The meaning of repudiation

Wyman-Gordon Ltd v Proclad International Ltd [2010] CSIH 99, a case decided by the Inner House at the end of 2010, provides useful guidance on what constitutes repudiation in Scots contract law.  The judges in the Inner House characterised their judgment as involving "well-settled" principles, rather than innovating on the law (as noted by Lord Osborne).  Nevertheless these statements provide a useful guide to anyone faced with the task of analysing a situation of breach.   

The facts of case will not be analysed here, suffice to say that the statements made by the Inner House on repudiation related to an email exchange between the parties.  Lord Osborne described the type of conduct which is likely to amount to repudiation:

"Where verbal or written communications are in issue, the key requirement, as we understand it, is that before a repudiation can be held to have occurred, there should be an objectively clear indication that, for whatever reason, material contractual obligations are not going to be performed at the due date. The other party to the contract would then have the option, either to accept the repudiation and consequently to rescind the affected relationship, or alternatively to insist on continued performance of the contract in its existing form. It is only where such an anticipatory breach of contract is clearly established following an objective assessment of the circumstances that the relevant option can arise at all." 

English authorities were also used to illustrate that there is no difference between the law of Scotland and of England on this point:

"As Lord Wilberforce put it in Woodar Investment Development Ltd v Wimpey Construction UK Ltd, (supra), at page 283: "… Repudiation is a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations". Many judicial statements to substantially the same effect are to be found elsewhere. In Freeth & Another v Burr (1874) L.R. 9 C.P. 208, Lord Coleridge C.J. said at page 214: "The principle to be applied in these cases is, whether the non-delivery or the non-payment amounts to an abandonment of the contract or a refusal to perform it on the part of the person so making default." This echoed a passage on the previous page of his opinion, in which he described the search as being for "… Intimation of an intention to abandon and altogether to refuse performance of the contract." In Scotland, nearly two decades after the decision in Woodar Investment Development Ltd v Wimpey Construction UK Ltd, (supra), was approved by the Second Division of the Court of Session in Blyth v Scottish Liberal Club, the matter was again considered by Lord Hamilton, as he then was, in the Outer House in Edinburgh Grain Ltd v Marshall Food Group Ltd. At page 22 he said this: "What, in my view, is required for repudiation is conduct demonstrative of an intention not to perform fundamental contractual obligations as and when they fall due."

The repudiatory statement should be interpreted by reference to the normal rules for interpretation of contracts, including construing the statement in the light of the surrounding circumstances and from the perspective of what a reasonable person in the position of the recipient might legitimately understand.   Subjective evidence is not relevant in this exercise.

Lord Osborne concluded that the commercial judge, Lord Drummond Young, had not misdirected himself in giving his opinion on the meaning of repudiation.  In other ways, however, Lord Drummond Young’s opinion was criticised.  He had stated:

"If a party proposes to continue on terms that are fundamentally different from the existing terms, that too will amount to a repudiation."

The Inner House did not agree with this statement:

"To our mind, that statement as it stands, goes too far.  We consider that a contracting party must always be entitled, especially in altered circumstances, to propose or suggest a future variation of the relevant contractual terms for the other contracting party to consider.  Provided that a refusal to perform on existing terms is not simultaneously demonstrated, it does not seem to us that the mere tabling of such a proposal or suggestion will necessarily amount to repudiation of the contract."

Taking all these factors into account, the Inner House concluded that the commercial judge erred in construing the reclaimers’ email as an outright repudiation of the parties’ contractual arrangements.   Rather,

"From beginning to end, as it seems to us, the general tone of the communication was constructive and forward-looking, and, without ignoring or misreading its major contents, we can see no way in which the respondents or, in turn, the commercial judge, could legitimately have treated it as a repudiation of the parties’ contractual relationship."

The respondent’s reaction to email was also relevant:

"If the contract was so obviously repudiated as the respondents ultimately maintained, it is hard to see why they followed it up with the apparent contractual intimation of rejection notes ten days later.  It is equally hard to see why their purported “acceptance” of the alleged repudiation was delayed for a further eight days during which they apparent acquiesced in the determination of their principal contract with FMC.  What is clear is that the respondents, at some point over a period of nearly three weeks, determined to treat the e-mail of 4 March 2004 as a repudiation of the parties’ contract, and that they did so without taking any steps to try to clarify the position with the reclaimers.  They must therefore, in our view, be taken to have assumed the risk of their purported reading of the reclaimers’ e-mail being deemed untenable, and consequently of their own e-mail of 22 March 2004 being considered repudiatory in its own right."    

This tends to suggest that the conduct of the parties as a whole is relevant in the exercise of determining whether any given communication amounts to repudiation.    

The respondents’ email, rather than constituting an acceptance of the reclaimers’ repudiation, amounted itself to a repudiation.  Again, this particular email message was subject to careful scrutiny by the Inner House:

"While the e-mail of 22 March 2004 is couched in somewhat opaque and oblique language, and while it does not expressly bear to terminate anything, in our opinion, the whole tenor of that communication is negative.  It commences with a rejection of “the terms you have outlined.” 

This is another case which makes us consider the way in which we use email.  All of us would probably admit to showing less care in emails than we do in formal correspondence.  There is probably no easy way to encourage clients to take more care when making statements of this type.  Writing in haste may leave them to repent at leisure, particularly where off-the-cuff statements are analysed in detail by our judges as occurred in this case.