A Practical Guide To Ending Contracts Early: Repudiatory Breach (Part 2)

In part two of our series on the ways in which parties attempt to avoid unfavourable contractual terms, or end contracts entirely, without the express right to do so, we cover contract termination at common law, also known as termination for repudiatory breach.

What is a repudiatory breach?

At common law, a contract can be terminated by Party A if their counterparty, Party B, has committed, or has indicated that it will commit, a repudiatory breach. The right to terminate for repudiatory breach arises at common law in every contract unless clearly and expressly excluded - and judicial commentary suggests such an exclusion would need to be extremely clear indeed.

Once terminated, both parties are released from further performance of the contract (unless expressly provided otherwise in the contract itself). However, rights that have accrued under the contract (such as causes of action for damages) prior to the termination will remain enforceable.

The doctrine therefore provides contracting parties with a potential route of escape from a contractual relationship. If Party A does not wish to continue to perform its obligations under a contract, it can be released from its obligations if it can establish that Party B is in repudiatory breach – even where there is no express termination clause in the contract itself.

When does the right to terminate arise?

To exercise its termination right, Party A must establish a repudiatory breach by Party B i.e. a refusal either to perform the contract at all, or to perform a contractual obligation that goes to the heart of the contract. The classic statement is whether the breach deprives the party alleging breach “of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain”.¹However, establishing this in practice may be more difficult than expected. For example, even long delays in making payments may not necessarily be considered a repudiatory breach.

Often, Party B has not yet breached the contract, but has indicated, by words or conduct, that it intends to while performance is still due. This can still give Party A the right to terminate, provided that (as with an actual repudiatory breach), Party B’s intention is either not to perform at all, or not to perform an obligation that goes to the heart of the contract. However, this does require certainty that Party B intends to repudiate the contract. The Court of Appeal has stated that the test for this can be simply stated as “whether, looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of the innocent party, the contract breaker has clearly shown an intention to abandon and altogether refuse to perform the contract.”² The utility of this for Party A is that there is no need to wait for the time for performance: anticipatory repudiation entitles it to terminate and to recover damages immediately by accepting the repudiation.

Whether a breach is considered repudiatory will be judged at the time of termination and not at the time of the breach. This means that, if remedial action is taken between the time of breach and the point of termination, the right to terminate on the basis of that breach could be lost.

The Court of Appeal has explained that “a breach of contract, although serious, may be capable of remedy. If it is remedied before the injured party purports to exercise a right of termination, then the fact that the breach has been remedied is an important factor to be taken into account. Likewise, if there is delay in performance of an ongoing obligation it may well be possible for the delay to be made up by faster performance”. ³

The effect of a repudiatory breach: a matter of choice

A repudiatory breach does not automatically result in the end of a contract. The party alleging breach has a choice as to whether it wants to accept the breach and bring the contract to an end, or to affirm (i.e. continue) the contract and continue to require performance. This will require considering whether keeping the contract on foot is commercially appropriate. If the party alleging breach decides to accept the repudiation by communicating that it is ending the contract, this will result in the automatic termination of the contract and the discharge of further obligations. The communication can be through words, written notice or conduct, so long as it is clear and unequivocal.

The Court of Appeal has issued a recent reminder of the importance of this communication in Advanced Multi-Technology for Medical Industry & Ors v Uniserve Limited [2025] EWCA Civ 1212. A buyer of facemasks had committed a repudiatory breach by purporting to terminate a contract by email without grounds to do so. However, the seller failed to communicate acceptance of the repudiation. As a result, the contract continued for all purposes and the seller remained bound by its obligations to deliver the facemasks. When the seller subsequently failed to perform its obligations, the buyer was entitled to terminate for that failure, and the seller had no claim for damages against the buyer.

Damages may also be sought for losses caused by the breach of contract, whether the party alleging breach affirmed or terminated the contract. The calculation of damages will normally involve assessing the difference between a contract’s value as performed in comparison with the value that would have been derived by the innocent party had the breach not taken place.

In addition, if they have elected to terminate, the party alleging breach may be able to claim ‘loss of bargain’ damages, which means that as well as damages to compensate the losses caused by the breach up until the time of termination, they may claim for the loss of the breaching party’s future performance of its contractual obligations. This is potentially valuable as it can incorporate loss of future profits on the contract.

Where a party alleging breach chooses to affirm the contract, they may apply for equitable remedies of specific performance or an injunction to compel performance. However, these can be difficult to obtain depending on the relevant circumstances.

Risks of terminating for repudiatory breach

There are a number of strategic questions which arise when considering whether to elect to terminate for repudiatory breach.

Most fundamentally, the party alleging breach will need to carefully assess whether their claim of a repudiatory breach is legally sound. Wrongly claiming a repudiatory breach can itself constitute a repudiatory breach. This can result in a counterclaim and associated damages. Common areas in which repudiatory breach is wrongly asserted include misinterpreting termination provisions⁴, incorrectly following termination procedures, or confusing a repudiatory breach with a ‘merely’ material breach.

The party alleging breach also needs to ensure that they do not inadvertently affirm the contract (and therefore lose the right to terminate). While it is possible for a party to reserve its rights so that it can take time to consider its options, it may be deemed to have impliedly affirmed the contract if it takes too long. The time that can be taken before impliedly affirming the contract will depend on the wider context and circumstances but could in theory be as little as a few hours or days. Continuing to perform its own obligations under the contract can also amount to affirmation by the party alleging breach.

Conclusion

Identifying a repudiatory breach and weighing up the consequences of terminating a contract on the basis of one, requires a careful and nuanced analysis of the contract terms, the nature of the obligations, and the likely fallout of ceasing to perform. Although the doctrine provides a potential avenue of discharging a contract without the express right to do so, it is not without its complexities, and the burden of proof will fall on the party alleging breach to satisfy a court that it was entitled to terminate its contract.

In the next and final part of this series, we will consider misrepresentation, mistake and illegality.

Footnotes

^{1. Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd [2017] EWHC 1763 (TCC)}

^{2. Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisaha Ltd [1962] 2 Q.B. 26 at [66]}

^{3. Eminence Property Developments Ltd v Kevin Christopher Heaney [2010] EWCA Civ 1168}

^{4. Telford Homes (Creekside) Ltd v Ampurius Nu Homes Holdings Ltd [2013] EWCA Civ 577}

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