Contracts, Termination, Repudiation and Rescission

[dad]

Re: Contracts, Termination, Repudiation and Rescission

Peter,

A very useful post, although I disagree with some of your points

Contracts, Termination, Repudiation and Rescission

[snip]

Worked example:

A window cleaner contracts to do your windows at a fee that you pay in arrears of service of service.
This kind of an arrangement would not usually be documented but just humour me and lets say an agreement was drawn up.
The contract would say I the window cleaner will, etc etc for the weekly fee of £*** .

So far so good but what happens if the customer fails to pay .
This is a simple contract and common law would say that the breach by the customer was a repudiation of agreement and the window cleaner would be within his rights to accept that repudiation, terminate the contract and claim damages of the sum owed.
[I disagree, unless the agreement states that prompt payment is a condition of the contract (As for example most HP contracts do, but most credit cards do not) non payment of money is not repudiatory, it is a simple breach of contract which gives rise to a claim for damages - the contract endures]

Say now that the window cleaner had negotiated a contract with a housing association to clean all their windows, on a house by house costing and on the strength of this contract had invested in building his business to the degree where he could fulfil his obligations under the contract.

Since it would be some time until he could recoup his investment he would want to ensure the continued custom of the housing association so he includes a time element into the contract. The housing association agrees to an annual contract.

If the association now fails to pay then this would still be a core term breach and covered under the common law rights of repudiation, termination and recovery but in addition common law would allow the window cleaner to reclaim an amount which would represent the future loss of income(a genuine pre-estimate of loss).

Failure to perform of the window cleaner, also would be covered in the same way under common law.

Say then the window cleaner being a sound business man said what I need is the ability to terminate this agreement if for instance the number of houses referred to me dropped to the extent that it was no longer profitable for me to continue. This would not be a repudiatory breach of contract as none of the core terms would have been compromised, so common law would not operate.
He introduces a new term in the agreement saying that if the number of referrals drops to a certain level he has the right to terminate the agreement and includes that in this event all outstanding charges due at the time of termination would be due and payable.
So now the contract has two means of termination one is contractual and one is through repudiation and the common law rights of the aggrieved party to recover damages.

I think we should pause here and recap the difference represented by these two different types.
“Termination” means the withdrawal of all rights under the agreement this is unchanged, what is different is the actions that can be taken because of the way the termination is made.
The contractual termination(made under a term of the agreement) is not a core breach, the termination was made by the trader so he would not be able invoke common law and sue for future losses, in the case of a repuiatory breach whilst the trader still terminates, it is due to the actions of the other party and termination would allow a claim.
Looking at it another way by invoking a term of the contract the trader has affirmed that the agreement still exists so he can not claim it has been repudiated.
[I disagree, on termination whether brought about under a contractual termination clause or a common law right the contract ceases to exist unless it contains specific terms to allow it to continue]

Before applying these definitions to consumer agreements I would like to make a point. There has been much talk on here of contract law taking over when the act does not apply. This is to my mind a basic misconception.
[I agree]
A consumer credit agree it still a contract. Contract law still applies to the agreement in the same way it always has.
[I agree]

It is up to the creditor to say what terms appear on the agreement and the debtor to agree or not just as it always was.
All statute does is place parameters on those terms in the intent of protecting consumers.
This is important to understand as it is not for the statute to initiate actions under the contract.
[I agree]

The act may require the creditor to take certain actions, provide copies , default notices, bit these are requirements of statute not of the contract.
[I agree]

So when someone says,” where does it say in the act that you can do such a thing ?” , the answer is, “it doesn’t” the act does not work like that.
[Not entirely correct - the Act does give consumers some rights to do things - for example return hire purchase goods, but it is quite specific]

The question should be,” where is the statute that limits the creditor ,s contractual right to do a thing?”
[In the context of DN I agree]

All this may seem to be off the original topic but I think when it comes to discussing default notices the connection will become clearer

Regulated agreements

In the knowledge that a regulated agreement is no different in essence from any other agreement we can apply the above definitions.
[I agree]
　 Termination under contract
This is usually a section contained in the contract which states the creditor may terminate at any time and on termination all sums due under the agreement become payable.
[I agree - but the terms can be quite specific - ie all sums only become due immediately on a breach]

The common reaction to this is, ”They cant do that can they” well has we have previously established they can, the reason is that there is nothing in the statute that says they cannot.
[I agree, but this depends on the individual facts and contractual terms]

The fact is that if there is a term in the contract that says the creditor can terminate at any time and on that termination the amount under the contract becomes due and payable it is perfectly within the creditors rights for him to put it there..
[I agree]

The banks would say that they would also have aright to recover under a demand via the court. ,
They say that the only reason they do not is because they are required by the lending code to behave sympathetically with the customer.
Personally I think the present Legislation contained within the CCA 2006 would make it very difficult for them to do so.

