TERMINATION:

THE PITFALLS
A paper presented to the Society of Construction
Law at meetings in Southampton on
27th November 2013, Birmingham on 2nd April
and Leeds on 11th September 2014

Adam Robb, Jess Connors

and Patrick Hennessey
October 2014
D173

www.scl.org.uk

TERMINATION:
THE PITFALLS
Adam Robb, Jess Connors
and Patrick Hennessey

INTRODUCTION

1.

Termination why is it important?

1.

Termination disputes are often very bitter, expensive and hard fought.
They usually arise when there has been a complete breakdown in
relationship between the employer and the contractor. If the party who
believes that it is entitled to terminate the contract gets it wrong, it is
very likely that its conduct will be regarded as repudiatory and the other
party will be entitled to accept that breach and claim damages.

2.

In addition, the swing between winning and losing a termination

dispute can be very significant. There will nearly always be a
counterclaim. If the employer wins, it will generally be entitled to
recover the additional cost of completion, which is often very
substantial. If the contractor wins, then it will generally be entitled to
recover losses, including loss of profit or margin.

3.

There is another reason why termination disputes can be hard fought. In

many cases, in the run up to a decision to terminate, one or both parties
will have been taking legal advice. The party which is considering
whether to seek to terminate a contract may well take legal advice not
only as to whether it has the right but also how to frame the notices
which are often required before the contract can be terminated.
Inevitably, that advice is usually given against a tight timetable and
incomplete information. It is often those same legal advisers who will
be conducting the subsequent dispute.

2.

Other means by which a contract can come to an end

4.

Contracts can come to an end in a number of ways:

4.1.

Completed performance;

4.2.

Frustration;

4.3.

By agreement;

4.4.

Termination under the contract before completion of performance:

4.5.
5.

(1)

Termination for convenience;

(2)

Termination for cause;

Discharge by breach at common law.

This paper does not consider completed performance, frustration,

termination by agreement or termination for convenience.
1

B. TERMINATION OF A CONTRACT FOR FAULT

AT COMMON LAW
1.

The basic rules

6.

As a matter of common law, one party to a contract may, by reason of

the others breach, be entitled to treat itself as discharged from its
liability further to perform its own unperformed obligations under the
contract and from its obligation to accept performance by the other party
if made or tendered.1

7.

Although all breaches of contract give rise to a right to damages, not all
breaches of contract give rise to a right in the innocent party to treat
itself as discharged from further performance or acceptance. The
innocent party must show that the breach of contract by the defaulting
party gives rise to that right, in other words that the guilty party is in
repudiatory breach of contract.

8.

Contractual terms are traditionally divided into conditions and

warranties.

9.

Where a term of the contract is a condition, any breach of that term

will entitle the innocent party to treat the contract as at an end. Where a
term of the contract is a warranty, a breach by the defaulting party only
entitles the innocent party to claim damages.

10.

However, there is a third category of contractual term, the intermediate

or innominate terms.2 In construction contracts, most terms are
considered to be innominate terms.3

11.

Where the term is an intermediate or innominate term, breach will only

entitle the innocent party to treat the contract as repudiated if the
defaulting partys breach is sufficiently serious so that the innocent party
is deprived of substantially the whole benefit which it was intended that
it would obtain from the contract.

12.

As such, in most cases involving construction contracts, the question of

whether there has been a repudiatory breach is highly fact sensitive.

13.

Where a party is entitled to and does accept a repudiatory breach of

contract, the position is that:

1
2
3

13.1.

The contract is brought to an end;

13.2.

Both parties are discharged from future performance;

13.3.

Both parties retain rights which had accrued as at the date of

termination;

13.4.

The innocent party is entitled to damages.

Hugh Beale (general ditor), Chitty on Contracts (31st edition, Sweet & Maxwell, London
2012), para 24-001.
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26; also
[1962] 2 WLR 474, [1962] 1 All ER 474, [1961] Lloyds Rep 478 (CA).
Hayes (t/a Orchard Construction) v Gallant [2008] EWHC 2726 (TCC).

14.

Where a party commits a repudiatory breach of contract, the other party

may choose not to accept the repudiation, in which case the contract
remains in full force and both parties are required to continue to
perform. Such a party is often said to have affirmed the contract.
Once that party has affirmed the contract, it is no longer permitted to
accept the repudiatory breach so as to bring the contract to an end. The
circumstances in which an innocent party will be taken to have elected
to have affirmed the contract will be considered below in section D,
page 86.

15.

Termination for fault at common law can be divided into two categories.

16.

Firstly, where a party is in breach of contract and the breach of contract

is sufficient to entitle the innocent party to treat itself as discharged.

17.

Secondly, where an objective assessment of the circumstances leads to

the conclusion that a party intends not to perform its obligations when
they become due or will be unable to perform its obligations when they
become due. There may be no actual breach of contract because the
time for performance has not yet arisen and as such this type of
repudiatory breach is referred to as anticipatory breach.

2.

The test for repudiatory breach of contract in respect of

innominate terms

18.

In determining whether a breach of an innominate term entitles the

innocent party to terminate the contract, a test which is frequently
applied is that stated by Diplock LJ in The Hongkong Fir:
... does the occurrence of the event deprive the party who has
further undertakings still to perform of substantially the whole
benefit which it was the intention of the parties as expressed in the
contract that he should obtain as the consideration for performing
those undertakings.4

19.

Repudiatory breach in respect of innominate terms has also been

described in the following terms:
19.1. One which goes to the root of the contract;5
19.2. The breach must affect the very substance of the contract;6
19.3. The breach must frustrate the commercial purpose of the

contract.7
20.

4
5

6
7
8

The fact that a breach was deliberate or intentional may be relevant in

assessing that intention of the defaulting party but does not of itself
necessarily render the breach repudiatory.8 Similarly, the fact that the
Hongkong Fir Shipping, note 2, page 66.
Suisse Atlantique Societe dArmement SA v NV Rotterdamsche Kolen Centrale [1967] 1
AC 361; also [1966] 2 WLR 944, [1966] 2 All ER 61, [1966] 1 Lloyds Rep 529 (HL),
page 442.
Wallis, Son and Wells v Pratt & Haynes [1910] 2 KB 1003 (CA), page 1012.
Trade and Transport Inc v Iino Kaiun Kaisha Ltd [1973] 1 WLR 210; also [1973] 2 All
ER 144, [1972] 2 Lloyds Rep 154 (QBD), page 223.
Suisse Atlantique, note 5, page 435.

breach of contract was part of dishonest conduct on the part of the

contract breaker may well be material in determining whether the breach
was repudiatory but not does not necessarily mean that the breach will
be treated as a repudiatory breach.9

3.

Renunciation/anticipatory breach

21.

Particular difficulties arise when, before the time fixed for performance,
the innocent party becomes concerned that the other party does not
intend or is not able to perform its contractual obligations in a material
respect.

22.

If one party clearly and expressly states that it refuses to perform its
contractual obligations, then the other party will be entitled to accept
that renunciation or anticipatory breach.

23.

However, it is rare that a party will behave in such an unequivocal and

absolute fashion. As such the question is whether the defaulting partys
actions or words are such as to lead a reasonable person to conclude that
it no longer intends to be bound by its provisions.

24.

In relation to that question the following sub-issues arise:

24.1. Is the party evincing an intention only to perform accordance with

a wrongful interpretation of the contract?

24.2. Is the party evincing an intention only to perform if the other party

complies with certain conditions which are not required by the

contract?
24.3. Is the party evincing an intention not to perform only some of its

obligations whilst stating that it will or actually performing other

obligations?

4.

Examples of repudiatory breach and/or renunciation:

disputes as to interpretation

25.

It is not uncommon for the contracting parties to be in dispute as to the

proper interpretation of one partys obligations. As is set out below, the
question of whether a partys insistence upon its interpretation of the
contract, which is subsequently determined to be wrong, can amount to
repudiatory breach of contract is highly fact sensitive.

The Nanfri
26.

We start with The Nanfri, in which the House of Lords held that it is no
defence to a party who has repudiated a contract to say that he acted in
good faith under a mistaken understanding of the law.10

27.

The Nanfri concerned time charters by which ships were let for periods
of about six years. Most of the cargoes were carried on cif terms, the
shippers paying the freight in advance and receiving freight pre-paid

9
10

Tullett Prebon Plc v BGC Brokers LP [2011] EWCA Civ 131.

Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1979] AC
757; also [1978] 3 WLR 991, [1979] 1 All ER 307, [1979] 1 Lloyds Rep 201 (HL).

bills of lading. The charters provided for the payment of hire twice
monthly in advance; the owners to have the right to withdraw the vessel
in default of payment.
28.

The charters also contained provision for permissible deductions from

hire; and stipulated that the masters were to be under the orders of the
charterers as regards employment, agency or other arrangements.
Accordingly, the bills of lading were issued and signed by the charterers
on behalf of the master and freight was paid to the charterers or their
agents.

29.

The charterers made deductions from hire which the owners did not
accept were permissible. The owners informed the charterers that the
authority of the charterers or their agents to sign any bill of lading was
being withdrawn. The owners also instructed the masters not to sign any
bill of lading endorsed freight pre-paid or not bearing an indorsement
incorporating a lien in favour of the owners on all cargoes and subfreights belonging to the charterers and any bill of lading freight.

30.

If the order to the masters had been implemented, it would have had
disastrous consequences for the charterers. The charterers treated the
totality of the owners conduct as a repudiation of the charters, which
they accepted.

31.

On a case stated in respect of each ship from arbitrators, it was held by

the Court of Appeal and the House of Lords that the charterers were
entitled to make the deductions, and that the owners had by their conduct
repudiated the charters, which repudiation had been accepted by the
charterers.

32.

The owners argued that their conduct was not repudiatory because they
had acted on the advice of their lawyers in New York and London, and
they were under an honest misapprehension as to their rights.11

33.

In the Court of Appeal, Lord Denning, rejecting that argument said:

I have yet to learn that a party who breaks a contract can excuse
himself by saying that he did it on the advice of his lawyers: or
that he was under an honest misapprehension. Nor can he excuse
himself on those grounds from the consequences of a repudiation.
In those three cases the conduct of the party concerned was
entirely innocent. It did not evince any intention to break his
contractual obligations. I would go by the principle as I have
always understood it that if the partys [conduct] objectively
considered in its impact on the other party is such as to evince an
intention no longer to be bound by his contractual obligations, then
it is open to the other party to accept his repudiation and treat the
contract as discharged from that time onwards. A most important
point here is that the conduct of the owner was such as to lead the
charterers reasonably to believe that the owners would issue such
orders again in the future whenever they, the owners, wished to

11

They relied on James Shaffer Ltd v Findlay Durham & Brodie [1953] 1 WLR 106 (CA),
Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699(CA) and Ross T
Smyth & Co Ltd v TD Bailey, Son & Co [1940] 3 All ER 60 (HL).

force the charterers to comply with the owners demands in similar

circumstances. In short, the owners were determined to give
orders to the masters in flat contradiction of the charterparty
time and time again so long as the contract continued so as to
enforce their demand that hire should be paid in full without any
deductions unless the owners agreed. To my mind such conduct
amounted to a repudiation of the contract ...12
34.

Goff LJ emphasised the need for an objective assessment. He said:

The question is not what the owners wanted or wished in the
recesses of their minds, but did they by their conduct evince an
intention no longer to be bound by the contract or to perform it
only in a way inconsistent with their obligations under the
charter?13

35.

Goff LJ quoted the following findings of fact by the arbitrators, which

he described as entirely destructive of the owners case:
The issuing of the order of October 4, 1977, was not to secure
their claim for disputed deductions (the offer for an escrow deposit
having been rejected by owners as meritless) but rather to
compel the charterers to pay over all sums deducted from hire by
the charterers which the owners disputed, irrespective of whether
such deductions should ultimately be determined to be valid or
invalid, in whole or in part, and to ensure that in the future the
charterers made no deductions whatever from hire unless they had
previously been expressly approved by the owners or they were
supported by vouchers signed by the master or a proper tribunal
had pronounced on their validity. At the same time, the owners
knew that part of the amounts, payment of which they were
demanding as a condition of the withdrawal of their orders, were
due to the charterers.14

36.

He concluded that:
... the irresistible inference is that they were saying, We will only
perform the contract upon our terms and not on yours and, as
Lord Denning MR has said, they were holding a pistol to the heads
of the charterers and we have the finding as to their true purpose
which I have read from the award.15

37.

