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What is Repudiation in Australian Contract Law?

An Overview on Repudiation in Australian Contract Law

Repudiation is a modern legal term that has adopted many meanings within contemporary contract law. However, repudiation may be generally characterised as the repudiation of obligation (Williston, 1901; Carter, 2018). Repudiation is defined as a “clear absence of readiness or willingness to perform” (Carter, 2012, p. 298). Legal scholars have been able to historically trace the concept of repudiation to English law during the 16th century (Carter, 2012). However, the modern doctrine of repudiation, as understood in contemporary contract law, developed from the 19th century decision of Hochster v De La Tour (1853) 1 CLR 846.

In this article, we address the frequently regarding repudiation of contract and how repudiation may arise, including:

How is Repudiation relevant to a Contract?

Contract law may be viewed as a “law of enforceable promises” (Rowley, 2001, p.565). A promise can be characterised as a promisor’s expression of conduct (whether to act, or to refrain) that induces reliance by a promisee (Rowley, 2001). A promise is enforceable if a breach leads to a legal remedy. However, just as a promisor may fulfill a promise, a promisor may repudiate through non-performance.

Applying this idea of promises in contract law, a breach of contract may arise by repudiation. A termination for breach of contract can be distinguished from termination for repudiation. While there may be an overlap between the two concepts, repudiation occurs “when a party evinces an intention no longer to be bound by [the contract], or to fulfil [the contract] only in a manner substantially inconsistent with his or her obligations” (Seddon & Bigwood, 2023, para 21.12)

Therefore, in the English decision of White and Carter (Councils Ltd) v McGregor [1962] AC 413, the concept of repudiation was described as follows:

“If one party to a contract repudiates it in the sense of making it clear to the other party that he refuses or will refuse to carry out his part of the contract, the other party, the innocent party, has an option. He may accept that repudiation and sue for damages for breach of contract whether or not the time for performance has come ; or he may if he chooses disregard or refuse to accept it and then the contract remains in full effect.”

Contextualising repudiation’s relevance in contract law as departing from a party’s obligation in a contractual relationship, the legal elements involving a contract are briefly summarised:

Legal ElementsSummary
Offer and AcceptanceThere should be communication of offer and acceptance. An offer is made by an offeror, and acceptance of the offer is made by the offeree.
ConsiderationConsideration is an exchange of something that has legal value in return for a promise.
An Intention to Create Legal RelationsParties to a contract should have an intention to create legal relations.
CapacityParties should have capacity to enter into a contract.
CertaintyThe contractual terms should be sufficiently certain and complete.
FormalitiesSubject to the legal requirements of a jurisdiction, compliance as to formality may be required for certain kinds of contracts.

Topics relating to contract law, and consequences of termination, include:

What Conduct can constitute Repudiation?

A contract may be repudiated if the party evidences a lack of willingness or ability to perform the contract. Either an unwillingness or inability is sufficient (Robertson & Paterson, 2020).  This may be established by the promisor’s conduct, whether express or inferred, that amounts to a refusal to perform (Carter, 2018).

What is an Absence of Willingness or Ability?

Readiness and willingness may be defined as “readiness and willingness to perform, that is, the readiness, willingness and ability of a promisor to perform in accordance with the contract” (Carter, 2012, p. 311). However, not all indications of an unwillingness or inability to perform is repudiatory (Robertson & Paterson, 2020). It has been suggested that the absence of readiness or willingness should relate to the whole contract, or particular obligations that are essential or a condition (Robertson & Paterson, 2020).

In summary, the following features of a readiness and willingness may be observed (Carter, 2018):

FeaturesSummary of Features
Ability to PerformA promisor is ready and willing perform only if the promisor is ready, willing and able to perform. This is a question of fact.
Readiness and WillingnessThe threshold of readiness and willingness that is required to be met is determined by the terms of the contract. This is assessed by the standard of contractual duty required by the contract when the performance is due.

Can Repudiation be based on an Express Statement of Unwillingness or Inability?

Repudiation may be shown by a promisor’s express refusal to perform all their unperformed obligations (Carter, 2018). This case is described as “the most straightforward case of repudiation” when a party “makes an express statement to [that] effect” (Robertson & Paterson, 2020, p. 485).

It has been suggested that a party expressly stating repudiation may provide notice of their anticipated failure to perform. In response, the innocent party may make alternative arrangements (Robertson & Paterson, 2020). Commercial reasons may underpin this approach. For example, the non-performing party may form the view that this will reputational damage. Further, legal questions of mitigation may reduce a non-performing party’s liability for loss and damages (Robertson & Paterson, 2020).

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Can Repudiation be based on Words or Conduct?

In the absence of an express statement of unwillingness or inability to perform, repudiation may be implied or inferred from a party’s words or conduct (Carter, 2018). In making this assessment, the courts adopt an objective test, and generally do not examine the parties’ subjective intention (Robertson & Paterson, 2020; Carter, 2018).

