On the right side of repudiation

01 Mar 2021

A contract is your manual to managing a commercial relationship between you and your co-party. At times, it may be difficult to manage this relationship, especially if your co-party acts in a manner which is contrary to the spirit of the contract. For most, this would cause frustration and tension and these feelings would generally be projected onto the co-party through your conduct and/or your words. What you may not know is that whatever you say or do in the heat of the moment could translate into you repudiating from your contract.

Repudiation occurs where you display to your co-party (whether by your words or your conduct) a deliberate and clear intention to no longer honour your obligations under the contract and to no longer be bound by the contract.

If you are found to have repudiated from a contract, the co-party will be entitled to do one of two things:

1. reject the repudiation and claim specific performance (i.e. demand that you continue performing your obligations under the contract); or
2. accept your repudiation, cancel the contract, and institute a claim against you for damages.

What will happen in a case where your co-party has breached the agreement and you are required, in terms of the contract, to provide your co-party with an opportunity to remedy their breach before cancelling the contract, and you fail to do so? By summarily cancelling the contract, without regard to the co-party’s rights under the contract, you have displayed an intention to no longer be bound by the contract and you may be found to have repudiated from the contract.

This scenario was dealt with by the Supreme Court of Appeal in the recent case of MTN Service Provider v Belet Cellular. In terms of this case, Belet Cellular acted in a manner that was contrary to its contractual obligations and breached its agreement with MTN. The Supreme Court of Appeal held that Belet Cellular’s breach was capable of being remedied and that by MTN summarily cancelling the contract and failing to provide Belet Cellular with an opportunity to remedy the breach, MTN had repudiated from the contract. Belet Cellular was therefore entitled to claim any damages it suffered as a result of MTN’s repudiation.

It is therefore important for contracting parties to have a sound knowledge of their contractual rights and obligations to be sure to avoid missteps that may jeopardise a good relationship or expose them to additional risk.

Based on the above, you should consider the following before you cancel a contract:

1. Determine whether the co-party is in breach of the contract.
2. Determine whether the breach is capable of being remedied. If so, you will only be entitled to cancel the contract if: i) the co-party has been given an opportunity to rectify the breach within the period prescribed by the contract; and ii) the co-party has failed to rectify the breach within such prescribed period.
3. If the breach is not capable of being remedied, determine whether the breach is covered under one of the other listed grounds for termination. If so, cancel the contract on that basis.
4. If the reason for termination is not listed as a ground for termination under the contract, check whether the contract includes a ‘termination for convenience’ clause which allows a party to terminate the contract without providing reasons for doing so. If you have a termination for convenience right, cancel the contract on that basis.
5. If the contract does not contain a detailed cancellation clause, and you are uncertain of your rights to cancel the contract, either find alternative ways to overcome the issue, or seek legal advice.

Be careful not to neglect the contents of your contract, including your rights, when faced with a challenge. Rather, use your contract to your advantage and allow it to educate and guide you through the contractual relationship. If you are unsure whether you will be able to navigate the potential pitfalls of cancelling your contract, you may wish to include a right for you to terminate your contract for convenience and without having to provide reasons for doing so. This will reduce the risk of you inadvertently acting in a manner which could be seen as a repudiation of the contract.

See also:

• Are “agreements to agree” enforceable?
• Attention all business owners! You could be held vicariously liable for an employee’s abuse of power.
• Six steps to better drafting skills

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)