On appeal to the House of Lords Lord Wilberforce described the law in

this area as perspicuous. He said the following:
Was this breach, or threatened breach, repudiatory or not? I shall
not set out at any length the numerous authorities on anticipatory
breach: this is one of the more perspicuous branches of the law of
contract and the modern position is clear. The form of the critical

12

13
14
15

Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1978] QB
927; also [1978] 3 WLR 309, [1978] 3 All ER 1066, [1978] 2 Lloyds Rep 132 (CA),
pages 979E 980A.
The Nanfri, note 12, page 991D.
The Nanfri, note 12, page 991E.
The Nanfri, note 12, page 992E.

question may differ slightly as it is put in relation to varying

situations:
... an intimation of an intention to abandon and altogether to
refuse performance of the contract or evince an intention
no longer to be bound by the contract (Freeth v Burr ... per
Lord Coleridge CJ I do not say that it is necessary to show
that the party alleged to have repudiated should have an
actual intention not to fulfil the contract. He may intend in
fact to fulfil it, but may be determined to do so only in a
manner substantially inconsistent with his obligations, and
not in any other way (Ross T Smyth & Co Ltd v T D Bailey,
Son & Co ... per Lord Wright) such as to deprive the
charterers of substantially the whole benefit which it was the
intention of the parties ... that the charterers should obtain
from the further performance of their own contractual
undertakings (Hongkong Fir Shipping Co Ltd v Kawasaki
Kisen Kaisha Ltd ... per Diplock L.J.). To constitute
repudiation, the threatened breach must be such as to deprive
the injured party of a substantial part of the benefit to which
he is entitled under the contract. ... Will the consequences of
the breach be such that it would be unfair to the injured party
to hold him to the contract and leave him to his remedy in
damages ...? (Decro-Wall International SA v Practitioners
in Marketing Ltd ... per Buckley LJ).
The difference in expression between these two last formulations
does not, in my opinion, reflect a divergence of principle, but
arises from and is related to the particular contract under
consideration: they represent, in other words, applications to
different contracts, of the common principle that, to amount to
repudiation a breach must go to the root of the contract.16
38.

Lord Wilberforce, like the Court of Appeal, dismissed as irrelevant any

subjective intention or desire of the party in breach not to abandon the
contract. He said:
It is thirdly irrelevant that it was in the owners real interest to
continue the charters rather than to put an end to them. If a partys
conduct is such as to amount to a threatened repudiatory breach,
his subjective desire to maintain the contract cannot prevent the
other party from drawing the consequences of his actions. The
two cases relied on by the appellants (James Shaffer Ltd v Findlay
Durham & Brodie ... and Sweet & Maxwell Ltd v Universal News
Services Ltd ...) do not support a contrary proposition, and would
only be relevant here if the owners action had been confined to
asserting their own view possibly erroneous as to the effect of
the contract. They went, in fact, far beyond this when they
threatened a breach of the contract with serious consequences.17

16
17

The Nanfri, note 10, pages 778F-779C.

The Nanfri, note 10, page 780E-F.

39.

So far, so clear. However, as we shall in the next case, although the

principles may be clear, their application is highly fact dependent.

Woodar v Wimpey
40.

The next case, Woodar v Wimpey, is often relied upon by the defaulting
party in support of an argument that insistence on an erroneous
interpretation does not constitute a repudiatory breach.18

41.

The appellant was the purchaser under a contract of sale and the
respondent was the vendor. The contract contained a term which
entitled to the appellants to rescind the contract in certain defined
circumstances. The appellants considered that those circumstances had
arisen and purported to rescind the contract. The respondents contended
that the circumstances under which the appellants were entitled to
rescind the contract had not arisen and the judge at first instance agreed.
The appellants did not dispute this finding but appealed against the
finding that in issuing the relevant notice they were in repudiatory
breach of contract.

42.

There were three key findings of fact:

42.1. The possibility of the appellants serving a notice of rescission was

discussed at a meeting between the appellants and the respondents.

It was found that at that meeting the respondents had stated that if
the appellants attempted to rescind the contract then the
respondents would go to court and let the judge decide whether
the contract could be rescinded as claimed by the appellants.
42.2. The appellants stated that the notice was protective and the

respondents stated that they would not consider the notice to be a

hostile act;
42.3. The correspondence between the parties following the issue of the

notice indicated that both sides would simply await the decision of
the court and abide by such decision.
43.

In these circumstances, the House of Lords, by a majority, held that

there was no intention to abandon and to refuse performance of the
contract, even though the notice of rescission was found to be invalid.

44.

Lord Wilberforce said:

In my opinion therefore the appellants are entitled to succeed on
the repudiation issue, and I would only add that it would be a
regrettable development of the law of contract to hold that a party
who bona fide relies upon an express stipulation in a contract in
order to rescind or terminate a contract should, by that fact alone,
be treated as having repudiated his contractual obligations if he
turns out to be mistaken as to his rights. 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. To uphold the respondents contentions in

18

Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR

277; also [1980] 1 All ER 571 (HL).

this case would represent an undesirable extension of this

doctrine.19

Chilean Nitrates Sales v Marine Transportation

45.

In Chilean Nitrate Sales v Marine Transportation Donaldson LJ, giving

the judgment of the court, said that the following propositions could be
taken from Woodar and elsewhere:
(a) Dissolution of a contract upon the basis of renunciation is a
drastic conclusion which should only be held to arise in clear
cases of a refusal to perform contractual obligations in a
respect or respects going to the root of the contract.
(b)

The refusal must not only be clear, but must be absolute.

Where a party declares his intention to act or refrain from
acting in a particular way on the basis of a particular
appreciation of his obligations, either as a matter of fact or of
law, the declaration gives rise to a right of dissolution only if
in all the circumstances it is clear that it is not conditional
upon his present appreciation of his obligations proving
correct when the time for performance arrives.

(c)

What does or does not amount to a sufficient refusal is to be

judged in the light of whether a reasonable person in the
position of the party claiming to be freed from the contract
would regard the refusal as being clear and absolute? ...

(d)

[T]he conduct relied upon is to be considered as at the time

when it is treated as terminating the contract, in the light of
the then existing circumstances. These circumstances will
include the history of the transaction or relationship. Later
events are irrelevant, save to the extent that they may point
to matters which the parties should have considered as
hypothetical possibilities at the relevant time.20

Dalkia Utilities Services v Celtech International

46.

19
20
21

In Dalkia v Celtech one of the issues was whether the defendant,

Celtech, was in material breach of contract under which it was obliged to
pay the claimant, Dalkia, charges under agreements by which Dalkia
would construct a paper mill for Celtech and would provide electricity
and steam to the mill.21 Celtech failed to pay three instalments of the
charges and informed Dalkia that it was not within its power and cash
resources to make the payments and it was facing insolvency. Dalkia
served a notice of termination on Celtech pursuant to a contractual
provision that Dalkia had the right to terminate the principal agreement
immediately if Celtech was in material breach of its obligations to pay
the charges.
Woodar v Wimpey, note 18, page 283.
Chilean Nitrate Sales Corporation v Marine Transportation Co Ltd (The Hermosa)
[1982] 1 Lloyds Rep 570 (CA, page 572.
Dalkia Utilities Services Plc v Celtech International Ltd [2006] EWHC 63, [2006] 1
Lloyds Rep 599, [2006] 2 P & CR 9 (Com Crt).

47.

Although Christopher Clarke J held that Dalkia was entitled to terminate

the contract under its terms, he went on to consider whether, if he were
wrong in that conclusion, Dalkias notice of termination was a
repudiation that Celtech was entitled to accept. Dalkia relied on
Woodar.22

48.

Christopher Clarke J contrasted Woodar with The Nanfri23 and

distinguished Woodar on the facts as follows:
48.1. In The Nanfri, the act of repudiation consisted of an act which had

the immediate effect of substantially depriving the charterers of

virtually the whole benefit of the charter;
48.2. By contrast, the notice of termination in Woodar did not have that

or a similar consequence;
48.3. The majority in Woodar felt able to conclude that, despite the

unqualified terms of the notice, the circumstances in which it was

given did not manifest an intention to refuse further performance.
The time for performance had not yet arisen, Woodar needed to
serve a notice in order to reserve its position, and the discussions
between the parties had proceeded on the basis that the service of
the notice would not be regarded as a hostile act, and that the
entitlement or otherwise of Woodar to serve the notice would be
determined by the court, to which Woodar would apply, by whose
decision both parties would abide;
48.4. In the present case, none of these factors were present:

(1)

Although Dalkias obligations were in suspense, the time for

their performance had arrived and termination was a means
of bringing them to an end permanently;

(2)

There were no discussions between the parties similar to

those in Woodar;

(3)

Dalkia relied and continued to rely on the notice as having

brought the agreement to an end;

(4)

There was no understanding that Dalkia would continue to

perform should its interpretation prove to be wrong.24

Mayhaven Healthcare v Bothma

49.

50.

22
23
24
25

In Mayhaven Healthcare v Bothma Ramsey J was required to consider

whether a contractors wrongful suspension of work constituted a
repudiatory breach of contract.25 It should be noted that this dispute
came before Ramsey J as a challenge to the award of an arbitrator.
DAB undertook to demolish part of Mayhavens nursing home and
construct initially a three-storey extension which would provide new

Woodar v Wimpey: note 18.

The Nanfri: note 10.
Dalkia v Celtech, note 21, paras 145-151.
Mayhaven Healthcare Ltd v Bothma (t/a DAB Builders) [2009] EWHC 2634, [2010]
BLR 154, 127 Con LR 1 (TCC).

10

facilities and increase the number of beds from 43 to 49. Further phases
of redevelopment would increase the number of beds further to 75.
51.

Disputes arose between the parties which were referred to adjudication.

In an adjudication decision issued on 12 June 2006, the adjudicator
directed Mayhaven to pay DAB certain sums.

52.

DAB believed, as Mayhaven was aware, that those sums had not been
paid although it later transpired that they had.

53.

In light of its belief that the sums had not been paid, DAB suspended
work. The same day, Mayhaven notified DAB that it considered its
suspension as wrongful and constituted a repudiatory breach of contract
which Mayhaven purported to accept.

54.

DAB commenced an arbitration against Mayhaven. The arbitrator found

that there was no repudiatory breach by DAB. In particular, he found
that DAB had made a genuine mistake as to whether the sums ordered
by the adjudicator had been paid, that Mayhaven knew that the sums had
been paid and that DAB was operating under a mistake and that if DAB
had been aware of the true position, it would not have suspended work.

55.

Mayhaven challenged the award and raised the following issue:

If a Contractor under a construction contract breaches that
contract by wrongfully suspending the works, does such conduct
amount to repudiatory breach of contract?

56.

Ramsey J held that:

56.1. Whether a refusal to perform unless the other party complies with

an invalid condition amounts to a repudiation depends on the

circumstances and not every indication of an intention not to
perform under an invalid condition will amount to repudiation;
56.2. The arbitrator had not erred in law in concluding that on the facts

of this case, DABs suspension of work did not constitute a

repudiatory breach of contract. The arbitrator was entitled to rely
upon the fact that DABs suspension of work was based upon an
error of which Mayhaven was aware and which, if it was
corrected, would have led to DAB resuming work.

Jim Ennis Construction v Combined Stabilisation

57.

Jim Ennis Construction (JEC) sought declaratory relief against

Combined Stabilisation (CSL) in relation to a final account agreement
allegedly made between the parties on 28 July 2009.26 CSL were
engaged by JEC to carry out ground works. The works were completed
on or about 12 May 2009 and thereafter the parties engaged in
negotiations to settle the amount of CSLs final account.

58.

CSL initially offered without prejudice to settle the final account value
in the sum of 735,000 whilst maintaining its true entitlement was much
higher. The offer was made on the express understanding that the
outstanding sums are certified with immediate effect. After further

26

Jim Ennis Construction Ltd v Combined Stabilisation Ltd [2010] CILL 2820 (TCC).

11

negotiations between the parties a compromise figure of 707,500 was

agreed in principle. By an email dated 24 July 2009 CSL stated that the
agreement excluded the outstanding issue of damage an item of CSLs
plant and confirmed that the outstanding sum due for payment under the
agreement was 142,910.13 to be paid within 10 days. By reply dated
27 July 2009, JEC confirmed that the agreement excluded the damage
referred to and that the sum due for payment was 142,910.13. The 27
July email was silent as to the date for payment.
59.

The Certificate of Final Agreement was signed by CSL agreeing to

accept the sum of 707,500 in full and final settlement. Under cover
letter of 29 July 2009, that Certificate was said to be signed on the
express understanding that the 27 July email was incorporated. No
reference was made to the 24 July email.

60.

On receipt of the signed Certificate of Final Agreement from CSL, JEC

notified CSL that a problem had arisen with regard to damage to a gas
main for which it was suggested CSL were responsible and in respect of
which deductions would be made from the outstanding 142,901.13.
After a further exchange of emails, JEC paid the sum of 135,538.25 to
CSL (thus having unilaterally deducted 7,362.88 from the previously
stated amount).

61.

By email dated 14 August 2009, CSL informed JEC that it considered

the final account agreement was no longer applicable.

62.

By email dated 21 August 2009, CSL stated:

As a direct consequence of [JEC]s failure we [will] comply with
the agreed terms of the Final Account CSL consider that the
settlement is now null and void.

63.

CSL subsequently submitted a revised final account to JEC claiming an

increased value of 1,030,000.

64.

JEC subsequently paid the unpaid balance of the previously agreed sum
(7,362.88) which was accepted by CSL not in full and final settlement
of the revised final account but on a purely account basis.

65.

CSL subsequently served Notice of Adjudication; JEC challenged the

validity of the Notice on the basis that CSL was bound by the Final
Account Agreement to accept the final account value of 707,500.