The liabilities under the contract are still there and common law would still expect them to be replayed In the manor originally required by the contract.

However having said that the agreement has been terminated, on a consumer credit agreement there is no real difference between a contractual termination and a termination under common law, because there are no issues of damages just recovery of liabilities currently under the contract.


Termination on breach of contract

The other cause for termination is breach by the debtor of one of the core terms of the agreement, the repayment schedule.
The act of not repaying the loan would be a repudiatory breach of the agreement and actionable under common law.
[This depends on the contractual terms making prompt payment a condition of the contract]

If it where not for the act this repudiation would be accepted, the agreement discharged and procedures commenced to recover the liabilities due under the contract.
[Assuming that prompt payment is a condition then yes]

However as part of its function of consumer protection the act ensures that we have a chance to remedy before the agreement is discharged. (section 87)
[I agree]

In this respect the default notice could be considered as the acceptance of the repudiation.
[I disagree, a DN is part of a statutory procedure to allow a creditor to progress to use his common law or contractual remedies listed in section 87(1)]

As a consequence of this analysis it is plain that the associated termination /discharge of the agreement cannot take place unless the repudiation is confirmed (a correctly executed default is issued)therefore there can be no termination.
[I disagree, the difference is the diffence between 'not entitled' and 'prohibited'. If section 87(1) was worded as 'the creditor shall not' then a section 87(1) action is forbidden.]

This conclusion is further compounded by the wording of section 87
(1) Service of a notice on the debtor or hirer in accordance with section 88 (a “default
notice”) is necessary before the creditor or owner can become entitled, by reason of any
breach by the debtor or hirer of a regulated agreement
Notice it says “breach of an agreement” not, “ breach of a term of the agreement”
Also it says,” can be come entitled to “ this means that if there is no breach no repudiation there is no entitlement to terminate under this statute.
[I disagree, the statutory effect is that there is no entitlement to take the section 87(1) actions under the agreement (Which is how goode expresses thing in his commentary on section 87/88].

So the issue of whether a termination issued after a incorrectly executed notice is unlawful is solved because the contract cannot be terminated in that instance.
[So the question remains under this interpretation why did the CoA decide Woodchester v Swayne in the way it did. If the agreement continued and there is no specific bar to issuing a new default notice why did Woodchester not issue a new one in the correct amount.

My view is that they could not because they had already terminated the agreement.

But I am open to persuasion that there is another intepretation, but I have not heard it yet.]


[Snip - I have to rush so I will comment on the rest of your post later]

Best regards
Peter

[Likewise - There are some real questions and I hope we can debate to isolate the genuine differences of opinion]

[Angry Cat]

Re: Contracts, Termination, Repudiation and Rescission

Yes equitable assignments not allowed thought i had mentioned that,perhaps i didnt
Pter

No problem, Peter.

However, many members still do not fully comprehend assignments;
equitable or:
absolute.

Therefore, it is important to avoid confusion re: DCA's and Default Notices.

Re: Contracts, Termination, Repudiation and Rescission

As many of us on here I suspect, I can't claim it is my own work - it was posted to me and I saved it, apologies to OP for not mentioning you. Very useful to have in one place though!

no problem no such thing as to much information

peter

Re: Contracts, Termination, Repudiation and Rescission

As many of us on here I suspect, I can't claim it is my own work - it was posted to me and I saved it, apologies to OP for not mentioning you. Very useful to have in one place though!

Re: Contracts, Termination, Repudiation and Rescission

Another take on it:

REPUDIATION
1. The act of repudiating or the state of being repudiated.
2. The refusal, especially by public authorities, to acknowledge a contract or debt
Quote:
Term: repudiatory breach
1.
A repudiatory breach of contract is a breach of contract that goes to the very root of the contract, evidences intention on the part of the party in breach that they no longer intend to be bound by an essential term of the contract.
Breach of a fundamental term in this way entitles the innocent party to accept the breach of contract (that is the repudiation of the contract) and bring the contract to end, or alternately affirm the contract.
If the innocent party wishes to accept the breach and terminate the contract, they must do so unequivocally and without undue delay. Delay in its own right is not fatal, provided the innocent party does not do anything to affirm the contract in the interim, and it is prudent to put it on the record that the innocent party objects to the conduct.
Repudiatory breach: Repudiation of contracts - London lawyers & solicitors, UK

