Repudiation and Termination of a Contract

In the business world, the existence of a contract may not always be an ‘iron-clad’ guarantee of performance. Litigation Lawyer Yevashrin Naidoo outlines what happens when a contract cannot be honoured by one or more of the parties.

What is repudiation?

In legal terms, repudiation refers to a situation where a party to a contract indicates that they will not, or cannot, fulfill their contractual obligations. This can be verbally or demonstrated through their actions or conduct. Sometimes, disputes can arise. If so, the dispute will often be centred around the conduct of attitude of the party who seems to be unable to perform their contractual obligations.

Given the legal consequences that arise form repudiation of a contract, the act of repudiation is considered a serious matter. When one party to the contract tries to show that the contract is ended on the basis of the other party's repudiation, this will not be easily inferred by the courts. A key point to remember is that an actual intention to repudiate is not necessary and, therefore, subjective beliefs are irrelevant. The test to consider whether repudiation has occurred is an objective one.

How do you prove that a contract has been repudiated?

If conduct occurs (action of inaction) and the effect of that conduct results in a party not being able to perform their contractual obligations, then one of the key elements to bring a claim based on the act of repudiation will have been met.

Where repudiation of a contract occurs, it is likely that the other party will be able to terminate the contract by accepting the act of repudiation and seek damages where possible. Prior to acceptance of the repudiation, the party who is in breach may be able to retract the repudiation, however, notice of the retraction must be provided.

Responding to repudiation and the risk of wrongful repudiation

If you believe an act of repudiation has occurred, it is important to obtain the correct legal advice before terminating a contract. If you terminate a contract without the contractual right to do so, the wrongful termination of the contract can in and of itself be considered conduct which can amount to repudiation, providing the other party with a valid claim against you.

Further, and on a separate note, if you inadvertently perform an act which is considered a continuing performance of the contract , you may still be bound by your contractual obligations. This is known as an election to continue to perform the contract.

Termination

The effect of termination is that it discharges all parties from their future obligations under the contract. Therefore, if you are seeking to exit a contract based on an act of repudiation by the other party, it should be communicated through unequivocal words or conduct. It is strongly recommended that a Notice of Termination be provided expressly stating un sufficiently clear terms that you are terminating the contract.

Further information

You may also be interested in our article Breach of Contract! What Damages can I claim? where we outline the steps involved to prove that a contract has been breached and , importantly, how to substantiate a claim for compensation.

How Sharrock Pitman Legal can help?

If you find yourself in a contractual dispute as the the party who is unable or unwilling to perform the contract or if you are the innocent party and believe that an act of repudiation has occurred, please do not hesitate to contact our Disputes & Litigation team who an provide advice to you based on your rights, duties and obligations under a binding contract. Please contact our office on 1300 205 506 or email litigation@sharrockpitman.com.au.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

For further information contact  
Yevashrin Naidoo

Yevashrin (Vash) Naidoo is a Litigation Lawyer at Sharrock Pitman Legal. For further information, contact Vash on his direct line (03) 8561 3330 or email vash@sharrockpitman.com.au.

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