66.

CSL denied this on the following bases:

66.1. There was no binding settlement agreement between the parties

because the agreement was incomplete, no agreement having been

reached on an essential term, namely time for payment;
66.2. CSL had made a counter-offer in respect of the provisional

agreement which had not been accepted by JEC;

66.3. Alternatively, if there was a binding agreement it was conditional

CSL accepting payment of the sum (as opposed to accepting the

promise of payment) and that in not paying the agreement was
wrongfully repudiated by JEC and that repudiation was accepted
by CSL thereby determining the agreement;
12

66.4. Further alternatively, if there was a binding agreement it was a

condition of such agreement that the sum of 142,901.13 which

was breached by JEC entitling CSL to determine and be
discharged from the final account agreement.
67.

HHJ Raynor QC decided as follows. He:

67.1. rejected the argument that the Final Account Agreement was void

for uncertainty noting the reluctance of the courts to make such

findings. It was clear JEC and CSL intended their arrangements to
have legal effect, JEC when it submitted the Certificate of Final
Agreement and in the confirmation it gave in the 27 July email,
CSL when it signed and returned the Certificate under the cover
letter 29 July 2009;
67.2. held that although no express agreement was reached as to when

payment would be made, he was in no doubt that a term fell to be

implied and accepted the submission for JEC that no time having
been expressly agreed, it was implicit that payment would be made
within a reasonable time having regard to all the circumstances;27
67.3. considered that there had been no counter-offer.
68.

In respect of JECs withholding of the sum of 7,362.88, HHJ Raynor

QC held:
68.1. the agreement of the final account value was not made in

consideration for the actual payment of the sum but the agreement
to pay the sum;
68.2. the agreement of the final account was not conditional upon the

agreed sum being paid in full.

69.

HHJ Raynor QC rejected the submission that JEC had wrongfully

repudiated the final account agreement:
69.1. Relying on Woodar v Wimpey the judge found that JECs conduct

in withholding the sum did not indicate an intention to abandon

and altogether refuse performance of the final account
agreement;28
69.2. He rejected the submission that not only was it a term of the

agreement that the full sum be paid but that that term amounted to
a condition with the consequence that threatened failure to perform
ie anticipatory breach entitled CSL to elect to treat the
agreement at an end;
69.3. He rejected the submission that the parties were to be regarded as

having agreed that any failure of performance, irrespective of the

gravity of the event that has in fact resulted from the breach,
should entitle the other party to elect to put an end to the contract.
70.

27
28

As such, CSL remained bound by the Final Account Agreement and JEC
were entitled to the declaratory relief sought.
Ennis v Combined Stabilisation, note 26, para 35.
Ennis v Combined Stabilisation, note 26, para 45; Woodar v Wimpey: note 18.

13

Eminence Property Developments v Heaney

71.

In Eminence Property Developments v Heaney29

71.1. The appellant (Eminence) appealed against a decision that it had

acted in repudiatory breach of contract in relation to the sale of 13

flats to the respondent (Mr Heaney);
71.2. The contractual completion date having passed, Eminences

solicitors served notices to complete on Mr Heaneys solicitors

pursuant to condition 6.8 of the Standard Conditions of Sale. They
stated in a covering letter that they had calculated that the final
date for completion under the notices was 15 December 2008.
That was incorrect: given the definition of working day in the
Standard Conditions, the final date for completion was 19
December 2008;
71.3. Heaney took no steps to complete the contracts, and on 17

December 2008, Eminences solicitors sent notices to Mr

Heaneys solicitors purporting to rescind the contracts;
71.4. The notices were premature, and the recorder held that in serving

them Eminence had acted in repudiatory breach of contract;

71.5. Eminence appealed.
72.

Etherton LJ, with whom Sullivan and Mummery LJJ agreed, held that
Eminence was not in repudiatory breach. The respondent submitted that
Woodar30 was authority that an act or declaration wrongly terminating a
contract will not be a repudiatory breach only where the parties have
agreed in advance that, if and when the act is done or the declaration
made, the question of the validity and effectiveness of the act or
declaration will be brought before the courts and the parties will abide
by the courts decision.

73.

Etherton LJ disagreed and set out the following principles:

73.1. In this area of the law, there was a danger in attempts to clarify the

application of a legal principle by a series of propositions derived

from cases decided on their own facts;
73.2. The test remained 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;
73.3. Whether or not there has been a repudiatory breach is highly fact

sensitive. An innocent and obvious mistake may well be viewed

differently from cynical and manipulative conduct;
73.4. All the circumstances must be taken into account insofar as they

bear on an objective assessment of the intention of the contract

29
30

Eminence Propety Developments Ltd v Heaney [2010] EWCA Civ 1168, [2011] 2 All
ER (Comm) 223 (CA).
Woodar v Wimpey: note 18.

14

breaker. This means that motive, while irrelevant if relied upon

solely to show the subjective intention of the contract breaker, may
be relevant if it is something or it reflects something of which the
innocent party was, or a reasonable person in his or her position
would have been, aware and throws light on the way the alleged
repudiatory act would be viewed by such a reasonable person.
74.

Etherton LJ applied these principles to the facts of the case before him:
74.1. Eminence was ready, willing and able to complete the sale and

entitled to serve notices to complete;

74.2. Completion did not take place because of Mr Heaneys default;
74.3. The notices to complete served by Eminence contained an obvious

error as to the date of the required completion. There was no

attempt by Eminence to vary the terms of the contract;
74.4. Mr Heaneys solicitors did not point out the obvious error. Either

they did not notice the error or they wanted to rely on the error so
that they could fortuitously extricate Mr Heaney from the
contracts. There was no reason to think that if the error had been
pointed out, Eminence would not have corrected it;
74.5. As a result of the error, the notices of termination were served

prematurely, ie before the expiry of the contractually stipulated

period;
74.6. This was not a case where the two parties maintained different

interpretations of the contract, but where one party had made an

error based on an agreed interpretation;
74.7. In these circumstances, it was not possible to find an intention by

Eminence to abandon and altogether to refuse to perform the

contracts;
74.8. Indeed, the notices themselves were internally inconsistent and as

such it was not possible to spell out a clear intention to abandon

the contracts.

Conclusion
75.

How are the two approaches (Woodar, Eminence on the one hand and
The Nanfri, Dalkia on the other31) to be reconciled?

76.

It may be that the key issue is that in The Nanfri the repudiation
consisted of an act the instruction of the master not to sign pre-paid
bills of lading which had the immediate effect of substantially
depriving the charterers of virtually the whole benefit of the charter
since the issue of the bills was essential to the maintenance of the
charterers trade. By contrast, the notice of termination in Woodar did
not have a similar consequence.32

31
32

Woodar v Wimpey: note 18, Eminence Property v Heaney: note 29, The Nanfri, note 10,
Dalkia v Celtech, note 21.
The Nanfri, note 10; Woodar v Wimpey, note 18.

15

77.

It also appears that where the innocent party is aware that the
defaulting party is acting under a misapprehension of the legal or
factual position, does not take steps to correct the misapprehension and
if the misapprehension had been corrected the defaulting party would
have remedied its breach, the courts are unlikely to be sympathetic to the
innocent party.

5.

Examples of repudiatory breach: delay

78.

The question of whether delay in the performance of contractual

obligations can constitute a repudiatory breach of contract has been
considered in a number of cases.

79.

The first question is whether time is of the essence, ie whether the

relevant term as to time is a condition such that breach would give rise
to a right to terminate the contract.

80.

Generally terms as to time will not be construed as conditions unless

expressly stated to be such or are to be so construed in light of the
contract as a whole. It is said that in relation to mercantile contracts,
the courts are readier to find that time is of the essence, this tends not to
be the case in relation to construction or engineering contracts.

Urban I and the Court of Appeals re-statement

81.

In the case of Urban I v Ayres the Court of Appeal re-stated the rules in
relation to delay and repudiatory breach.33

The facts
82.

On 25 January 2007 Mr and Mrs Ayres entered into a contract with

Urban I for the grant of a 125 year lease for 179,950 on a 2 bedroom
flat in Urban Is development (in Sheffield). The contract did not
specify a fixed completion date but at the date of contract it was
envisaged that the development would start on 26 February 2007 and the
target for completion was December 2008. In fact the development
started one month late and in the minutes of the first progress meetings
with the contractor and project manager it was noted the development
programme envisaged completion on or before 26 January 2009 which
was later revised to February 2009.

83.

In June 2008 the Ayres were advised that completion would be in

December 2008 and they were advised to arrange their mortgage. In
September 2008 the Ayres received a mortgage offer from Halifax of
90% of the purchase price subject to a number of conditions including a
satisfactory assessment made of the property before 8 March 2009. The
mortgage had to commence by 31 December 2008.

84.

The Ayres were told of the anticipated February 2009 completion date
for the first time in October 2008. In November 2008, the Ayres were
informed that the mortgage needed to be completed and drawn down by
31 December 2008 as the lender was ceasing to offer 90% LTV

33

Urban I (Blonk Street) Ltd v Ayres [2013] EWCA Civ 816, [2014] 1 WLR 756, [2013]
BLR 505, [2014] 1 P & CR 1 (CA).

16

products. The Ayres attempted to extend the date and find alternative
mortgage, but were unable to do either. They also requested Urban I
allow access for their mortgage valuer. That request was not granted.
85.

By the end of January 2009, completion was set for May 2009. In
March 2009 the Ayres wrote to Urban I terminating the contract due to
unreasonable delay stating that it was clear that completion had been
unreasonably delayed beyond the deemed completion date, that Urban I
were in repudiatory breach and giving notice that they accepted the
breach as discharging the contract.

86.

The apartment was completed on 31 July 2009. On 13 August 2009

Urban I served the contractual 10 day notice on the Ayres and on 1
September 2009 they served notice to complete giving 10 days to
complete. Urban I issued a claim against the Ayres for specific
performance and/or damages for late completion.
The Ayres
counterclaimed for return of the reservation fee and deposit alleging they
had successfully terminated the contract.34

The judgment at first instance

87.

The trial judge concluded that viewed objectively the overall delay by
the date of the [Ayres] solicitors letter of 20 March 2009 or by the time
[Urban I] served its notice to complete on 1 September 2009 was such as
to amount to repudiation of the Contract entitling the [Ayres] to refuse to
complete. The trial judge relied on the following factors:
87.1. There had been six month period of delay against an overall

timeframe of 2 years;
87.2. Urban I were behind their own projected programming;
87.3. The contractors own financial circumstances caused by the delay

should not be visited on the Ayres;

87.4. The Ayres were not told until long after it had become apparent

that the December 2008 completion date would not be met as a

result of which they lost their mortgage, about which they kept
Urban I informed;
87.5. The Ayres were given numerous dates for completion such that

any reasonable person in their circumstances would have

despaired;
87.6. Even after March 2009 there were further unexplained delays.

The appeal
88.

Urban I appealed and the Court of Appeal allowed the appeal.

89.

The Court of Appeal noted that the trial judge was in a difficult
situation:
This field of law is complex. The case law has developed in
significant respects over time and it is not always consistent.
Observations by Lewison LJ and Rix LJ in the recent case of

34

They acted in person.

17

Samarenko show how even today, aspects of the law relating to

time provisions in contracts for the sale of land and the relevance
of notices to complete can be puzzling and that there is still room
for clarification of the law.35
90.

The Court of Appeal extracted the following relevant principles under

the current law:
(1) It is necessary to distinguish between three types of
contractual time provision. They are those which are
conditions in the technical sense that any breach of them,
however slight, is a repudiatory breach of contract which
entitles the other party to terminate the contract immediately;
those which are warranties in the technical sense that any
breach of them, however serious, will only ever entitle the
other party to damages and not to terminate the contract; and
those which are so-called innominate terms, breach of which
will only be a repudiation of the contract entitling the other
party to terminate the contract if the breach deprives him or
her of substantially the whole benefit which it was intended
they should obtain from the contract or, in simpler language,
which goes to the root of the contract: Hong Kong Fir
Shipping Co Ltd at 69 to 70. It is a matter to be determined
on ordinary principles of contractual interpretation into
which of those categories the term falls.

35

(2)

Where a contract for the sale of land does not contain any
specified date for completion, and subject to any contractual
indication to the contrary, it is implied that completion will
be within a reasonable time. There is no breach of contract
until that that time has arrived: Behzadi at 12G-13A and
23E.

(3)

The moment that the contractual date for completion has

passed the contract-breaker who has delayed completing is
liable in damages: Raineri.

(4)

Where the contractual date for completion has passed the

contract-breaker is still entitled to specific performance of
the contract unless it would be inequitable to grant that
relief: Stickney at 416, Seton v Slade.

(5)

It would be inequitable for there to be a grant of specific

performance to the contract-breaker if the parties have
expressly stated in the contract that the contract can be
terminated forthwith upon breach of the time provision or if
it is to be implied from all the circumstances that they so
intended: Parkin v Thorold at 66. Accordingly, if, on the
proper interpretation of the contract, the time provision is a
condition in the technical sense I have mentioned, it is
difficult to imagine that the court would grant the contract
breaker specific performance. I respectfully agree, in this

Urban I v Ayres, note 33, para 42.