Quote:
Contract Law | Express and implied repudiation | Law of Contract
Repudiation may be an express renunciation of contractual obligations by one party (A)1. This will be so whether A absolutely refuses to perform his side of the bargain2 or unambiguously asserts that he will be unable to do so3. However, it's more commonly implied from failure to render due performance4 or, in cases of anticipatory repudiation5, by the party in default putting himself in such a position that he will apparently be unable to perform when the time comes. A party (B) seeking to rely on repudiation implied from conduct must show that the party in default has so conducted himself regarding lead a reasonable person to believe that he won't perform6 or will be unable to perform at the specified time7; as where A refuses to perform unless B complies with requirements not contained in the contract8. The fact that a breach is deliberate won't necessarily amount to a repudiation9; nor will words and conduct which do not amount to a renunciation of the contract10.
Where the parties genuinely differ regarding the meaning of the contract a party won't necessarily be treated as having repudiated if he refuses to perform except according to his own bona fide interpretation of the contract11, although that interpretation turns out to be erroneous12. Where one party to a contract conceives that he is no longer bound by it, or has a right to rescind it or have it declared null and void, and issues a writ for the purpose of obtaining that which he believes to be his right, he doesn't thereby repudiate the contract in any event13. The issue of a writ by an employee in respect of a claim for accrued wages doesn't represent a repudiation by him of his contract of service14.
A party isn't bound before the time for performance to give a definite answer whether he intends to fulfil the contract or not15.


Case Law
Quote:
Repudiation of contract
Date 18 November 1998 Judgment Bedfordshire County Council -v- Fitzpatrick Contractors Limited, TCC 16 October 1998 The Issue Repudiation of contract. Implication A repudiation occurs when a party intimates by words or conduct that it does not intend to honour its obligations under the contract.

Most professionals in the construction industry understand the concepts of termination and repudiation. It is appreciated that these matters need to be approached with sensitivity and caution, proper legal advice being crucial.

Nevertheless it is commonplace to find situations where the termination of a construction contract has been poorly handled with a flurry of letters, faxes and E-mails blinding commercial judgement.

The case of Bedfordshire County Council -v- Fitzpatrick Contractors demonstrates how such actions may appear entirely unreasonable when under the cold examination of a court of law. The proceedings arose out of the termination of a highway maintenance contract awarded by Bedfordshire County Council to Fitzpatrick.

The contract was for a period of four years, with work to be carried out pursuant to works orders for the construction, maintenance and clearance of all directly maintained highways in Bedfordshire.

The contract envisaged the operation of the Transfer of Undertakings (Protection of Employment) Regulations 1981, to the effect that there would an automatic transfer of the employment of the Council's highways maintenance employees.

This meant that Fitzpatrick was concerned to ensure that the value of work executed under the term contract would be sufficient to keep the transferred workforce gainfully employed, otherwise it could face substantial redundancy costs.

During the tender Fitzpatrick had requested the Council to confirm the minimum contract value per annum and had been told that it would be of the order of £6M, although this figure could not be guaranteed.

In February 1996 Fitzpatrick's tender was accepted and it was agreed that the commencement date would be 1 June 1996.

As June approached however, it became obvious to Fitzpatrick that the anticipated volume of work orders would not be available to it by 1 June. On 24 May it wrote to the Council stating that it was only in receipt of work orders for the first month of the contract with a value of approximately £15,000. It noted that a spend level in the order of £400,000 per month would be a minimum requirement to maintain gainful employment for the transferring employees.

A snow storm of correspondence commenced. The Council responded to the effect that it considered there was no obligation upon it to provide sufficient work to guarantee gainful employment for the transferred workforce at the start of the contract.

The first of June passed without Fitzpatrick commencing work, and the Council immediately made provision for the continuation of highway maintenance by employing the direct workforce that was to have been transferred to Fitzpatrick.

Relations between the parties deteriorated further. On 11 June Fitzpatrick wrote to the Council stating that it considered that 1 July would be a more appropriate date for the contract to commence.

The following day the Council replied to the effect that unless Fitzpatrick confirmed its intention to take up all its obligations under the contract by 15 June, the Council would treat this as a repudiation and terminate the contract.

On 13 June, not having received an acceptable response from the contractor, the Council gave notice terminating the contract forthwith.

The Honourable Mr Justice Dyson QC was first asked to consider the issues of liability.

Firstly Mr Dyson had to consider whether there was an implied term of trust and confidence in a long term contract of this type, in similar terms to that which would exist between an employer and employee. This, it was argued, would apply to the effect that the contractor would not conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between the parties.