To illustrate, the High Court decision of Laurinda Pty Ltd v Capalaba Park Shopping Centre Ltd (1989) 166 CLR 623 described the test of repudiation:

“Repudiation is not ascertained by an inquiry into the subjective state of mind of the party in default; it is to be found in the conduct, whether verbal or other, of the party in default which conveys to the other party the default party’s inability to perform the contract or promise or his intention not to perform it or to fulfill it only in a manner substantially inconsistent with his obligations and not in any other way”.

Therefore, the objective inquiry is based “whether or not the words or conduct of the party would lead a reasonable person to conclude that the party did not intend or was unable to perform the contract.” (Robertson & Paterson, 2020, p. 486). Others also similarly agree by phrasing the question as “whether a reasonable person in the position of the promisee would infer a refusal to perform the promisor’s conduct” (Carter, 2018, p. 695). Regardless the inference of repudiation is described as a “drastic conclusion” and is a “serious matter” that should not be “lightly found or inferred” (Seddon & Bigwood, 2023, para 21.12; Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd [2016] NSWCA 123 at [128]). 

Can Repudiation be inferred from a Combination of Events?

Repudiation may be established by drawing together a combination of events when each event in isolation may not be sufficient to constitute repudiatory conduct (Robertson & Paterson, 2020).

What is Repudiation by Anticipatory Breach?

By the 19th century, anticipatory breach was legally recognised as an important part to the doctrine of repudiation. Anticipatory breach may be viewed as a “species of the genus repudiation” (Robertson & Paterson, 2020, p. 485). This may arise when a party repudiates prior to the time for performance. The other party may elect to terminate the contract by accepting the repudiation (Paterson & Robertson, 2020)

Notably, an anticipatory breach contains a prospective element. As illustrated, a promisor may repudiate their obligation to perform prior to the time for performance (Robertson & Paterson, 2020, pp. 458-459). Others suggest that to establish repudiation by anticipatory breach, it should be shown that at the time of termination ‘the other party was wholly and finally disabled from performing its contractual obligations when the time for performance, so far as it is of the essence, should arrive” (Seddon & Bigwood, 2023, para 21.13).

What is Repudiation by Actual Breach?

Actual breach by failing to perform a contract may not unequivocally show an unwillingness or inability to perform a contract (Seddon & Bigwood, 2023). If it does, then it may amount to repudiation. The actual breach should show that a party is unwilling to perform the contract or is unable to perform.

What is Acceptance of Repudiation?

The term, acceptance, used in the context of repudiation adopts a special meaning rather than the conventional legal meaning of acceptance (Carter, 2018). It is simply intended to mean an election to terminate the performance of a contract. Therefore, an acceptance of a repudiation is an election. The consequence after an election should mirror the general principles when a contract is terminated (Carter, 2018).

Why does Acceptance of Repudiation Require an Election?

The legal rules on acceptance of repudiation may suggest that a decision not to terminate for repudiation is “more important than the economic benefits which timely termination might achieve” (Carter et al., 1999, p. 99). However, the principle of election reflects an importance placed on individual autonomy and rights “that a promisee is not required to subordinate its private right to receive performance to the public good” (Carter et al., 1999, p.99). Therefore, even if the promisee has a right of election, the “right of termination does not mean that there is an obligation to terminate” (Carter et al., 1999, p. 99).

Further, an election to terminate reflects a moral principle that a person should not be placed in a position to take advantage of their own wrong (Nienabar, 1962). Acceptance of repudiation should not be effected by a person that caused the repudiatory conduct. This principle reflects a view that contracting party should not be able to “liberate [themselves] from a contract by reason of [their] own breach” (Nienaber, 1962, p. 225).

How is Repudiation Proven?

Repudiation may be established by two methods (Carter, 2018). The onus of proving repudiation rests of the promisee.

The first method may be performed by examining the promisor’s words and conduct, and whether the words and conduct amount to a refusal to perform the contract (Carter, 2018). Alternatively, the second method is by examining the promisor’s actual inability to perform the contract (Carter, 2018). When relying on a promisor’s actual inability, this is a question of fact.

Bibliography

  • Carter, J., Phang, A., & Phang, S. (1999). Performance following repudiation: legal and economic interests. Journal of Contract Law, 15(2), 97-132.
  • Carter, J. (2012). Carter’s Breach of Contract (1st ed). Hart Publishing.
  • Carter, J. (2018). Contract Law in Australia (7th ed). LexisNexis.
  • Nienaber, P. (1962). The Effect of Anticipatory Repudiation: Principle and Policy. The Cambridge Law Journal, 20(2), 213-233.
  • Robertson, A., & Paterson, J. (2020). Principles of Contract Law (6th ed). Thomson Reuters.
  • Rowley, K. (2001). Brief History of Anticipatory Repudiation in American Contract Law. University of Cincinnati Law Review, 69(2), 565-640.
  • Williston, S. (1901). Repudiation of Contracts. Harvard Law Review, 14(5), 317-331.
  • Seddon, N. & Bigwood, A. (2023). Cheshire & Fifoot Law of Contract. LexisNexis.

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Authored by:
Ben Franklin, Managing Partner (LIV Accredited Specialist – Property Law), &
Matthew Tran, Lawyer.

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