18

regard, with the doubt expressed by Rix LJ in Samarenko at

[64] as to whether equity, as a distinct species of legal
principles, now has anything to add in the context of
contractual terms of fundamental importance.
(6)

Service of a valid written notice to complete after the

contractual completion date has passed has the effect of
bringing to an end the possibility of equitys intervention by
the grant of specific performance to the contract-breaker. A
valid notice is one which calls on the contract-breaker to
perform within a reasonable period, specifying exactly what
it is that party must do and what consequences will follow
(that is to say, exercise of the right to terminate if he or she
fails to do so): Re Olympia & York Canary Wharf Ltd (No 2)
[1993] BCC 159 at 169 C-F citing Behzadi at 12B-E.
Statements in many of the cases and some textbooks that the
service of a notice to complete makes time of the essence in
equity are incorrect. Absent any relevant express provisions
in the contract (as are to be found in the Standard
Conditions, for example), it is contrary to all principle for
one party to be able unilaterally to transform one type of
contractual provision (namely, an innominate term or a
warranty in the strict sense) into something different (a
condition in the strict sense). Equitys role, in this context,
always has been to relieve a contract-breaker against the
strict legal rights of the other party, not to enhance them:
Parkin v Thorold at 71, Behzadi at 12 and 24.

(7)

Accordingly, absent any relevant express terms in the

contract, where a completion notice has been served and
expired following breach of a time provision which is an
innominate term the question whether the other party can
terminate the contract depends upon that partys ordinary
legal rights. This depends upon two matters which, again,
have often been confused in the case law. Firstly, the
contract-breaker will have repudiated the contract, entitling
the other party to terminate it, if and when the delay has been
such as in all the circumstances to deprive the other party of
substantially the whole benefit it was intended he or she
should obtain from the contract, that is to say it has gone to
the root of the contract. The delay may or may not have
reached that point at the time that the notice to complete has
expired: comp Peregrine Systems Ltd v Steria Ltd [2005]
EWCA Civ 239 at [15]. Secondly, the contract-breaker will
have repudiated the contract, or as it is sometimes put,
renounced the contract, entitling the other party to terminate
it, if the contract-breaker has demonstrated an intention
never to carry out the contract or, at any event, only to do so
in a manner substantially inconsistent with his or her
contractual obligations such as to deprive the other party of
substantially the whole benefit which it was intended they
19

should receive under the contract: Federal Commerce &

Navigation Co Ltd v Molena Alpha Inc (The Nanfri)[1979]
AC 757 at 778-779 (Lord Wilberforce citing passages from
several other cases). The failure to comply with the notice to
complete may be some evidence of that, but an intention to
renounce must be determined in the light of the evidence as a
whole: Eminence Property Developments Ltd v Heaney
[2010] EWCA Civ 1168 at [61] to [64]. I agree with
Lewison LJs further thoughts on this aspect when, in
Samarenko at [42], he resiled from his earlier position in
Multi-Veste 226 BV v NI Summer Row Unitholder BV [2011]
EWHC 2026 (Ch) at 201.
(8)

Where, in the case of a time provision which is an

innominate term, a completion notice has not been served on
the contract-breaker, an award of specific performance will
be available to the contract-breaker until such time as the
grant of that remedy would be inequitable. It is difficult to
see in principle why that would be any different to the time
when the breach due to the delay is such as to go to the root
of the contract.36

91.

Applying those principles to the current case, the trial judge had been
correct that in the absence of any express stipulated date, it was an
implied term of the contract that completion of the apartment, and hence
the consequential completion of the contract, was to be within a
reasonable time. What is a reasonable time is a mixed question of fact
and law.

92.

However, the judge did not expressly consider whether that implied term
was, in all the circumstances and on a proper interpretation of the
contract, a condition in the strict sense, a warranty in the strict sense or
an innominate term. It was clear from the judgment that he regarded it
as an innominate term which was plainly correct.

93.

Contractual completion was to take place at the latest 10 days after a

reasonable time for building the apartment had elapsed. However the
judge did not identify that date. He plainly thought that it had elapsed
by the date of the Ayres letter in March 2009. The reasonable time for
completion was highly fact-sensitive. It was clear that Urban I was not
in repudiatory breach of the contract by March 2009. The judge had
found that Urban I had not unreasonably delayed completion prior to
February 2009. The breach could only have been repudiatory in March
2009 if it went to the root of the contract at that date which was an
impossible conclusion. On the face of it, delay of approximately one
month, at most, between the earliest possible date for contractual
completion and the Ayres purported termination on 20 March 2009
could not possibly be said to have deprived the Ayres of a substantial
part of the benefit of the contract, let alone substantially the whole of the
benefit.

36

Urban I v Ayres, note 33, para 44.

20

94.

The trial judge had been greatly impressed by the prejudice to the Ayres
in losing their mortgage, but they had lost that opportunity at a time
when the delay in completing the apartment was not unreasonable. Both
the Chancellor and Floyd LJ expressed some degree of sympathy for the
position the Ayres found themselves in, but noted that it was not caused
by Urban Is breach but because the contract they had entered into did
not have a fixed long-stop date whereas their mortgage offer was
conditional on the commencement before the earliest date at which
completion was projected to take place.

Astea v Time Group

95.

In Astea vTime Group HH Judge Seymour first had to consider what

constituted a reasonable time for an IT supplier to perform its
contractual obligations.37

96.

He held that the court should give this issue a broad consideration, with
the benefit of hindsight, viewed from the time as at which one party
contends that a reasonable time for performance has been exceeded.

97.

This broad consideration of the reasonable time for performance was

likely to include, but was not limited to:
97.1. Any estimate given by the performing party of how long it would

take it to perform;
97.2. Whether that estimate has been exceeded and, if so, in what

circumstances;
97.3. Whether the party for whose benefit the relevant obligation was to

be performed needed to participate in the performance, actively, in

the sense of collaborating in what was needed to be done, or
passively, in the sense of being in a position to receive
performance, or not at all;
97.4. Whether it was necessary for third parties to collaborate with the

performing party to enable it to perform; and

97.5. What exactly was the cause, or causes of the delay.
98.

He then set out the circumstances in which it could it be said that a

contract had been repudiated by breach of an obligation to complete
performance within a reasonable time.
98.1. The application of the test of repudiation

38

is most straightforward
in a case where no performance at all of the obligations of one of
the contracting parties has taken place and there is a
straightforward refusal of performance;

98.2. In any case in which there has been any degree of performance

before the alleged repudiation the application of the test required a

qualitative judgment of whether failure to perform the remainder
of the obligations of the relevant party would deprive the other
37
38

Astea (UK) Ltd v Time Group Ltd [2003] EWHC 725 (TCC.
The judge referred to the test formulated by Diplock LJ in Hongkong Fir (note 2): Astea
v Time Group, note 37, para 149.

21

party of substantially the whole benefit of the contract judged

against the commercial purpose of the contract;
98.3. It is likely to be necessary to consider not only what has been

done, but also the value of that to the other party if nothing else is
done;
98.4. A flat refusal to continue performance will probably amount to

repudiation however much work has been done;

98.5. It may be very difficult to conclude that what is being offered will

deprive the other party of substantially the whole benefit of the

contract if:
(1)

considerable work has been done in performance of a partys

contractual obligations; and

(2)

what is alleged to amount to a repudiation is not a flat refusal

to perform, but an indication of an intention to continue to
perform at a speed considered by the other party to be
unreasonably slow.

98.6. Indeed in the above circumstances it may well seem that the

innocent party will eventually gain exactly the benefit

contemplated. Then the question will be whether, by reason of the
time that will need to elapse before that happens, in commercial
terms the party entitled to performance will be deprived of
substantially the whole of the benefit that it was intended he
should derive from the contract.
99.

The approach of HHJ Seymour was approved by the Court of Appeal in

Peregrine Systems v Steria.39 This was another case involving the
provision of IT services.

100. It was also followed in Automotive Latch Systems v Honeywell

International. Flaux J said:

Applying that principle, it is clear that the Court can and should
look at all the material available, including looking at the
question with hindsight. On that basis, although none of the
cases specifically touches on this, I do not see why in principle,
the reasonableness of the partys conduct should not also be
assessed, where appropriate, by reference to matters which antedate the entering of the contract.40

Gold Group Properties v BDW Trading

101. Judge Stephen Furst QC was required to consider whether a developer

was in repudiatory breach by reason of delay in Gold Group Properties

v BDW Trading.41 In this case, the repudiatory breach was made clear
by the fact that almost no work was done and the fact that the developer
was seeking to renegotiate the terms of the agreement.
39
40
41

Peregrine Systems Ltd v Steria Ltd [2005] EWCA Civ 239 (CA).
Automotive Latch Systems Ltd v Honeywell International Inc [2008] EWHC 2172 (Com
Crt), para 142.
Gold Group Properties Ltd v BDW Trading Ltd [2010] EWHC 1632 (TCC).

22

102. The claimant landowner (Gold) sought damages from the defendant

developer (BDW) for breach of contract.

The facts
103. Gold and BDW had entered into an agreement whereby BDW was to

construct dwellings on land owned by Gold. Gold was to sell the

properties on long leases, sharing the revenue with BDW. Relevant
terms of the agreement included that:
103.1. BDW would begin work by June 2008;
103.2. BDW would proceed with the work with due diligence;
103.3. BDW would complete the work within 30 months of

commencement.
103.4. Minimum sale prices for each of the properties were set out in a

schedule;
103.5. Clause

10 of
provisions; and

the

agreement

contained

revenue-sharing

103.6. Clause 11 provided that each party should act in good faith.
104. In the event, BDW undertook little work on the site, its position being

that the fall in the property market caused by the recession meant that
the minimum prices were unlikely to be achieved and the agreement was
therefore frustrated.
105. On 19 November 2008, BDW wrote to Gold suggesting either that the

development be delayed or that the minimum prices and the payment

terms be reviewed. By a letter of 17 December Gold declined to review
the payment terms, indicated that it regarded BDW to be in breach of its
contractual obligations, and insisted that the breach be remedied. On 12
January 2009, BDW indicated that in its view the agreement was at an
end and was unenforceable. Gold responded on 12 September 2009
accepting BDWs repudiatory breach.
The judgment
106. Judge Stephen Furst QC held:
106.1. The obligation of good faith did not require Gold either to agree

to an adjustment of the revenue-sharing mechanism or to

negotiate such an adjustment as a free-standing obligation or as
part of any negotiation of the minimum prices;
106.2. While the obligation required the parties to act in a way that

would allow each to enjoy the anticipated benefits of the

contract, it did not require either of them to give up a freelynegotiated financial advantage clearly embedded in the contract.
Delaying the project would defer Golds profits and would mean
that the land would generate no income in the meantime, and a
revision of the revenue-sharing agreement would mean a
significant reduction in its profits. It could not be said that Gold

23

was in breach of its obligations of good faith in refusing to accept

or even negotiate on the basis of such proposals;42
106.3. BDW was in repudiatory breach of the agreement in:

(1)

Failing to commence work by the date specified in the

contract;

(2)

Faiing to proceed with the work with due diligence; and

(3)

There being no prospect of the work being completed

within 30 months of commencement.

106.4. There was no doubt that the breaches were repudiatory. BDW

had manifested an intention no longer to be bound by the

agreement, its letters of 19 November 2008 and 12 January 2009
indicating that it was not prepared to proceed unless the revised
payment proposal was agreed. Although in its letter of 17
December 2008, Gold had wrongly asserted that the minimum
prices were solely for its benefit, that assertion was not causative
of the breakdown of negotiations and nor did it affect any
subsequent steps taken by BDW;
106.5. Gold had not accepted the repudiatory breach by failing to return

keys as this was not clear and unequivocal;

106.6. Golds letter of 26th March 2009 did not constitute an acceptance

since it disagreed with Barratts assertion that the agreement was

at an end and in the last sentence provided an agenda for a
meeting at which it was anticipated that either BDW would agree
to perform its obligations under the agreement or it would make
an acceptable offer to Gold to bring the agreement to an end.
This letter therefore presupposes the continuing existence of the
agreement;
106.7. The letter dated 14th August 2009 stated that provided BDW,

within 20 days, either remedied the breaches or demonstrated its

willingness to remedy the breaches and confirmed it would
honour and perform the terms of the agreement, Gold would
permit BDW to complete the development within a reasonable
period with an adjusted time scale for the remaining obligations.
This was intended to be a notice for the purpose of Clause 24 of
the agreement and therefore assumed the agreement to be still on
foot;
106.8. By letter dated 21 September 2009 Gold stated:

The pre action letter written to your clients on 14 August 2009

allowed your client a period to remedy their breach(es) of the
Development Agreement in accordance with the provisions of
Clause 24 of the Agreement. They have failed to take up that
opportunity. Additionally, your letter of 2 September makes it
plain that your client has no intention of performing the
42

Berkeley Community Villages Ltd v Pullen [2007] EWHC 1330, [2007] 3 EGLR 101
(Ch) and Automasters Australia (Pty) Ltd v Bruness Pty Ltd [2002] WASC 286.

