Messy endings seem to be a common theme in the Courts these days. We previously blogged about a High Court case where a party had attempted to terminate a contract without using the contractual mechanism for doing so (and in particular, failing to issue the correct notice requiring the other party to remedy its default). More recently, a very similar case came before the same Court.
In both cases the party purporting to terminate the contract had to rely on its ‘common law’ right to terminate- that is to say, it had to argue that the other party had committed a breach of contract that was so serious as to allow the party to terminate the contract (this type of breach is known to us lawyers as a ‘repudiatory breach’). In both cases, the Court found that the contract had been validly terminated for ‘repudiatory breach’, which effectively meant that the terminating party was able to bypass the contractual mechanism for termination. In particular, it meant that it could get away with not issuing the notice giving the other party an opportunity to remedy the breach.
Whilst this may sound like good news for a party that has failed to terminate a contract in accordance with the contractual mechanism, these cases highlight that it is actually very difficult to succeed in validly terminating a contract for repudiatory breach. This is because:
- The terminating party has to show that the breach committed by the other party is so serious as to allow the terminating party to terminate. This is a very high hurdle and there is always plenty of room for argument;
- The Court will not entirely ignore the contractual termination provisions. It will look at the type of breaches to which the those provisions apply, and use them as a ‘benchmark’ for deciding how serious a breach is, and whether it amounts to a repudiatory breach. So if the breach being relied on by the terminating party is less serious (or even just as serious) as a breach specified in the contractual termination provisions, then the Court will probably conclude that it is not a repudiatory breach (and that it should have been dealt with under the contractual termination provisions); and
- If the Court concludes that the breach was capable of being remedied, then it may decide that the terminating party should have issued a notice giving the other party an opportunity to remedy it.
So despite the fact that these cases make terminating for repudiatory breach sound easier, don’t be fooled. It is still very difficult, and our message remains the same- if you are going to end it, end it properly.
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Vinergy International (PVT) Limited v Richmond Mercantile Limited FZC  EWHC 525 (Comm)