Mr Dyson was satisfied that no such term should be implied and that the contract stood perfectly well on its own terms.

Turning to the actions of Fitzpatrick, it was clear that it was in breach of contract by failing to accept the transfer of the workforce and start work on 1 June. It was not a term of the contract that there should be sufficient work available on 1 June and even if there had been such a term, this would have given rise to an entitlement to damages payable to Fitzpatrick. It would not entitle Fitzpatrick to refuse to perform the contract.

Such a breach of contract by Fitzpatrick did not however amount to repudiation. The Council was in no doubt that Fitzpatrick had the will and the ability to perform this four year contract. Furthermore the Council had failed to make 'time of the essence' of the contract by its letter of 12 June, since it had failed to give Fitzpatrick reasonable notice.

In Mr Dyson's view the failure to commence work was not a breach which would deprive the Council of substantially the whole of the benefit which it was intended that the Council should obtain from the further performance of the contract.

It followed from this that the Council was in repudiation in terminating the contract on 13 June.

Quote:
Vitol SA v Norelf Ltd; House of Lords (Lord Mackay of Clashfern, Lord Chancellor, Lord Griffiths, Lord Nolan, Lord Steyn, Lord Hoffmann) 20 June 1996
An aggrieved party could as a matter of law accept a repudiation of a contract merely by himself failing to perform the contract. Whether in any particular case he had done so must depend on the circumstances.
The House of Lords allowed an appeal by the sellers, Norelf Ltd, reversed the decision of the Court of Appeal ([1996] QB 108) and restored the decision of Mr Justice Phillips ([1994] 1 WLR 1390) affirming an arbitration ruling against the buyers, Vitol SA.
The dispute arose out of a contract of 11 February 1991, by which Norelf sold to Vitol a cargo of propane c.i.f. north-west Europe to be shipped from the United States. Delivery of the cargo to the ship was to take place from 1 to 7 March. The sellers were to tender the bill of lading to the buyers promptly after loading. On 8 March the buyers telexed the sellers as follows:
It was a condition of the contract that
delivery would be effected 1-7
March 1991 . . . We are advised that the vessel is not likely to complete loading now until some time on 9 March, well outside the agreed contractual period. In view of the breach of this condition we must reject the cargo and repudiate the contract.
The buyers never retracted nor attempted to retract their repudiation of the contract. The sellers did nothing to affirm or perform the contract. Instead they resold the cargo at a loss. They then claimed against the buyers US$950,000 in damages, being the difference between the original contract price and the resale price. The premise of the claim was that they had accepted the buyers' repudiation.
The arbitrator held that the tenor of the rejection telex was such that the failure of the sellers to take any further step to perform the contract which was apparent to the buyers constituted sufficient communication of acceptance of the buyers' repudiation.
Jeremy Cooke QC and Andrew Wales (Clyde & Co) for the buyers; Andrew Popplewell and Miss N. Davis (Holman Fenwick & Willan) for the sellers.
Lord Steyn said it was established law that where a party had repudiated a contract the aggrieved party had an election to accept the repudiation or to reaffirm the contract. Acceptance of a repudiation required no particular form; it was sufficient that the communication or conduct clearly and unequivocally conveyed to the repudiating party that the aggrieved party was treating the contract as at an end. The aggrieved party need not notify the repudiating party of his election to treat the contract as at an end; it was sufficient that the fact of the election came to the repudiating party's attention.
The issue here was whether non-performance of an obligation was ever as a matter of law capable of constituting an act of acceptance. One could not generalise on the point. It all depended on the particular contractual relationship and the particular circumstances of the case. Like Phillips J, his Lordship was satisfied that a failure to perform might sometimes signify to a repudiating party an election by the aggrieved party to treat the contract as at an end.
The Court of Appeal had been strongly influenced by an obiter dictum of Kerr LJ in State Trading Corp of India Ltd v Golodetz Ltd [1989] 2 Lloyd's Rep 277 at 286, that saying and doing nothing at all, other than a continuing failure to perform, cannot constitute an acceptance of a repudiation even if the grounds for such an acceptance then exist.
In his Lordship's opinion that passage, if intended to enunciate a general rule, went too far. A continuing failure to perform would necessarily be equivocal; but his Lordship disagreed with the view of Nourse LJ in the Court of Appeal ([1996] QB 106 at 116-117) that failure to perform a contractual obligation was necessarily and always equivocal.
Sometimes in the practical world of businessmen an omission to act might be as pregnant with meaning as a positive declaration.
Paul Magrath, Barrister
http://www.independent.co.uk/news/pe...n-1339172.html