24

Development Agreement and that it continues to consider the

Agreement to have already ended by reason of mistake and/or
frustration of contract.
Accordingly, the Development
Agreement has now terminated absolutely and I have written to
your client confirming that to be the case. This will assist in
crystallising GGPs claim for damages.43
This letter constituted both an exercise of the right to terminate under
Clause 24 and acceptance of BDWs repudiatory breach.

Telford Homes v Ampurius

107. In the case of Telford Homes v Ampurius,44 the Court of Appeal was

required to consider whether delay in the completion of a construction

contract amounted to repudiatory breach and highlighted the importance
of:
107.1. identifying the nature of the benefit which was intended to be

conferred on the innocent party;

107.2. considering the consequences of the breach; and
107.3. (as part of this consideration) a detailed analysis of causation.

The facts
108. On 7 October 2008, Telford (a developer/landlord) and Ampurius

(investor/tenant) entered into an agreement for a lease under which

Telford was to develop four mixed-use blocks (A, B, C and D) and
Ampurius ultimately intended to take 999-year leases of commercial
units in the blocks. The target date for completion of blocks C and D
was July 2010 and for A and B was February 2011. By clause 2.3(vi) of
the agreement Telford procured that the Landlords Works are carried
out with due diligence.
109. Works proceeded successfully until early 2009 when the effect of the

credit crunch reduced the demand for flats. On 23 March 2009, Telford
decided to stop work on blocks A and B and to allow work on block C to
slip to assist with cash flow. In July 2009, Ampurius was told for the
first time inter alia that work on blacks A and B was on hold. Telford
managed to secure a cash injection to continue work on blocks B and C.
110. Work progressed on blocks C and D (for which the concrete frames

were certified complete in November and December 2009) but there

were further delays to work on blocks A and B because the necessary
funding was not in place. In June 2010, Telford informed Ampurius that
it was expecting the necessary finance to be confirmed within the
coming week to enable work to commence on blocks A and B in January
2011.
111. Ampurius stated that negotiations had come to a standstill and that the

failure of Telford to commence works on blocks A and B was in breach

of the agreement concluding:
43
44

Gold Group v BDW Trading, note 41, para [66].

Telford Homes (Creekside) Ltd v Ampurius Nu Homes Holdings Ltd [2013] EWCA Civ
577, [2013] 4 All ER 377; [2013] BLR 400; 148 Con LR 1 (CA).

25

Your clients will never carry out the works to Blocks A and B
and/or your clients will carry out the works over a period of time
that would inflict damage and/or interfere with the business to be
set out in the commercial units.45
112. Telford responded denying this was the position and stating that it had

every intention of performing and completing the contract.46

113. It appears Telford secured further funding because despite a continued

lack of progress in negotiations between it and Ampurius, works on

blocks A and B restarted on 4 October 2010. The trial judge found this
was not simply done with a view to performance of the contract but
because Telford was itself deeply committed to the development of
which the sale of the commercial units to Ampurius was only a small
part. However, no one told Ampurius and it was to be inferred that it
had not asked and on 22 October 2010 (4 months before the target
completion date for blocks A and B) Ampurius purported to terminate
the contract stating that it was entitled to and did accept Telfords
repudiatory breach.
The judgment at first instance
114. The trial judge held that Telfords delay in carrying out the works to

blocks A and B was a breach of clause 2.3(vi) and that by the end of
2009, if not before, Telfords ongoing breach had become sufficiently
substantial to be repudiatory.
The Court of Appeal
115. Having considered the judgment of Diplock LJ in Hongkong Fir,

Lewison LJ identified three points:

115.1. The task of the court is to look at the position as at the date of

purported termination of the contract even in a case of actual

rather than anticipatory breach;
115.2. In looking at the position at that date the court must take into

account any steps taken by the guilty party to remedy the accrued
breaches of contract;
115.3. The court must also take account of likely future events judged

by reference to objective facts as at the date of purported

termination.
116. Lewison LJ noted an apparent tension in previous authorities between

the test of deprivation of substantially the whole benefit (Diplock LJ)

and a test of deprivation of a substantial part of the benefit47 but stated
that whatever test was adopted, the starting point was to consider what
benefit the injured party was intended to obtain from performance of the
contract. In this case the trial judge had not given adequate weight to the

45
46
47

Telford Homes v Ampurius, note 44, para 16.

Telford Homes v Ampurius, note 44, para 17.
See Buckley LJ in Decro-Wall International SA v Practitioners in Marketing Ltd [1971]
1 WLR 361, page 380; also [1971] 1 WLR 361 (CA).

26

ultimate objective of the contract, viz the grant to Ampurius of 999 year
leases.
117. The next issue to consider was the effect of the breach on the injured

party. He said:
What financial loss has it caused? How much of the intended
benefit under the contract has the injured party already received?
Can the injured party be adequately compensated by an award of
damages? Is the breach likely to be repeated? Will the guilty
party resume compliance with his obligations? Has the breach
fundamentally changed the value of the future performance of the
guilty partys outstanding obligations?48
118.

Lewison LJ held that the trial judges application of the principles had
been incorrect for the following reasons:
118.1. The trial judge had been impressed by the four blocks being

envisaged as a single project and by the potential that sub-letting

might be interfered with if Ampurius was compelled to take two
blocks while building work continued on the remaining blocks.
However, the contract had envisaged a staged handover and
seven months of such interference, so it overstated the case to say
that the consequences of any gap between handover dates would
be so serious as to amount to repudiatory breach;
118.2. It was not enough to say that a possible interference with

marketing was of itself sufficient to satisfy the test. Ampurius

accepted that the delay had not caused any actual loss and it
would be unusual that a breach that had caused no actual loss
was repudiatory;
118.3. If no actual loss had been caused by the breach, the future loss

the injured party was seeking to avoid had to be considered. Had

Ampurius delayed marketing of blocks C and D until
construction of A and B had caught up, it would have incurred
additional funding costs of the order of 100,000. Those costs
were readily calculable, and Ampurius could have been
compensated. Set against a purchase price exceeding 8 million,
and against overall development costs exceeding 100 million,
such loss was not of a scale sufficient to characterise it as
repudiatory.
119. The trial judge had erred in distinguishing Stocznia Gdanska v Latvian

Shipping on the basis that it dealt with anticipatory repudiatory breaches

as the same test applies to actual breaches, ie that in both cases, the
relevant time of assessment is when the innocent party seeks to accept
the repudiatory breach, not the time when the anticipatory or actual
breach is committed.49
120. Lewison LJ held:
48
49

Telford Homes v Ampurius, note 44, para 52.

Stocznia Gdanska SA v Latvian Shipping Company [2002] EWCA Civ 889, [2002] 2 All
ER (Comm) 768, [2002] 2 Lloyds Rep 436, [2003] 1 CLC 282 (CA).

27

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 the ongoing obligation
it may well be possible for the delay to be made up by faster
performance.50
121. Accordingly, the trial judge had applied the test to the wrong moment in

time.
122. Lewison LJ then reverted to Diplock LJs checklist in Hongkong Fir51

and applied it to the facts of the case:

122.1. The delay that had already occurred had caused Ampurius no

loss;
122.2. Future delay was likely to require Ampurius to fund the deposits

and the balance of the purchase price for blocks C and D no

longer than it otherwise would have done;
122.3. But Telford had offered to defer completion of the purchase of

blocks C and D for longer than it would otherwise have done;

122.4. Telfords conduct had been to make strenuous (and successful)

efforts to find the necessary funding and to persuade its bank

(also successfully) to bring forward the release date of the funds;
122.5. Telford was committed to building the whole project.
123. Bearing in mind the absence of actual loss, and the limited future loss, it

was not possible to say, as at October 22, that the actual and reasonably
foreseeable effects of Telfords breaches were such as to deprive
Ampurius of a substantial part of the benefit of the contract. The appeal
was allowed.

Conclusion
124. The key issues are:

Urban I52
124.1. The first issue is to determine whether the relevant term is a

condition, a warranty or an innominate term;

124.2. If the term is an innominate term breach will only be repudiatory

if the breach deprives the innocent party of substantially the

whole benefit which it was intended they should obtain from the
contract;
124.3. If the term is an innominate term a valid written notice calling for

performance will not turn the innominate term into a condition,

so a failure to comply with the written notice will not

50
51
52

Telford Homes v Ampurius, note 44, para 63.

Hongkong Fir: note 2.
Urban 1: note 33.

28

automatically give rise to a right to treat the contract as

discharged;
124.4. A valid written notice is one which call on the defaulting party to

perform within a reasonable period, specifying exactly what it is

that that defaulting party must do and what the consequences of
failure would be;
124.5. The question of whether there has been repudiatory breach

remains the same:

(1) The defaulting will have repudiated the contract, entitling the
other party to terminate it, if and when the delay has been
such as in all the circumstances to deprive the other party of
substantially the whole benefit it was intended he or she
should obtain from the contract, that is to say it has gone to
the root of the contract;
(2) The defaulting party will have repudiated the contract, or as
it is sometimes put, renounced the contract, entitling the
other party to terminate it, if the contract-breaker has
demonstrated an intention never to carry out the contract or,
at any event, only to do so in a manner substantially
inconsistent with his or her contractual obligations such as to
deprive the other party of substantially the whole benefit
which it was intended they should receive under the contract;
124.6. The failure to comply with the notice to complete may be some

evidence of that, but an intention to renounce must be determined

in the light of the evidence as a whole;
Astea v Time Group53
124.7. The reasonable time will be assessed at the date at which the

innocent party considers that the reasonable period has elapsed.

It will require a broad consideration;
Gold Group Properties v BDW Trading54
124.8. A substantial failure to make progress based upon an erroneous

interpretation of the contract and/or an attempt to renegotiate is

likely to be considered repudiatory;
Telford Homes v Ampurius55
124.9. The relevant date for assessment of whether the innocent party is

entitled to accept an actual or anticipatory breach as repudiatory

is the date of acceptance and not the date of the relevant breach;
124.10. It is essential properly to analyse:

(1) What benefit the contract was intended to confer on the

innocent party;

53
54
55

Astea v Time Group: note 37.

Gold Group Properties v BdW Trading: note 41.
Telford Homes v Ampurius: note 44.

29

(2) The impact of the breach on the innocent party;

124.11. If there is no loss, it is unlikely that the breach will be considered

repudiatory.

6.

Examples of repudiatory breach: repeated breaches

125. In Rice v Great Yarmouth Borough Council, the Court of Appeal

considered the application of the test for repudiation where the

defaulting party was guilty of numerous breaches.56 The contracts
between the Council and the contractor were to provide leisure
management and grounds maintenance services for a four-year period.
The Council had purported to terminate the contracts after seven months.
Although the contract contained a termination clause which entitled the
Council to terminate following notice in writing upon any breach by the
contractor, the Court of Appeal construed this provision as simply
importing the common law test of repudiatory breach.
126. The Court of Appeal held:
126.1. There were in effect three categories of breach:

(1) those cases in which the parties had agreed either that the
term was so important that any breach would justify
termination or that the particular breach was so important
that it would justify termination;
(2) those cases in which contractors walked away from their
obligations thus clearly indicating an intention no longer to
be bound; and
(3) those cases in which the cumulative effect of the breaches
which had taken place was sufficiently serious to justify the
innocent party in bringing the contract to a premature end.
126.2. The test of what was sufficiently serious to bring the case within

the third category was severe;

126.3. The contracts in this case contemplated a multitude of different

results at different times;

126.4. The accumulation of past breaches was relevant, not only for its

own sake, but also for what it showed about the future. The
judge was right to ask whether the cumulative breaches were
such as to justify an inference that the contractor would continue
to deliver a sub-standard performance, such that the council
would be deprived of a substantial part of the totality of that
which it had contracted for that year, subject to the additional
possibility that some aspects of the contract were so important
that the parties were to be taken to have intended that depriving
the council of that part of the contract would be sufficient in
itself.

56

Rice (t/a The Garden Guardian) v Great Yarmouth Borough Council [2003] TCLR 1 :
(2001) 3 LGLR 4.

30

7.

Examples of repudiatory breach: late payment

127. In Alan Auld Associates v Rick Pollard Associates, the Court of Appeal

was required to consider whether repeated late payment under a contract

for consultancy services could amount to a repudiatory breach.57
128. The claimant and the defendant were chartered engineering companies.

