit to which he/she is entitled under the contract.
- The determination of repudiatory breach is, therefore, highly fact-sensitive and comparison with other decisions is of limited value.
- Etherton LJ nevertheless proceeded to distinguish the Eminence case from the decision of the House of Lords in The Nanfri  AC 757. The Nanfri was a shipping case in which charterers made deductions from hire that owners did not accept. The owners then instructed the master not to agree to any freight pre-paid bills of lading and withdrew the authority of charterers and their agents to do so. The House of Lords held that charterers had been entitled to make the relevant deductions from hire under the charters and that by their retaliatory conduct the owners had repudiated the charters. Etherton LJ observed that the mistake of the vendor in Eminence could not be compared with the owners' "cynical and manipulative conduct" in The Nanfri. Indeed, the owners' conduct in The Nanfri was deemed such as to lead the charterers reasonably to believe that the owners would unilaterally issue similar orders again whenever they wished to force the charterers to comply with owners' interpretation of the charter. In contrast, Eminence was willing and able to complete. Furthermore, Mr. Heaney's solicitors knew, and a reasonable person would have realised, that Eminence's solicitors had made an error. Objectively, the mistake was "screamingly obvious" and had it been pointed out to them, Eminence's solicitors most likely would have corrected the mistake but they were not given a reasonable opportunity to do so. Instead, Mr. Heaney's solicitors chose to remain silent and allow Eminence's solicitors to compound their error and then used that in an effort to "fortuitously extricate" their client from what had become a bad deal.
- Any objective assessment of the intention of the contract breaker must consider all relevant facts and circumstances. Thus, as Lord Wilberforce had observed in Woodar Investment Development Ltd v Wimpey Construction UK Ltd  1 WLR 277, subjective intention will not necessarily be decisive. It may suggest or supply a motive but it does not, standing alone, satisfy the requirement to determine, on an objective basis, a clear intention to abandon the contract.
Applying these principles to the case at hand, rather than relying on any one factor such as the rescission notices, all the circumstances had to be considered to the extent they bear on an objective assessment of the situation. While the alleged contract breaker's motive might be irrelevant to the issue of his intention, it may be relevant to an objective analysis of what the other party ought reasonably to have been aware of and the entire context in which the alleged repudiatory breach ought to be viewed. Indeed, regardless the decline in the property market it remained in Eminence's interests to perform. Therefore, Etherton LJ found it was not possible to con clude on all these facts that Eminence had any reasonable or objective intention to abandon and refuse to perform the contracts. Additionally, the notices of rescission stated that they were being served in accor dance with the terms of the contracts to exercise Eminence's remedies under those contracts. It appeared quite clear to Etherton LJ on these facts that rather than intending to repudiate the contracts, Eminence was trying to implement the stated procedure for termination in order to exercise available contractual remedies, but had made a mistake in that attempt. The mere fact standing alone that the premature notices of termination were facially inconsistent with the contracts, therefore, did not and could not rise to the level required to support the necessary conclusion that Eminence unequivocally intended to abandon and refuse to perform and thus had repudiated the contracts.
Lord Justice Etherton's discussion provides a useful reminder of the totality of circumstances approach necessary when analysing whether a particular action or non-action amounts to a repudiatory breach of contract. The majority decision and the divergent interpretations advanced in Woodar, however, empha sizes just how difficult this can be. There is considerable room to wiggle between the "screamingly obvious" mistake in Eminence and "cynical manipulation" in The Nanfri. Indeed, Lord Salmon anticipated just such troubles in his dissenting judgment in Woodar. There he observed that when a mistake is alleged to be honest, it could be very difficult to prove that such a "mistake" was dishonest. While Eminence's mistake here was held on all the facts to have been obviously honest, future mistakes under any differing set of circumstances may well be found not to be so. Therefore, extreme caution remains the watchword of the day when seeking to terminate an English law contract for an alleged anticipatory breach.