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Repudiation is not a matter of intention, but a matter of perception.

Repudiation
Repudiation or anticipatory breach of a contract as it is otherwise known, gives rise to a right to cancel the contract. The party who wishes to rely upon the repudiated contract must allege and prove the allegation of repudiation.

To rely on repudiation, the innocent party must show that there has been conduct that exhibits a party’s deliberate and unequivocal intention not to be bound by the contract. The innocent party is required to establish that she has elected to to terminate the contract. Finally, there must be communication of the election to terminate to the repudiating party.

It is said that repudiation consist of two parts. Firstly, the act of repudiation by the guilty party and secondly, the act of the adversary, ‘accepting’ and thus completing the breach.

The better view[1] is that:

(a)  repudiation is a breach in itself;

(b)  ‘intention’ does not have to be either deliberate or subjective but is merely descriptive of conduct heralding non-performance or malperformance on the part of the repudiator; and

(c)  although it is a convenient catchword, ‘acceptance’ does not ‘complete’ the breach: it is the exercise by the aggrieved party of the right to terminate the agreement.

Du Preez v Tornel Props (Pty) Ltd [2016] JOL 34123 (SCA)

Du Preez ("the Client") entered into a building contract with a construction firm (“Jonker CC”), which undertook to build a house on Du Preez's land. Du Preez agreed to pay progress payments as the building work was completed. Subsequently, Jonker CC was liquidated and Tornel ("the Builder") acquired the right to complete the construction from Jonker CC.

At some point, there was some dispute regarding progress payments. The Builder presented an invoice to the Client for a progress payment. The Client declined to pay. The Builder cancelled that invoice and sent another containing a proviso that payment had to be made within a period, failing which the Builder would stop the building. As expected, no payment was made, but surprisingly, building continued.

The Client’s attorneys sent a letter to the Builder to the effect that payment was only due upon completion of the works, and that if the Builder stopped the building, that would be tantamount to repudiation.

As a result of the Client’s stance, the Builder instituted action, claiming damages on the basis that its Client repudiated the contract by failing to make progress payments. The Builder stated that as a result of the repudiation, the Client had cancelled the contract. In the alternative, the Builder "accepted" the repudiation of the contract by the Client, cancelled the agreement, and claimed contractual damages.

The court a quo concluded that the Builder’s conduct in ceasing building work did not constitute a repudiation. It decided that the Client’s refusal to make a progress payment, which was a material term of the contract, constituted a breach of the agreement, which entitled the Builder to cancel the contract and claim damages.

In the Supreme Court of Appeal, the central issue was whether the refusal by the Builder to continue building was legally justified or whether it amounted to a repudiation which entitled the Client to cancel the contract.

The test for repudiation is objective and not subjective. The test as to whether conduct amounts to repudiation of a contract is whether fairly interpreted, the conduct exhibits a deliberate and unequivocal intention no longer to be bound by the contract.

The Client was obliged to make progress payments. The Builder's reciprocal obligation was to continue building, provided of course that the Client kept up with the payments. The Client’s failure to make progress payments entitled the Builder to withhold its reciprocal obligation to continue building.

The Court pointed out that the emphasis is not on the repudiating party’s state of mind, or what he subjectively intended, but on what someone in the position of the innocent party would think he intended to do. Repudiation is accordingly not a matter of intention, but a matter of perception.

On the evidence, a reasonable person placed in the position of the Builder, faced with the refusal by the Client to make progress payments, would conclude that proper performance would not be forthcoming, and that this would justify cancellation of the agreement.

The Builder, as it was entitled to, elected not to cancel the agreement but rather to withhold its reciprocal obligation to continue building the house. A reasonable person in the position of the Builder would have concluded, from the Client’s subsequent response, being the purported cancellation of the contract by the Client, that no further performance would be forthcoming, entitling the Builder to cancel the contract thereafter.

Therefore, the contractual bond that existed between the parties was justifiably severed by the Builder. The law provides compensation for the innocent party in such circumstances.

Conclusion

The moral of the story is to have a properly constructed ('scuse the pun) written agreement. A standard clause in a written agreement is a Whole Agreement / Non Variation  / Amendments in writing clause. 

Rather pay a lawyer a little to get it right than to pay a lawyer a lot to fix it up.

[1] Datacolor International (Pty) Ltd v Intamarket (Pty) Ltd [2001] 1 All SA 581 (A) / 2001 (2) SA 284 (SCA)

Adam Pike
Author: Adam Pike
Adam Pike holds BA, LLB and LLM degrees from the University of Cape Town. His LLM, attained from the School of Advanced Legal Studies at the University of Cape Town, focused on commercial and corporate law, particularly corporate governance and securities. Adam specialises in the implementation of corporate actions and transactions.

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