The claimant had successfully tendered to provide project advice to an

authority in relation to the removal of radioactive waste. The claimant
entered into an oral agreement with the defendant to provide the
advisory work at an hourly rate with the defendant submitting monthly
invoices. It was agreed that the claimant would invoice the authority
and pay the defendant when it received payment. The defendant was
partially retired and the work provided his only income. The claimant
substantially delayed payment of 19 of the invoices despite the fact that
the authority were prompt payers and the fact that the defendant made
repeated complaints. As a result the defendant refused to carry out any
further work. The claimant employed another company and issued
proceedings for the losses incurred. The defendant counterclaimed for
payments owed to him on the basis that the agreement had been
terminated by acceptance of the claimants repudiatory breach of
contract. The judge upheld the defendants counterclaim. The claimant
contended that the evidence did not justify the finding that it had
repudiated the agreement as, despite delays, payments had been made to
the defendant and the breaches were not sufficiently grave or severe.
129. The Court of Appeal held:
129.1. The judge had been entitled to conclude that the claimant was in

repudiatory breach entitling the defendant to bring the agreement

to an end;
58

129.2. Relying on Rice v Great Yarmouth Borough Council,

when
deciding whether one party no longer had the intention to be
bound by an agreement inferences could be drawn from past
breaches and the likelihood of future breaches,

129.3. The contract was analogous to a contract of employment. R had

agreed to provide services to the authority through the claimant

and the claimant had agreed to pay for those services. The work
provided the defendants only income;
129.4. The breaches were substantially persistent and cynical.

No
payments were made on time and the breaches occurred against a
background of repeated complaints. In those circumstances the
defendant was entitled to consider that he would be treated in the
same way for the duration of the rest of the agreement.

57
58

Alan Auld Associates Ltd v Rick Pollard Associates [2008] EWCA Civ 655, [2008] BLR
419.
Rice v Great Yarmouth: note 56.

31

8.

Examples of repudiatory breach: defective work

130. In Eribo & Eribo v Odinaiya Jonathan Acton Davis QC, sitting in the

Technology and Construction Court, was required to consider an

allegation of repudiatory breach arising out of late and defective
performance.59
131. The claimants wished to undertake extensive renovation works to their

family home, a substantial, detached, 1930s property in Brondesbury

Park.
132. Through a friend, the claimants were put in touch with the defendants

which provided bespoke PlayNest home developments a PlayNest

home being one which included fully and remotely programmable
irrigation, climate control, lighting, electronics and security systems (a
networked home). The defendants had only ever previously worked on
new build properties.
133. The judge concluded that the contract between the parties required

completion by 26 December 2005 and that although there were

variations these were on the basis of no change to the completion date.
134. By November 2005 it was clear that the completion date would not be

met. The judge found that an alternative completion date of 9 January

2006 was given by the defendants.
135. In fact, the works were delayed such that the claimants could not move

back into the property until June 2006. Even at that stage, the works
were defective and not complete.
136. Although the works continued on 21 September 2006 all the electrical

systems broke down and the claimants were unable to contact the
defendants. More than 4 months had elapsed since the most recently
promised completion date of 11 April 2006.
137. An independent surveyor was engaged by the claimants and his report

concluded:
137.1. The Works were significantly incomplete and many fixtures and

fittings were missing;

137.2. The standard of work accomplished was low, falls below

minimum NHBC standards and defective;

137.3. Preparation for decoration was poor, inappropriate and has

caused damage;
137.4. The floor tiling and underfloor heating was so poorly installed

that it required stripping out in its entirety;

59

Eribo v Odinaiya [2010] EWHC 301 (TCC).

32

137.5. All rooms were affected by defects. Rooms with floor tiling

were worst affected as the whole floor area required stripping out
rendering all the rooms unusable for one week or more;
137.6. Removal of the floor tiling would also require re-plumbing of the

underfloor central heating system and in some rooms removal of

fitted cupboards.
138. In light of the report, the claimants terminated the contract and argued

that the cumulative effect of the defendants breaches relating to

defective and delayed work was sufficiently serious to justify so doing.
139. The judge relied upon Sutcliffe v Chippendale & Edmondson where,

considering the decision of the Court of Appeal in Yeoman Credit v

Apps,60 it was held that the:
manifest inability to comply with the completion date
requirements, the nature and number of complaints from subcontractors and [the] admission that in May and June the quality of
the work was deteriorating and the number of defects multiplying,
many of which he had tried unsuccessfully to put right, all point to
the truth of the Plaintiffs expressed view that the Contractors had
neither the ability, competence or will by this time to complete the
work in the matter required by the Contract.61
140. Accordingly, notwithstanding that there was no fixed completion date

and accepting that there were some delays which were not the
defendants fault and variations and additional works, it was fair to say
that on receipt of the independent surveyors report on 2 October 2006
the claimants had no alternative but to terminate.

C. CONTRACTUAL TERMINATION CLAUSES

1.

Introduction

141. Rather than run the risk of applying this uncertain set of rules, many

commercial contracts attempt to create greater certainty by including an

express termination clause or determination clause.
142. Some determination clauses will specify that a breach of particular

identified clauses will entitle one or other party to terminate the contract.
Other determination clauses identify a threshold level of breach which
must be shown before termination rights arise, eg substantial breach or
material breach or even any breach. The courts have given some
guidance as to what these types of phrases may mean see below.
However, it would be a mistake to infer from these that the phrases in
question have an unvarying meaning, wherever they appear. As always,
context is key.

60
61

Yeoman Credit Ltd v Apps [1962] 2 QB 508, [1961] 3 WLR 94, [1961] 2 All ER 281
(AC).
Sutcliffe v Chippendale & Edmondson (1971) 18 BLR 149 (QBD), page 161.

33

143. Often, determination clauses provide for a warning notice of some kind,

followed by a termination notice. It has been said62 that the reason why
parties frequently adopt this course is:
143.1. When a contract is going adrift an employer is faced with a

number of problems. Above all, he does not want to terminate

the contract or sub-contract because that will produce a whole
new set of problems.
143.2. But, if he has to threaten termination to secure compliance with

the contract, the employer knows that if his threat is contested he

will later have to satisfy a court or an arbitrator: (a) that the
contractor was in breach, and (b) that the contractor evinced an
intention no longer to be bound by the contract.
143.3. To be certain of being able to prove breach of contract is difficult

enough, to be confident of convincing the court or arbitrator that

the contractor repudiated the contract is a difficult state of mind
to achieve.
143.4. The contractor or in the case of a breach by the employer, the

employer has a similar difficulty in assessing the likely future

assessment of the quality of its actions by any tribunal.
143.5. Therefore the two notice procedure is introduced into the contract

to make it easier for both parties to assess their legal liabilities

towards each other and to govern their conduct accordingly.
144. Where notices are to be served in order to operate the determination

clause, the parties often specify who must serve them, upon whom, how
and so on. The Courts approach to these requirements is discussed
below.
145. The question which arises in every case where some requirement has not

been complied with is whether the requirement in question is permissive

(merely directory) or prescriptive (mandatory). There are no hard and
fast rules; the question has to be decided in light of the words of each
contract and the facts of each case, and in light of an analysis of the
purpose of the clause and the requirement in question.

2.

How strictly will the court apply the requirements of a

determination clause?

146. A determination clause will often provide:

146.1. That notice can be given only after the occurrence of a specified

event eg a breach of a particular type;

146.2. That a specified period of notice be given;
146.3. That the notice is to be in a certain form (eg in writing);
146.4. That an identified person or a person chosen by means of an

identified process should be the one to give the notice;

62

By HHJ Peter Bowsher QC in AIS v James Gibbons Windows, note 93 below.

34

146.5. That the notice in question should be sent to a particular address

or a particular individual;
146.6. That the notice should be sent (or delivered) by some particular

mode of transmission;
146.7. That the notice should contain certain specified information;

and/or
146.8. That the notice should be given within a certain period of time.
147. It is often said that any stated preconditions to a contractual right to

terminate must be followed to the letter. For example, many cases cite a
passage from earlier editions of Chitty on Contracts, to the effect that:
The terms of the [termination] notice may provide that notice can
only be given after a specified event. Prima facie the validity of
the notice depends on the precise observance of the specified
event.63
148. However, the current edition of Chitty on Contracts gives a more

nuanced view, saying:

When interpreting a clause in a contract which lays down a
procedure for termination of the contract, the court will have
regard to the commercial purpose which is served by the
termination clause and interpret it in the light of that purpose.
Strict or precise compliance with the termination clause may no
longer be a necessary pre-requisite to a valid termination.64
149. Doubtless the only prudent advice to give a client who is considering

operating a determination clause, but has not yet done so, is that he must
look carefully at what the contract requires and do exactly that.
150. However, as the cases below illustrate depending always of course on

the facts of the case at hand it is not necessarily true to say that all is
certainly lost if there has been some error in operating the contractual
mechanism. In particular, there may well be scope to argue, by
reference to commercial purpose of the clause, that a particular
requirement is merely directory and not mandatory.
151. Requirements which may tend to be enforced particularly strictly include

requirements as to the identity of the party giving the notice or receiving

the notice (especially where there are good commercial reasons why
particular people have been specified), and requirements as to time
which must be allowed to a party to remedy its breach before
termination. Requirements which have may on appropriate facts be
treated as permissive rather than prescriptive include requirements as to
mode of delivery of a notice, where the notice in question has actually
been received.

63
64

Prof HE Guest (general editor), Chitty on Contracts (27th edition, Sweet & Maxwell,
London 1994), para 22-046.
Chitty on Contracts (31st edition), note 1, para 22-049.

35

Robin Ellis v Vinexsa

152. First, a relatively recent (2003) case, Robin Ellis v Vinexsa, citing the

general principle of strict interpretation and application of determination

clauses, in the construction arena.65
153. In Robin Ellis v Vinexsa, HHJ Thornton QC had to decide whether a

contract for refurbishment of some flats in Mayfair had been properly

terminated by the employer.66
154. The judge held that the termination was valid. The determination clause

in question did not allow the architect to issue a second default notice in
respect of the same default by the contractor, and therefore the issue of
that second notice by the architect did not prevent the employer from
serving a notice of termination when it did.67
155. In so saying, the judge, endorsed passages from Hudson and Keating

which he summarised as being to the effect that:

The general rule of construction applicable to determination
clauses is that they, and the procedure for determination they
provide for, should be construed and applied strictly.68

Von Essen v Vaughan

156.

In Von Essen v Vaughan, Von Essen agreed to buy the Vaughans shares
in a small chain of luxury hotels.69 A dispute broke out when the parties
were unable to agree the completion accounts. Von Essen brought a
claim for breach of warranty.

157.

The Vaughans claimed that Von Essen failed to give valid notice within
the time set in the share purchase and asset agreement (the Agreement).
Notification could be given by actual service of a notice or deemed
service.

158.

Clause 2.2 dealt with time limits and provided:

The Vendors shall have no liability in respect of any Relevant
Claim ... unless the Purchaser shall have given notice in writing to
the Vendors of such Relevant Claim specifying (in reasonable
detail) the matter which gives rise to the Relevant Claim, the
nature of the Relevant Claim and the amount Relevant Claimed
[sic] in respect thereof not later than in the case of a Relevant
Claim under any of the General Warranties ... not later than 30
September 2005.70

159. Clause 11.9 of the Agreement provided for the service of notices.
65
66

67
68
69
70

Robin Ellis Ltd v Vinexsa International Ltd [2003] EWHC 1352, [2003] BLR 373, 93
Con LR 92 (TCC).
Robin Ellis v Vinexsa, note 65; there was no signed contract, but it was found that a
contract had been entered into incorporating the terms of the JCT IFC 84 form of
contract.
Under the JCT Intermediate Form of Building Contract, 1984 edition, Joint Contracts
Tribunal, clause 7.2.3.
Robin Ellis v Vinexsa, note 65, para 22.
Von Essen Hotels 5 Ltd v Vaughan [2007] EWCA Civ 1349.
Von Essen v Vaughan, note 69, para 7.

36

11.9.1 Any notice or other document to be served under this

Agreement may be delivered or sent by first-class delivery post
process to the party to be served as follows:
To the Vendors at:
Name Mr & Mrs Vaughan
Address Larch Hill House, Gainsborough, Moreton-in-theMarsh, Gloucestershire.
With a copy to the Vendors solicitors marked for the attention
of RL Davies:
to the purchaser:
Name Goodman Derrick
For the attention of Both John Roberts and Greg Hamlen
Address 90 Fetter Lane London EC4A 1PT
Fax number G Hamlen (0207 404) 6309
J Roberts (0207 404)6307
Any notice or document shall be deemed to have been served:
(a) if delivered, at the time of delivery; or
(b) if posted, at 10am on the second business day after it
was put in the post; or
(c) if sent by facsimile process (in the case of the
Purchaser only
11.9.2 In proving service of a notice or document it shall be
sufficient to prove that delivery was made or that the envelope
containing the notice or document was properly addressed and
posted as a prepaid first class recorded delivery
11.9.3 Any party to this Agreement may notify the other parties
of any change to its address or other details specified in Sub
Clause 11.9.1.71
160. The definitions in clause 1.1 of the Agreement provided that Vendors

Solicitors , where the context admited, meant:

Kendall and Davies of Station Road, Bourton-on-the-Water,
Cheltenham, Gloucestershire, GL54 2AA and any other firm of
lawyers subsequently instructed as their agents.72
161. Mr RL Davies of Kendall and Davies acted for the Vaughans in the

making of the Agreement. As an actual or potential conflict of interest

involving that firm later arose, the Vaughans instructed another firm,
Paul Davidson Taylor (PDT) in about September 2004.
162. Thereafter, in 2004 and 2005 Goodman Derrick on behalf of Von Essen

corresponded with PDT, not with Kendall and Davies, about the
Agreement, the completion of accounts and the exercise of an option
contained in the Agreement. It was expressly agreed that the notice
exercising the option should be given and payment should be made to
PDT. However, no such express agreement was made that notice of
claim for breach of warranty should be served on PDT.
71
72

Von Essen v Vaughan, note 69, para 8.

