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What does “repudiation of a contract” mean?

What does “repudiation of a contract” mean?

Parties to an agreement are often advised by their lawyers, when the other party has breached its contractual obligations, that that party has repudiated the contract. What, exactly, does repudiation mean, and what remedies does the innocent party have as a result of that repudiation?

The case law has held that repudiation of a contract occurs when a “party to a contract unequivocally evidences an intention not to be bound by the agreement” (See e.g. McLaren N.O. & Others v Municipal Council of Windhoek & Others 2018 (1) NR 250 (SC)). Such a repudiation may take the form of an indication that the person will not perform his or her contractual obligations, usually referred to as “anticipatory breach”, or conduct disabling performance by either party. Therefore, where an innocent party is of the view that the other party has clearly shown an unwillingness to abide by the terms of the agreement, it may be said that the defaulting party has repudiated the agreement.

The test for repudiation is objective, which means that repudiation is considered from the viewpoint of the innocent party: if the reasonable person in the position of the innocent party would have concluded that the other person does not intent fulfilling his part of the agreement, repudiation is shown. The intention of the defaulting party is therefore irrelevant. This means also that the inference is to be unequivocal – the conduct of the defaulting party cannot be consistent with other possible scenarios. This means also that, if the repudiation is cured prior to the innocent party taking steps to enforce its rights (which will be more dealt with below), the breach or repudiation falls away, and the innocent party has no right to take action to enforce its rights.

This leads to the question as to what remedies are available to the innocent party who is faced with a repudiation? Generally speaking, a party has a choice of either of two remedies: it may either elect to ignore the repudiation, and keep the contract in place, and therefore enforce specific performance of the defaulting party’s obligations, or, it may accept the repudiation, cancel the agreement and claim such damages as it may have suffered as a result of the repudiation.

If the first option is chosen, i.e specific performance, the courts may be approached to enforce the terms of the agreement. As an example, if the agreement is for the sale of a specific piece of land, the court may be asked to order the transfer of that piece of land. The person who asks the court for assistance must of course be in a position, and willing, to perform his obligations under the agreement. It is therefore normal for the court order to include that transfer is to be registered after payment of the purchase price. Failure by the defaulting party to adhere to the court order constitutes contempt of court, which may result in that person being fined jailed for a period of time. In the event of a company being in contempt of court, its directors are usually held in contempt and jailed or fined.

If the innocent person rather wishes to walk away from the contract, he may do so by cancelling the agreement. The cancellation should be communicated to the defaulting party in clear terms. Both parties are then liable for restitution: they have to return whatever performance may already have taken place. The innocent party may then claim damages: the measure of damages is that he is to be placed in the position he would have been in, had the contract been performed properly. As an example, if he had purchased a rare motor vehicle at a bargain, he is entitled to claim the true value of that vehicle, less the purchase price he would have paid.

It is also important to note that the election between the two options, i.e enforcement or cancellation, is to be made within a reasonable time after the repudiation has taken place. If the innocent party delays for too long, he may be taken to have condoned the repudiation, and may then be deemed to have lost the right to cancel the lease. Also, a party may not approbate and reprobate: he has to make an election between the options, and stick with that choice.

Therefore, when faced with a defaulting party who does not intend performing his obligations under a contract, it is prudent to seek legal advice as soon as possible, so that the best remedy under the circumstances may be chosen and acted on.