There are several more repudiation case laws
Rescission
Quote:
Nonperformance or Breach

Quote:

One party to a contract can rescind it because of substantial nonperformance or breach by the other party. The party who knowingly and willfully fails to perform cannot complain that the other party to the contract has injured him or her by terminating the contract. The right to rescind does not arise from every breach but is permitted only when the breach is so substantial and fundamental that it defeats the objective of the parties in making the agreement. The breach must pertain to the essence of the contract. The act must be an unqualified refusal by the other party to perform and should amount to a decision not to be bound by the contract in the future. A party to a contract who is in default cannot, however, rescind because of a breach by the other party.
When time is of the essence in a contract, failure to perform within the time stipulated is a ground for rescission. Otherwise a delay in the time of performance is not considered a material breach justifying rescission. When performance is intended within a reasonable time, one party cannot suddenly and without reasonable notice terminate the contract while the other party is attempting in good faith to perform it.
An unconditional notice by one party that he does not intend to perform a contract is a ground for rescission by the other party. In order to justify rescission, the refusal must be absolute and unconditional.
When one party to a contract abandons it and refuses further performance or her conduct shows that she is repudiating the contract, the other party is entitled to rescission. A disagreement over the terms of the contract and a subsequent refusal to perform in a particular manner by one of the parties do not constitute an Abandonment of the contract justifying rescission.

Probably the clearest explanation with regard to CCA
Quote:
Although a breach of contract by one party is not an offer to rescind, the other party can treat the repudiation as an offer to rescind that he or she can accept, leading to rescission of the contract by mutual assent. Rescission must be clearly expressed, however, and the conduct of the parties must be inconsistent with the existence of the contract. The fact that some of the materials that form part of the subject matter of the contract have been returned is not conclusive as to whether rescission has occurred.




------------------------------- merged -------------------------------
And a very simplified version. Quite a good starting point though!

Recission is the legal term for renouncing a contract. Normally, a contract is a legally binding agreement that is enforceable in court. A contract can be rescinded by operation of law or by mutual assent of the parties. It has the legal effect of erasing the contract as if it never happened.
Effect

1. When a contract is rescinded, the normal effect is to return the parties to the status quo ante -- their condition before entering into the contract. This includes returning any money or other consideration that had been exchanged, compensating parties for partial performance and returning the relative rights to the parties against each other to their state prior to the contract. This means that a suit for breach cannot later be brought for failure to perform under a contract that has been effectively been rescinded.
Rescission by Law

2. A contract can be rescinded by a court as an equitable remedy if the contract is void or voidable due to a defect in its formation. This can occur if one of the parties to the contract was a minor at the time the contract was formed, was mentally incapacitated, or was intoxicated. A court may also elect to rescind a contract if there was fraud, duress, undue influence at the making of the contract, or if its terms are unconscionable.
Mutual Rescission

3. Contracts can be rescinded by mutual assent of all the parties. Rescission is an all or nothing deal -- partial rescission is not rescission, but modification of a contract. Rescission can be written or oral, but must be evidenced by definite mutual assent. Contract rescission must be accompanied by an exchange of valuable consideration, though generally the mutual release of obligations under the contract is sufficient consideration to effectuate the process.
Repudiation

4. Breach of a contract is not the same as rescission. It is not an offer to rescind, but can be treated as such by another party to the contract. Repudiation occurs when, prior to some performance under the contract becoming due, the obligated party states a definite and unequivocal intent not to perform. Ordinarily, repudiation constitutes a breach of the contract, but the other party can treat it as an offer to mutually rescind the entire contract.

Yes i have seen this really it is good to hae it on here, notice the reoccurence of the mention of the return of liabilities under the contaract in all the deffinitions,nit is why you never see it in aCCA agrement, unless it proceeds anaction to rcover those liabilites.
------------------------------- merged -------------------------------

In order to avoid any confusion, a DCA can only issue a Default Notice if they had become "creditor" within the meaning of the Act:

“creditor” means the person providing credit under a consumer credit agreement or the person to whom his rights and duties under the agreement have passed by assignment or operation of law"

Slighty off topic but worth a mention.

Yes equitable assignments not allowed thought i had mentioned that,perhaps i didnt

Pter

[Angry Cat]

Re: Contracts, Termination, Repudiation and Rescission

...a DCA can issue a default it does not have to return the account to its functioning state just to its condition before the default was issued[/SIZE]

In order to avoid any confusion, a DCA can only issue a Default Notice if they had become "creditor" within the meaning of the Act:

“creditor” means the person providing credit under a consumer credit agreement or the person to whom his rights and duties under the agreement have passed by assignment or operation of law"

Slighty off topic but worth a mention.