Von Essen v Vaughan, note 69, para 9.

37

163. On 14 September 2005 Goodman Derrick sent a letter giving notice of

the warranty claims by first class post to the Vaughans at the home
address stated in the Agreement.
164. Copies of the letter and enclosures were sent with a compliment slip to

PDT, who received them on 15 September.

165. No copies of the letter or the enclosures were sent to Kendall and Davies

marked for the attention of Mr RL Davies until 26 October 2005, after

the contractual deadline had passed.
166. The Vaughans were away on holiday from 14 September until 8 October

2005. They informed PDT of their holiday plans. They never actually
received the letter sent to them by Goodman Derrick. PDT had no
instructions or authority to accept service. Thus there was no actual
service. The case would turn on deemed service.
167. The Vaughans preliminary point was that service of a copy of the notice

on Kendall and Davies was required for deemed service, this was not
done before 30 September 2005 and accordingly Von Essen failed to
comply with the requirements for deemed service and was not entitled to
pursue its claims for breach of warranty.
168. Von Essen submitted that it had served notice on the Vaughans by

sending them the letter by first class post and that notice was deemed to
have been served on the second business day after that; it was irrelevant
to the deeming provision that the notice was not actually received and
that no copy was sent to Kendall and Davies before the deadline. They
claimed that that requirement was permissive rather than mandatory.
Further, PDT were within the definition of Vaughans solicitors for the
purposes of service and they had implied actual authority to receive the
notice for the purpose of service.
169. The Vaughans succeeded at trial and before the Court of Appeal. The

Court of Appeal held that:

169.1. Von Essens construction involved detaching the later part of the

clause which dealt with the deemed timing of service effected by

different methods, from the earlier part of the clause, which
provided for service of any notice on the Vaughans and that did
not pay due respect to the drafting of the clause. When read as a
whole it was clear that the clause was drafted in a logical
sequence and a coherent fashion. It provided first for service by
delivery or by post; secondly it identified with contact details the
persons to be served; and thirdly it spelled out the deemed time
of service according to the method of service employed;
169.2. The court could not read out of the agreement an express

provision agreed by the parties for sending a copy of the notice to

the vendors solicitors. The requirement for the notice to be
served on the solicitors was mandatory, not permissive. The
clause said to be served not may be served;
169.3. The expression vendors solicitors was defined in the clause to

mean Kendall and Davies where the context admits. Here the
38

context positively pointed to Kendall and Davies (it went so far

as to name a solicitor at Kendall and Davies); and
169.4. There was no evidence to show that PDT had implied authority

to receive a copy of the notice under the agreement. Once PDT

received the letter purporting to give notice, its limited retainer
created a duty to pass the letter onto the Vaughans.
But if that were enough to establish implied authority to
accept service, every person acting for a limited purpose for
a principal on any issue would have implied authority to
accept service of any document on any topic [it] is (or
should be) well understood by business men and solicitors
both, that is not the law.73

Family Mosaic v Pimlico School

170. Family Mosaic v Pimlico School Housing Association was a claim for a

declaration as to the proper meaning of a determination clause in an

agreement whereby the claimant (Family Mosaic) appointed the
defendant (Pimlico) as managing agent of a property in London, which
Pimlico had used and was to use for teacher accommodation.74
171. The first such agreement was made in 1976. On 11 March 1992 a new

agreement was made. This was the agreement which Family Mosaic
purported to terminate by their letter dated 3 June 2009, giving three
months notice.
172. The determination clause, clause 2(7), provided:

This Agreement may be terminated as follows:

a. By one party if the other party should be formally dissolved or
cease operations.
b. In the event of gross breach of this Agreement, entailing risk to
the health or safety of the residents or the financial viability of
the project, the Association reserves the right to take over
immediate day to day control of the Property.
c. Upon three months written notice by either party and with the
mutual consent of both parties.
d. By signing an amended Agreement.
Upon termination there shall be full accounting between the
parties and all charges due from one party to the other to the date
of termination shall be paid. Such accounting shall take place
within 3 calendar months from the date of termination.75
173. There was a dispute as to the proper meaning of clause 2(7)(c), pursuant

to which Family Mosaic purported to terminate the management

agreement, giving three months notice:

73
74
75

Von Essen v Vaughan, note 69, para 44.

Family Mosaic Housing Association v Pimlico School Housing Association Ltd [2011]
EWHC 3561 (Ch).
Family Mosaic v Pimlico School, note 74, para 9.

39

173.1. Family Mosaic contended that it provided for alternatives: the

agreement could be terminated either upon three months notice

or with the mutual consent of both parties;
173.2. Pimlico maintained that the conditions were cumulative: in other

words, that termination was possible under clause 2(7)(c) only if

both (i) three months notice was given and (ii) there was mutual
consent which there was not in fact.
174. Looking at the language of the clause, the rival contentions were as

follows:
174.1. Family Mosaic argued that as a matter of language, subclause (c)

was perfectly capable of referring to alternative means of

termination, and Pimlicos cumulative construction of subclause
(c) would render the reference to three months notice
superfluous, because the parties could mutually consent to the
agreement being terminated without three months notice.
174.2. Pimlico argued that the overall structure of the termination clause

pointed to cumulative requirements. The clause is divided into

four subclauses and argued that subclause (c) must have been
intended to provide for a single composite ground for
termination. Had it been intended that the agreement could be
terminated either on three months notice or with mutual consent,
then the former would have been found in one subclause and the
latter in another.
175. The judge considered that both parties constructions of clause 2(7)(c)

were in principle possible ones, and therefore he had to consider which

made better sense.
175.1. Family Mosaic argued that Pimlicos construction would lock the

parties into the agreement without any exit route, which cannot
have been their intention. If the notice and consent requirements
were cumulative, then Family Mosaic had no right to terminate
the agreement without Pimlicos consent unless: (a) Pimlico was
dissolved or otherwise ceased operations (clause 2(7)(a)); or (b)
there was a gross breach of the agreement which entailed risk to
the health or safety of the residents or the financial viability of
the project (clause 2(7)(b)). Therefore, even a gross breach by
Pimlico, which did not constitute a risk to health and safety or
financial viability, would not entitle Family Mosaic to terminate.
Pimlico would also be without an exit route, except for
dissolution or cessation of business by Family Mosaic within
clause 2(7)(a).
175.2. Pimlico countered that its arrangements with Family Mosaic

were intended to be long term ones. That being so, it is, so it was
said, understandable that there should be stringent restrictions on
the termination of the 1992 agreement. The defendant Pimlico
came into being to facilitate the provision of staff
accommodation and exists only for that purpose. It makes sense,
it was argued, that its role should not be capable of being brought
40

to an end for reasons of convenience. Pimlico also suggested

that in 1992 it gave up valuable rights it enjoyed under the 1976
agreement in return for restrictions being imposed on
termination.
176. The judge was not persuaded that the evidence, even if admissible,

supported Pimlicos argument that it had given up valuable rights in

exchange for restrictions being placed on termination. Looked at
objectively, the parties were most unlikely to have wished to lock
themselves into a relationship in the way that Pimlicos construction
would imply.76 A reasonable person, informed with business common
sense, would have understood that the parties intended to be able to
terminate their agreement either with mutual consent or on three
months notice.

Shell v Centurian
177. Shell Egypt West v Dana Gas Egypt was a dispute arising out of a farm-

in agreement whereby upon closing Shell was to acquire a 50%

interest in certain oil and gas concessions from Centurion.77
178. Clause 3.1.8 of the agreement provided that if the closing date had not

occurred within nine months following the agreement date, then Shell
could elect to terminate the agreement by giving 30 days notice in
writing. A termination under clause 3.1.8 did not generate in Shell any
right to recovery of sums paid under the agreement.
179. Closing was conditional on various matters, including Centurion

acquiring the 25% interest in the relevant oil and gas concessions which
it did not then own (the CTIP Acquisition).
180. By Clause 3.1.9, if the reason for closing not having occurred within

nine months of the agreement date was that the CTIP Acquisition had
not completed then Shell, on electing to terminate under Clause 3.1.8,
were additionally entitled to the return of all payments made under the
contract, including an initial payment of $15m.
181. At the time that Shell sent its termination letter, Centurion were then

asserting that they had drilled five wells. If that was correct, then unless
Shell terminated the contract before 6 January 2007, it would have
become liable to pay $20m to Centurion.
182. By a letter dated 22 December 2006, Shell gave 30 days notice of

termination, stating mistakenly that the acquisition had not been

completed, with the result that clause 3.1.9 applied and Centurion had to
refund the payments made by Shell. In fact the CTIP Acquisition had
been completed on 27 April 2006.
183. On 23 December 2006, Centurion accepted Shells notice to terminate

and waived the 30-day period.

184. Shell sued for damages for repudiatory breach of the agreement.
185. The arbitrators found that:
76
77

Family Mosaic v Pimlico School, note 74, para 22.

Shell Egypt West Manzala GmbH v Dana Gas Egypt Ltd [2010] EWHC 465 (Com Crt).

41

185.1. When Shell gave 30 days notice of termination, Centurion was

in repudiatory breach and Shell had a right to rescind pursuant to

certain clauses of the agreement.
185.2. However, Shell had neither accepted the repudiatory breach as

terminating the contract nor exercised their contractual right of

rescission.
185.3. Rather Shell had exercised the contractual right to terminate on

30 days notice pursuant to clause 3.1.8, thereby affirming the

contract, in circumstances in which Shell had no right to
damages or recovery of sums paid under the agreement.
186. Shells termination letter, dated 22 December 2006, read:

Following our meeting of the 18th December 2006 and the

various communications between our companies since then, we
have further reviewed Shells interest in the Concessions.
We note that the Closing Date has not occurred within nine
months of the Agreement Date and Shell now issues notice of its
election to terminate the FIA. Termination will become effective
thirty days after the date of this letter.
We also note that we have not received information from
Centurion that Centurion has received formal notification from the
Government of its consent to the CTIP Acquisition and we
therefore understand that the CTIP Acquisition has not been
completed.
In the circumstances, in accordance with the terms of Clause 3.1.9,
Centurion shall refund any and all payments made by Shell ...78
187. On appeal against the arbitrators decision, Shell argued that its

termination letter could be regarded as its acceptance of Centurions

repudiatory breach. Shell accepted that this was not what the letter in
clear terms purported to do. However, Shell relied upon the general rule
(see for example, Chitty on Contracts, 30th edition, volume 1, pargraph
24-01479) that if a party refuses to perform a contract and in so doing
gives a wrong or inadequate reason or no reason at all, he may yet justify
his refusal if there were at the time facts in existence which would have
provided a good reason.
188. Centurion rebutted Shells argument, saying that:
188.1. Shell did not in fact refuse to perform the contract;
188.2. Nor did Shell contend that the contract was immediately

terminated; rather it gave a notice which indicated that the

contract would remain in force for a further thirty days,
terminating only on expiry of the notice period;
188.3. Therefore Shell affirmed the contract.

78
79

Shell Egypt West v Dana Gas Egypt, note 77, para 22.
Shell Egypt West v Dana Gas Egypt, note 77, para 26, where the paragraph is set out.

42

189. Centurion relied upon the statement of Sir Denys Buckley in Norwest

Holst Ltd v Harrison, when he said:

The effect of an acceptance of an anticipatory repudiation must,
in my view, be the immediate termination of the contract. By
accepting repudiation, the innocent party elects to treat the contract
as abrogated at the moment when he exercises his election. He
cannot, in my judgment, affirm the contract for a limited time
down to some future date and treat it as abrogated only from that
future date.80
190. Tomlinson J said that he thought there must be limits to that principle,

which had not had to be explored in Norwest Holt v Harrison, nor in

Walkinshaw v Diniz, in which Tomlinson J had applied the principle in
Norwest Holt. He commented that:
It would perhaps be surprising if there were an inflexible rule that
an acceptance of a repudiation can only be effective if it purports
to bring about immediate termination in circumstances where the
contract calls for no performance from either party in the interval
before termination is expressed to take effect.
In such
81
circumstances there would surely be no affirmation.
191. Tomlinson J held that Shells letter could not be read as an acceptance of

Centurions repudiatory breach or an exercise of a right to rescind under

the contract:
191.1. Shell could only succeed if they could demonstrate that their

termination letter should not have been understood as intended to

effect a termination under clause 3.1.8 of the agreement in the
event that clause 3.1.9 was of no application. (To make the same
point another way, Shell could only succeed if the objective
meaning of its letter was that Shell intended to terminate only if
the CTIP Acquisition had failed, and not otherwise.) If Shell
could show that, then their letter was not to be regarded as giving
30 days notice of termination.
191.2. Although the termination letter did not expressly refer to clause

3.1.8, and did refer to clause 3.1.9, it was clear that it would be
read by a reasonable recipient in the position of Centurion as
unequivocally communicating an election by Shell to terminate
the contract under clause 3.1.8.
191.3. The obvious mistake contained in Shells 22 December 2006

letter namely Shells statement that Centurion had not

completed the CTIP Acquisition, and consequent apparent
mistaken belief that it would recover $15m on termination did
not, in context, derogate from that message. That is because it
was a perfectly feasible commercial stance for Shell to adopt that
they wished simply to withdraw from the agreement without
80
81

Norwest Holst Ltd v Harrison [1985] ICR 668 at 683, quoted in para 27, Shell Egypt
West v Dana Gas Egypt, note 77.
Walkinshaw v Diniz [2001] 1 Lloyds LR 632, page 643, cited in para 27: Shell Egypt
West v Dana Gas Egypt: note 77.

