Cancellation Repudiation Or Serious Breach - LAWS202 Law of Contract

Cancellation - Repudiation or serious breach Thursday, 9 September 2010 11:46 p.m. 1. Has Act been contracted out of? (s 5) No Yes 2. Does the party have the right to cancel? No (Partial) Repudiation (s 7(2)) Substantial/essential (anticipatory)breach (s 7(3), (4)) 3. Has the party affirmed the contract? (s 7(5)) No Yes 4. How must cancellation be effected? (s 8(1), s 8(2)) No cancellation 5. Effect of cancellation (s 8(3), s 8(4), s9) Cancellation is covered under the Contractual Remedies Act 1979 General structure: Section 7 replaces the rules of common law and equity dealing with misrep/cancellation. Section 8 does not expressly do this, so may be supplemented by the common law. Section 9 gives the Court power to adjust the positions of contracting parties after cancellation by various means: allows Court to remedy and parituclar injustice from the implementation of the normal rules. Contracting Out S 5: if a contract expressly provides for a remedy in the case of repudiation or another relevant matter, ss 6 - 10 will take effect subject to that provision. Contracting out must be express, not by implication - Worsdale v Polgase [1981] The CRA will still apply so far as it can do consistently with the provisions of the parties' contract - MacIndoe v Mainzeal Group Ltd [1991] A party can cancel either when there is REPUDIATION s 7(2) or a SERIOUS BREACH (s 7(3), (4)). Repudiation S 7(2) - a party may cancel if, by words or conduct, another party repudiates by making it clear that he does not intend to perform complete performance. Mersey Steel & Iron v Naylor Benzon & Co If one party says they will not perform (even if the other side does), the other having received notice is entitled to treat the contract as being put to an end without having to wait. They no longer have to perform the contract, and can sue for damages. Express repudiation Hochster v De la Tour (1853) D hired P to be tour guide for a tour in two months. Next month, D said he no longer wanted P to be his tour guide. P cancelled, sued for damages before contract was performed. D claimed that P shouldn't be able to sue, as performance was still possible. Court: as soon as a party says they won't perform, can sue for damages - can treat the contract as ended on repudiation, don't have to wait. Implied repudiation Synge v Synge [1894] Vendor agreed to sell property, before settlement sold property to someone else. By selling to another, clear that original contract of sale was impossible to perform, clear that vendor would not perform: repudiation. Clear from conduct that D would not perform. Cameron v Warboys [1952] Contract for sale of shares, seller delayed on choosing a valuer for four years - not refusing to perform, just delaying. Court: significant delay in performance made it clear they would not perform. Can imply from conduct (delaying) that they would not perform (repudiation) Freeth v Burr (1884) Repudiation is not a mere refusal or omission to do something which one ought to - there must be an absolute refusal to perform his part of the contract. Limitations to Implied Repudiation: A party ceasing to perform in order to resolve a dispute is not repudiating. Oxborough v North Harbour Builders [2002] O claimed NHB were building house wrong, breach of performance. NHB denied. NHB offered to go to arbitration/mediation. O took NHB to court asking for specific performance of contract + a preservation order. NHB ceased performance in order to work out disputes. Contract Page 33 NHB ceased performance in order to work out disputes. Held: A party is not generally regarded as being in repudiation by denying breach in good faith, whether breach is said to be factual or a matter of interpretation. Builder had not made it clear he did not intend to complete performance of its obligations. - Antithesis of repudiation. A party ceasing to perform in order to resolve a dispute is not repudiating. Test: did the repudiating party gave words or conduct which could lead a reasonable person to believe the party did not intend to complete performance? A misunderstanding of the contract is not repudiation until the party has been given a chance to realize mistake and attempt to remedy it Starlight Enterprises Ltd v Lapco Enterprises Ltd [1979] Lapco had contract to deliver 4000 bags to Starlight, $3 a bag. Delivered some bags at that price, then wrote to S said "we wish to advise you that our new price will have to be $4.10 per bag as from now on." S replied, claiming L had repudiated so S would cancel. Became clear through correspondence that L misunderstood contract, thought they had a right to change price, but they didn't. Once they found that out, made it clear they were happy to supply bags at original price. CA: A honest misunderstanding of a contract is not an absolute refusal to perform if the party is then prepared to continue when corrected. Inquiry as to whether one can quit performance is not repudiation. Schmidt v Holland Buyer inquired to vendor of house as to whether he could quit the contract, was told he couldn't. If A's refusal to perform is in response to B's breach, A has not repudiated the contract. Bahramitash v Kumar A pile of dirt was dumped on land after agreement, before settlement. Vendor refused to clear off the dirt or accept a lower purchase price, as he had to in contract. If one party refuses to perform because the other party has made performance impossible, no breach. Partial repudiation - when a party refuses to perform part of the contract. S 7(2) Repudiation will qualify for cancellation if breaching party does not intend to complete performance. So partial repudiation may allow the other party to cancel. Limit: Bentham v Margetts [1996] Not every actual or signalled non-compliance will amount to a qualifying repudiation; must relate to a term: ? adopted as essential to innocent party, or ? portend consequences which would be serious to that party. Test for essentiality/seriousness: Broadbank Corp v Martin Essentiality: whether but for the performance the contract would have been entered. Does it "go to heart of contract"? There was a contract to repair and deliver a Mac truck. The truck was delivered, but not repaired. The Court held that the repair went to the heart of the contract - he wouldn't have purchased the truck if it was not going to be repaired. Serious breach of misrepresentation Stage 1 s 7(3) Stage 2 s 7(4) A misrep/breach/anticipatory breach. + Essential to innocent party, or entails substantial consequences. s 7(3) - Party may cancel if: (a) Induced to enter by misrep (b) A term of contract is broken (c) It is clear that a term will be broken. s 7(4) - Where [ss.3] applies, party may cancel iff (a) Parties have expressly or impliedly agreed that misrep/performance of term was essential to him (b) The effect of the misrep/breach will be (i) Substantially to reduce the benefit (ii) Substantially to increase the burden (iii) Substantially change the benefit or burden from that represented/contracted for (in relation to cancelling party) Stage 1: Qualifying conduct Misrep - don't worry about, not in exam. Breach - depends on interpretation Anticipatory breach Brooklands Motor v Bridge Wholesale Acceptance [1994] Would a reasonable, informed bystander, aware of all relevant existing and future facts, have believed at the time of the purported cancellation it was clear there would be a breach of the requisite essentiality or seriousness." Stage 2: essential stipulation Express essentiality: Appropriate drafting cam make term expressly "essential" - Morrisv Robert Jones Investments Implied essentiality: Contract Page 34