Re: Contracts, Termination, Repudiation and Rescission

Another take on it:

REPUDIATION
1. The act of repudiating or the state of being repudiated.
2. The refusal, especially by public authorities, to acknowledge a contract or debt
Quote:
Term: repudiatory breach
1.
A repudiatory breach of contract is a breach of contract that goes to the very root of the contract, evidences intention on the part of the party in breach that they no longer intend to be bound by an essential term of the contract.
Breach of a fundamental term in this way entitles the innocent party to accept the breach of contract (that is the repudiation of the contract) and bring the contract to end, or alternately affirm the contract.
If the innocent party wishes to accept the breach and terminate the contract, they must do so unequivocally and without undue delay. Delay in its own right is not fatal, provided the innocent party does not do anything to affirm the contract in the interim, and it is prudent to put it on the record that the innocent party objects to the conduct.
Repudiatory breach: Repudiation of contracts - London lawyers & solicitors, UK

Quote:
Contract Law | Express and implied repudiation | Law of Contract
Repudiation may be an express renunciation of contractual obligations by one party (A)1. This will be so whether A absolutely refuses to perform his side of the bargain2 or unambiguously asserts that he will be unable to do so3. However, it's more commonly implied from failure to render due performance4 or, in cases of anticipatory repudiation5, by the party in default putting himself in such a position that he will apparently be unable to perform when the time comes. A party (B) seeking to rely on repudiation implied from conduct must show that the party in default has so conducted himself regarding lead a reasonable person to believe that he won't perform6 or will be unable to perform at the specified time7; as where A refuses to perform unless B complies with requirements not contained in the contract8. The fact that a breach is deliberate won't necessarily amount to a repudiation9; nor will words and conduct which do not amount to a renunciation of the contract10.
Where the parties genuinely differ regarding the meaning of the contract a party won't necessarily be treated as having repudiated if he refuses to perform except according to his own bona fide interpretation of the contract11, although that interpretation turns out to be erroneous12. Where one party to a contract conceives that he is no longer bound by it, or has a right to rescind it or have it declared null and void, and issues a writ for the purpose of obtaining that which he believes to be his right, he doesn't thereby repudiate the contract in any event13. The issue of a writ by an employee in respect of a claim for accrued wages doesn't represent a repudiation by him of his contract of service14.
A party isn't bound before the time for performance to give a definite answer whether he intends to fulfil the contract or not15.


Case Law
Quote:
Repudiation of contract
Date 18 November 1998 Judgment Bedfordshire County Council -v- Fitzpatrick Contractors Limited, TCC 16 October 1998 The Issue Repudiation of contract. Implication A repudiation occurs when a party intimates by words or conduct that it does not intend to honour its obligations under the contract.

Most professionals in the construction industry understand the concepts of termination and repudiation. It is appreciated that these matters need to be approached with sensitivity and caution, proper legal advice being crucial.

Nevertheless it is commonplace to find situations where the termination of a construction contract has been poorly handled with a flurry of letters, faxes and E-mails blinding commercial judgement.

The case of Bedfordshire County Council -v- Fitzpatrick Contractors demonstrates how such actions may appear entirely unreasonable when under the cold examination of a court of law. The proceedings arose out of the termination of a highway maintenance contract awarded by Bedfordshire County Council to Fitzpatrick.

The contract was for a period of four years, with work to be carried out pursuant to works orders for the construction, maintenance and clearance of all directly maintained highways in Bedfordshire.

The contract envisaged the operation of the Transfer of Undertakings (Protection of Employment) Regulations 1981, to the effect that there would an automatic transfer of the employment of the Council's highways maintenance employees.

This meant that Fitzpatrick was concerned to ensure that the value of work executed under the term contract would be sufficient to keep the transferred workforce gainfully employed, otherwise it could face substantial redundancy costs.

During the tender Fitzpatrick had requested the Council to confirm the minimum contract value per annum and had been told that it would be of the order of £6M, although this figure could not be guaranteed.

In February 1996 Fitzpatrick's tender was accepted and it was agreed that the commencement date would be 1 June 1996.

As June approached however, it became obvious to Fitzpatrick that the anticipated volume of work orders would not be available to it by 1 June. On 24 May it wrote to the Council stating that it was only in receipt of work orders for the first month of the contract with a value of approximately £15,000. It noted that a spend level in the order of £400,000 per month would be a minimum requirement to maintain gainful employment for the transferring employees.

