If one party is in material breach of a contract, and the contract requires the innocent party to give the party in default an opportunity to remedy the breach before terminating the contract, does this preclude the innocent party from terminating the contract immediately in case of a very serious (repudiatory) breach?
Enterprise and C&S had entered into an agreement under which Enterprise had the right to terminate the agreement in the case of material breaches by C&S, provided Enterprise had given C&S an opportunity to remedy the breach within 30 days.
In the event, Enterprise gave notice of termination with immediate effect because of an alleged “repudiatory breach” by C&S. Enterprise later advanced allegations of other serious breaches by C&S (negligent performance by C&S of its obligations under the agreement).
C&S argued that, under the contractual termination clause, Enterprise was not entitled to hold C&S in repudiation for defective performance of the kind alleged because the breaches in question, even if proved, were capable of being remedied, and Enterprise did not give it an opportunity to do so.
The Court considered that termination for "material breach" and for "repudiation" are separate matters even if there is some overlap between them. The criteria for repudiation are demanding but, if they are satisfied so that the effect of a breach is to deprive Enterprise of substantially the whole benefit of the contract, there is no reason why it should not treat the contract as discharged.
This is so even in the case of a breach which is capable of remedy, for example by C&S improving its performance in the future if given an opportunity to do so. However, in the event of serious negligence causing serious damage to Enterprise's business so that it was receiving nothing like the service for which it had bargained, Enterprise would not be obliged to wait and hope that C&S's performance would improve.
The Court held that Enterprise hadn’t agreed not to exercise its common law right to treat the agreement as discharged. Clear words would be required in order to conclude that termination for repudiation was excluded; there were no such words in the agreement.
COMMENT: The common law right to accept a repudiatory breach can exist, side by side, with contractual termination clauses for breach. However, contractual termination clauses may nor may not exclude the common law right to accept a repudiatory breach. Careful advice should be taken when drafting such clauses or when deciding how to proceed in the face of a very serious breach by a defaulting party as wrongfully purporting to accept a repudiatory breach can amount to repudiatory breach itself.
