Repudiation of a contract
Sanderson v Simton Food (High Court) [2019]
‘Repudiation’ [of a contract] is the term which describes the conduct of a contracting party which entitles the other to treat the contract as terminated at common law. Such a right to terminate can exist independently of express contractual rights to terminate.
Facts:
Simton Food, as their names suggests, is a producer of food products mostly related to the Indian sub-continent. Sanderson is a provider of IT products and services. The parties entered into a contract dated 10th November 2014 ("the Contract") for the supply of software, equipment and associated services. The key question was when and by whom the Contract was terminated. The Contract was contained in a two-page document itemising the goods and services to be supplied together with payment schedules. The parties expressly incorporated Sanderson’s “Standard Terms". The project made only intermittent progress. Crucially key personnel changes occurred at Simton including the appointment of a finance director who seemed to make clear his dislike of implementing new IT systems. Simton got into arrears in making payments under the Contract. In early 2016 the parties agreed to re-schedule payments and ‘re-start’ the contract in 2017. There is a dispute as to whether they agreed to re-start the project on 1st February 2017 or "around that time". Nothing seems to have been signed amounting to a formal contract variation.
In early 2017 the parties exchanged emails. Sanderson asked for a kick-off meeting to be scheduled and a date to be confirmed for the project to be re-started. Simton never arranged the meeting and failed to confirm when the project would be re-started. Instead Simton raised a number of queries about the software and the resources required to implement it. There was a suggestion of a lack of confidence in the supplier and that the role of Sanderson should be reduced to that of ‘the senior supplier’ with more work being undertaken in-house. The Contract was not particularly big in purely financial terms, probably only just running into 6 figures. The Contract specified express conditions for termination and contained an ‘entire agreement’ clause.
Sanderson’s legal advisors wrote to Simton stating that by rejecting Sanderson’s position [regarding the obligation to re-start the project] and seeking to impose its own, new and onerous terms on the Contract, it was in repudiatory breach. Notice was then given that accepted Simton's repudiatory breach so as to bring the Contract to an end. Simton counter-claimed that, by its action, Sanderson had itself committed a repudiatory breach and claimed damages for breach of contract calculated with reference to the amounts that it had already paid.
Decision:
The court commented that the Contract required close collaboration between the parties to define the customer’s business requirements, implement the system and ensure that customer employees were properly trained. In the absence of a specific contractual provision requiring the parties to co-operate with one another, a duty to do so would be implied.
The question was whether, by words or conduct, the customer demonstrated an intention to abandon and refuse to perform its obligations under the Contract. For this purpose, a contracting party is to be treated as having refused to perform its obligations if it indicates an intention to perform but "only in a manner substantially inconsistent with [its] obligations". The same can occur if a party refuses to perform unless the innocent party complies with conditions not required by the Contract. Conversely, "a party who takes action relying simply on the terms of the contract, and not manifesting by conduct an intention to abandon it, is not to be treated as repudiating it…". Looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of the innocent party, did the other party “clearly show an intention to abandon and altogether refuse to perform the contract"?
The judge found that Simton had repudiated / renounced the Contract based on these principles. The Contract was brought to an end when, by letter dated 28th April 2017, Sanderson's solicitors, accepted Simton’s repudiatory breach. By this point Sanderson was reasonably entitled to infer that Simton had no intention of performing its obligations under the Contract.
Points to Note:
- The case highlights that simply refusing to cooperate is often a dangerous strategy for a contracting party irrespective of the express terms of a contract.
- Where something as significant as a suspension of a contract for as long as 12 months is being agreed, make sure exactly what has been agreed has been properly documented in writing in order to avoid uncertainty.