A snow storm of correspondence commenced. The Council responded to the effect that it considered there was no obligation upon it to provide sufficient work to guarantee gainful employment for the transferred workforce at the start of the contract.

The first of June passed without Fitzpatrick commencing work, and the Council immediately made provision for the continuation of highway maintenance by employing the direct workforce that was to have been transferred to Fitzpatrick.

Relations between the parties deteriorated further. On 11 June Fitzpatrick wrote to the Council stating that it considered that 1 July would be a more appropriate date for the contract to commence.

The following day the Council replied to the effect that unless Fitzpatrick confirmed its intention to take up all its obligations under the contract by 15 June, the Council would treat this as a repudiation and terminate the contract.

On 13 June, not having received an acceptable response from the contractor, the Council gave notice terminating the contract forthwith.

The Honourable Mr Justice Dyson QC was first asked to consider the issues of liability.

Firstly Mr Dyson had to consider whether there was an implied term of trust and confidence in a long term contract of this type, in similar terms to that which would exist between an employer and employee. This, it was argued, would apply to the effect that the contractor would not conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between the parties.

Mr Dyson was satisfied that no such term should be implied and that the contract stood perfectly well on its own terms.

Turning to the actions of Fitzpatrick, it was clear that it was in breach of contract by failing to accept the transfer of the workforce and start work on 1 June. It was not a term of the contract that there should be sufficient work available on 1 June and even if there had been such a term, this would have given rise to an entitlement to damages payable to Fitzpatrick. It would not entitle Fitzpatrick to refuse to perform the contract.

Such a breach of contract by Fitzpatrick did not however amount to repudiation. The Council was in no doubt that Fitzpatrick had the will and the ability to perform this four year contract. Furthermore the Council had failed to make 'time of the essence' of the contract by its letter of 12 June, since it had failed to give Fitzpatrick reasonable notice.

In Mr Dyson's view the failure to commence work was not a breach which would deprive the Council of substantially the whole of the benefit which it was intended that the Council should obtain from the further performance of the contract.

It followed from this that the Council was in repudiation in terminating the contract on 13 June.

Quote:
Vitol SA v Norelf Ltd; House of Lords (Lord Mackay of Clashfern, Lord Chancellor, Lord Griffiths, Lord Nolan, Lord Steyn, Lord Hoffmann) 20 June 1996
An aggrieved party could as a matter of law accept a repudiation of a contract merely by himself failing to perform the contract. Whether in any particular case he had done so must depend on the circumstances.
The House of Lords allowed an appeal by the sellers, Norelf Ltd, reversed the decision of the Court of Appeal ([1996] QB 108) and restored the decision of Mr Justice Phillips ([1994] 1 WLR 1390) affirming an arbitration ruling against the buyers, Vitol SA.
The dispute arose out of a contract of 11 February 1991, by which Norelf sold to Vitol a cargo of propane c.i.f. north-west Europe to be shipped from the United States. Delivery of the cargo to the ship was to take place from 1 to 7 March. The sellers were to tender the bill of lading to the buyers promptly after loading. On 8 March the buyers telexed the sellers as follows:
It was a condition of the contract that
delivery would be effected 1-7
March 1991 . . . We are advised that the vessel is not likely to complete loading now until some time on 9 March, well outside the agreed contractual period. In view of the breach of this condition we must reject the cargo and repudiate the contract.
The buyers never retracted nor attempted to retract their repudiation of the contract. The sellers did nothing to affirm or perform the contract. Instead they resold the cargo at a loss. They then claimed against the buyers US$950,000 in damages, being the difference between the original contract price and the resale price. The premise of the claim was that they had accepted the buyers' repudiation.
The arbitrator held that the tenor of the rejection telex was such that the failure of the sellers to take any further step to perform the contract which was apparent to the buyers constituted sufficient communication of acceptance of the buyers' repudiation.
Jeremy Cooke QC and Andrew Wales (Clyde & Co) for the buyers; Andrew Popplewell and Miss N. Davis (Holman Fenwick & Willan) for the sellers.
Lord Steyn said it was established law that where a party had repudiated a contract the aggrieved party had an election to accept the repudiation or to reaffirm the contract. Acceptance of a repudiation required no particular form; it was sufficient that the communication or conduct clearly and unequivocally conveyed to the repudiating party that the aggrieved party was treating the contract as at an end. The aggrieved party need not notify the repudiating party of his election to treat the contract as at an end; it was sufficient that the fact of the election came to the repudiating party's attention.
The issue here was whether non-performance of an obligation was ever as a matter of law capable of constituting an act of acceptance. One could not generalise on the point. It all depended on the particular contractual relationship and the particular circumstances of the case. Like Phillips J, his Lordship was satisfied that a failure to perform might sometimes signify to a repudiating party an election by the aggrieved party to treat the contract as at an end.
The Court of Appeal had been strongly influenced by an obiter dictum of Kerr LJ in State Trading Corp of India Ltd v Golodetz Ltd [1989] 2 Lloyd's Rep 277 at 286, that saying and doing nothing at all, other than a continuing failure to perform, cannot constitute an acceptance of a repudiation even if the grounds for such an acceptance then exist.
In his Lordship's opinion that passage, if intended to enunciate a general rule, went too far. A continuing failure to perform would necessarily be equivocal; but his Lordship disagreed with the view of Nourse LJ in the Court of Appeal ([1996] QB 106 at 116-117) that failure to perform a contractual obligation was necessarily and always equivocal.
Sometimes in the practical world of businessmen an omission to act might be as pregnant with meaning as a positive declaration.
Paul Magrath, Barrister
http://www.independent.co.uk/news/pe...n-1339172.html

There are several more repudiation case laws
Rescission
Quote:
Nonperformance or Breach

Quote:

One party to a contract can rescind it because of substantial nonperformance or breach by the other party. The party who knowingly and willfully fails to perform cannot complain that the other party to the contract has injured him or her by terminating the contract. The right to rescind does not arise from every breach but is permitted only when the breach is so substantial and fundamental that it defeats the objective of the parties in making the agreement. The breach must pertain to the essence of the contract. The act must be an unqualified refusal by the other party to perform and should amount to a decision not to be bound by the contract in the future. A party to a contract who is in default cannot, however, rescind because of a breach by the other party.
When time is of the essence in a contract, failure to perform within the time stipulated is a ground for rescission. Otherwise a delay in the time of performance is not considered a material breach justifying rescission. When performance is intended within a reasonable time, one party cannot suddenly and without reasonable notice terminate the contract while the other party is attempting in good faith to perform it.
An unconditional notice by one party that he does not intend to perform a contract is a ground for rescission by the other party. In order to justify rescission, the refusal must be absolute and unconditional.
When one party to a contract abandons it and refuses further performance or her conduct shows that she is repudiating the contract, the other party is entitled to rescission. A disagreement over the terms of the contract and a subsequent refusal to perform in a particular manner by one of the parties do not constitute an Abandonment of the contract justifying rescission.

Probably the clearest explanation with regard to CCA
Quote:
Although a breach of contract by one party is not an offer to rescind, the other party can treat the repudiation as an offer to rescind that he or she can accept, leading to rescission of the contract by mutual assent. Rescission must be clearly expressed, however, and the conduct of the parties must be inconsistent with the existence of the contract. The fact that some of the materials that form part of the subject matter of the contract have been returned is not conclusive as to whether rescission has occurred.




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And a very simplified version. Quite a good starting point though!

Recission is the legal term for renouncing a contract. Normally, a contract is a legally binding agreement that is enforceable in court. A contract can be rescinded by operation of law or by mutual assent of the parties. It has the legal effect of erasing the contract as if it never happened.
Effect

1. When a contract is rescinded, the normal effect is to return the parties to the status quo ante -- their condition before entering into the contract. This includes returning any money or other consideration that had been exchanged, compensating parties for partial performance and returning the relative rights to the parties against each other to their state prior to the contract. This means that a suit for breach cannot later be brought for failure to perform under a contract that has been effectively been rescinded.
Rescission by Law

2. A contract can be rescinded by a court as an equitable remedy if the contract is void or voidable due to a defect in its formation. This can occur if one of the parties to the contract was a minor at the time the contract was formed, was mentally incapacitated, or was intoxicated. A court may also elect to rescind a contract if there was fraud, duress, undue influence at the making of the contract, or if its terms are unconscionable.
Mutual Rescission

3. Contracts can be rescinded by mutual assent of all the parties. Rescission is an all or nothing deal -- partial rescission is not rescission, but modification of a contract. Rescission can be written or oral, but must be evidenced by definite mutual assent. Contract rescission must be accompanied by an exchange of valuable consideration, though generally the mutual release of obligations under the contract is sufficient consideration to effectuate the process.
Repudiation

4. Breach of a contract is not the same as rescission. It is not an offer to rescind, but can be treated as such by another party to the contract. Repudiation occurs when, prior to some performance under the contract becoming due, the obligated party states a definite and unequivocal intent not to perform. Ordinarily, repudiation constitutes a breach of the contract, but the other party can treat it as an offer to mutually rescind the entire contract.