43

incurring any further obligation, whether or not that enabled

them to recover the initial payment. The imperative was clarity
that Shell had no further obligation under the agreement. It was
relevant that (a) at the time of Shells termination letter
Centurion disputed that it was in repudiatory breach, or any
breach at all; (b) unless Shell terminated the contract before 6
January 2007, it would have become liable to pay $20m to
Centurion; and (c) Shell were prepared to forego any right to preempt or take over operatorship (an option available to Shell if, as
it alleged and Centurion (wrongly) denied, Centurion had been
subject to a change of control).
191.4. If the termination letter was to be taken as an unequivocal

communication by Shell of their decision to terminate the

contract under clause 3.1.8, then it could not also serve as
effective to accept Centurions repudiatory breach as terminating
the contract. That is because this was not a case where the
contract provided a right to terminate which corresponded to a
common law right (because the breach goes to the root of the
contract or the parties have agreed that it should be treated as
doing so); Stocznia Gdynia v Gearbulk Holdings.82 Rather as
in Dalkia v Celtech83 this was a case where the contract and
the general law provided the injured party with alternative rights
with different consequences. For example, clause 3.1.8 was not
triggered by breach. Further, if Shell resorted to clause 3.1.8
(without the benefit of clause 3.1.9), then Centurion was not
obliged to repay to Shell any amounts (eg the $15m) which Shell
had paid under clause 3.1.1.

Construction Partnership v Leek Developments

192. Construction Partnership v Leek Developments was a dispute arising out

of a contract for the conversion of a Macclesfield hotel into flats.84

193. In the case of non-payment by the employer, the contract required the

contractor to give a warning notice specifying the default before

terminating. The contractor said it had given that notice by a letter dated
23 December 2005 before terminating by its letter dated 17 January
2006, and had therefore lawfully terminated the contract for breach.
194. The defendant employer said that the contractors purported notice of 23

December 2005 did not comply with the notice requirements of clause
7.1 of the contract, and therefore the purported determination on 17
January 2006 was invalid and unlawful, and amounted to a repudiation
of the contract which the defendant accepted.
195. Clause 7.1 of the contract provided:
82

83
84

Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75, [2010] QB 27,
[2009] 3 WLR 677, [2009] 2 All ER (Comm) 1129, [2009] 1 Lloyd's Rep 461, [2009] 1
CLC 134, [2009] BLR 196, Moore-Bick LJ, para 44.
Dalkia v Celtech: note 21.
Construction Partnership UK Ltd v Leek Developments Ltd [2006] EWHC 88 (TCC),
[2006] CILL 2357; the contract was on the JCT Intermediate Form of Building Contract,
1998 edition, with amendments.

44

Any notice, which includes a notice of determination, shall be in

writing and given by actual delivery or by special delivery or
recorded delivery. If sent by special delivery or recorded delivery,
the notice or further notice shall, subject to proof to the contrary,
be deemed to have been received 48 hours after the date of
posting, excluding Saturday and Sunday and public holidays.85
196. The contractors 23 December 2005 letter was faxed and posted to the

employer (by normal post, not special or recorded delivery). The fax
was received by the employer at 8:46am on 23 December, the Friday
before the Christmas break, when the employer closed at 12 noon. The
evidence was that the employer first saw the letter on the morning of 3
January 2006.
197. The defendant employer argued that the words actual delivery meant

physical delivery in person by somebody on behalf of the claimant to

somebody on behalf of the defendant (eg a receptionist), and did not
include fax delivery or postal delivery. The employer relied upon the
fact that these were important notices which lead to serious
consequences and it was therefore important that they should come to
the notice of responsible officers or officials of the recipient company (if
it is a company).
198. HHJ Gill QC rejected the employers arguments, holding that:
198.1. Actual delivery means what it says: it means transmission by an

appropriate means so that it is actually received.

198.2. It is commonplace in modern commercial practice for documents

to be sent by post, and even more commonplace for documents

to be sent by fax these days (2006).
198.3. The employers stance was unarguably wrong, unless one says

that a notice cannot be given by fax at all.

198.4. There is nothing to suggest that a document which is sent by fax

which is actually received cannot amount to actual delivery.

198.5. The employers arguments involved the proposition that a letter

sent by post which actually reaches the recipient cannot be said

to be actual delivery. That would be a surprising and quite
unrealistic and uncommercial interpretation of clause 7.1.
198.6. A fax is clearly in writing and produces when printed out on the

recipients machine a document which is clearly a notice in

writing. If it has been received it has been actually delivered.
198.7. It might not have been read when received, but that is a different

matter.
198.8. Having arrived at the employers offices on its fax machine, the

letter was there to be read, and if it was not read by anyone, or

was read by somebody who did not appreciate its significance,

85

Construction Partnership v Leek Developments, note 84, para 29.

45

that was a matter for which the defendant was entirely

responsible and was not the claimants fault in any way.86

Hill v Camden
199. In JM Hill & Sons London Borough of Camden, the Court of Appeal

was concerned with the termination of a building contract between the

claimant contractor and defendant local authority employer.87
200. Hill started work substantially upon the terms of the JCT Standard

Form.88 Thereafter:
200.1. On 15 March 1979 an interim certificate was issued in Hills

favour, which the employer should have paid by 29 March.

200.2. On 23 March apparently disgruntled because Camden had not

paid as promptly as it had in previous months Hill reduced its

labour force on site and removed some plant. However, Hill
maintained its supervisory staff, site insurance and canteen
facilities, and it did not encourage the nominated sub-contractors
to leave.
200.3. On 2 April, the certificate had still not been paid, and Hill gave

notice to the employer pursuant to clause 26(1) of the contract,

requiring payment of the certificate within 7 days. That notice
was delivered by hand on 2 April and also sent by recorded
delivery, arriving on 3 April.
200.4. On 10 April, the certificate was still unpaid, and Hill purported to

determine its employment under the contract by a letter posted

recorded delivery on 10 April which Camden received on 11
April.
201. The relevant parts of the determination clause at issue in Hill v Camden

read:
(1) Without prejudice to any other rights and remedies which the
Contractor may possess, if
(a) The Employer does not pay to the Contractor the amount due
on any certificate within 14 days from the issue of that
certificate and continues such default for seven days after receipt
by registered post or recorded delivery of a notice from the
Contractor stating that notice of determination under this
Condition will be served if payment is not made within seven days
from receipt thereof
then the Contractor may thereupon by notice by registered post or
recorded delivery to the Employer or Architect forthwith
determine the employment of the Contractor under this Contract;

86
87
88

Construction Partnership v Leek Developments, note 84, para 31

JM Hill & Sons Ltd v The Mayor and Burgesses of the London Borough of Camden
(1980) 18 BLR 31 (CA).
JCT Standard Form of Building Contract, With Quantities, Local Authorities edition,
Joint Contracts Tribunal.

46

provided that such notice shall not be given unreasonably or

vexatiously.89
202. As set out above, Hill sent its first (warning) clause 26.1 notice by hand

on 2 April and posted the same day by recorded delivery, arriving on 3

April. Hills second (terminating) clause 26 notice was sent by recorded
delivery on 10 April arriving on 11 April. Counsel for the employer
took the point that there was not seven clear days given to the employer
to pay, as required by the determination clause. This argument appears
to have been advanced on the basis that:
202.1. Clause 26 required delivery by registered post or recorded

delivery, which took place on 3 April (even though in fact hand

delivery had been made on 2 April).
202.2. Seven clear days after 3 April was 11 April.
202.3. By analogy with the Australian case of Eriksson v Whalley

[1971] 1 NSWLR 397, the effective date of the termination by

the contractor was the date when the notice was posted, which
was 10 April.
203. Therefore, the employer argued, the contractor had jumped the gun by

one day.
204. The Court of Appeal (Lawton and Ormrod LJJ) held that Hills action in

cutting their labour force and removing plant did not evidence an
intention no longer to be bound by the contract and was not a
repudiatory breach.
205. Although the question was strictly obiter, Lawton LJ refused to accept

Camdens arguments that the contractors notice was invalid, saying:

In my judgment, the important word in that provision is served.
Service means that the notice has got to be given to the other
party. It cannot be served on the other party until the other party
has received it; and it is after the other party has received the
notice that determination of the employment comes about. On the
facts of this case, the service on the employers was on 11th April
1979. That was seven days after receipt by the employers of the
warning notice as to what would happen if payment was not made
within due time. It follows, in my judgment, that, on the proper
construction of condition 26, subparagraph (1), there is no room
for argument as to whether the plaintiffs had properly determined
the contract on 11th April.
206. Construing the contract at issue in Hill v Camden, the Court of Appeal

declined to adopt the approach taken in Eriksson v Whalley that the

effective date of the notice in question was the date when it was sent.90
This is a useful reminder that it is a question of construction in each case

89
90

Hill v Camden: note 87.

Eriksson v Whalley, see note 119 below.

47

whether the notice must actually be communicated to the other party and
whether it takes effect at the time of dispatch or of receipt.91
207. By contrast, the employer Camdens own determination notice, issued

under clause 25 of the contract,92 was found (and in fact conceded) to be

invalid. Ormod LJ said:
[The employer] failed to comply with the terms of Condition 25
in a highly material particular, in that they purported to give the
notice themselves. It is easy to understand why, in Condition 25,
it should be the architect: the person who is independent and
expert in these matters should be the person to give the certificate,
and not the employer, who might be peevish or uninformed in one
way or another.

AIS v James Gibbons Windows

208. In AIS v James Gibbons Windows, the claimant (AIS) was a labour-only

windows installation subcontractor to the defendant contractor (James

Gibbons).93
209. AIS sued James Gibbons for wrongful termination.

The contractor
defended the termination on the grounds that the subcontractor had
wholly suspended the works and/or failed to proceed with the works
expeditiously, in breach of an express term of the contract; and this
breach was assumed to have occurred, for the purposes of deciding as a
preliminary issue whether (on that hypothesis) the defendants notice
terminating the contract:
209.1. Was a rightful termination of the subcontract pursuant to its

determination clause;
209.2. Was a rightful termination of the contract at common law; or
209.3. Was an unlawful repudiation of the contract?
210. Clause 20 of the AIS/James Gibbons subcontract provided:

The Sub-Contractor [the claimant, AIS] when in engagement on

site shall commence on-site each day at or before 8am and shall
notify the Main Contractor [the defendant, James Gibbons] of any
days of non-attendance immediately. Leaving site without prior
warning to the Main Contractor may lead to suspension of the
Sub-Contract. Normal working hours 8am to 5.30pm. Five day
working.
91

92

93

See for example Chitty on Contracts (31st edition), note 1, para 22-051 and the cases
cited there, namely: Scarf v Jardine (1882) 7 App Cas 345, page 348; Re London and
Northern Bank [1900] 1 Ch 220; Tenax SS Co Ltd v The Brimnes [1973] 1 WLR 386;
affirmed [1975] QB 929; Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem
PVBA [1978] 2 Lloyds Rep 109. Hill v Camden: note 87.
Condition 25(1)(b) gave the employer the right to serve a notice requiring the contractor
to remedy the default within a certain period. The condition required that such a notice
should be given by the architect. One of the grounds on which such a notice could be
given under condition 25 was that the contractor had failed to proceed regularly and
diligently with the work.
Architectural Installation Services Ltd v James Gibbons Windows Ltd (1989) 46 BLR 91,
16 Con LR 68.

48

211. The determination clause (clause 8) provided:

This Sub-Contract may be terminated forthwith by the Main

Contractor by notice in writing to the Sub-Contractor.
(a) in the event of determination for any cause, of the Main
Contract or
(b) if the Sub-Contractor shall go into liquidation (other than
voluntary liquidation for the purpose of amalgamation or
reconstruction) or
(c) if the Sub-Contractor wholly suspends the Works or fails to
proceed with the Works expeditiously or to the satisfaction of the
Main Contractor or to remedy defective work and remains in
default for seven days after being given notice in writing thereof
by the Main Contractor.94 [emphasis added]
212. James Gibbons sought to argue that the italicised words in clause 8 cited

above qualified only the third of the three situations listed there, ie
where AIS failed to remedy defective work. However:
212.1. The judges crisp verdict on that argument was: I fail to see any

good sense in that submission.

212.2. Therefore, if AIS had wholly suspended the Works or failed to

proceed with the Works expeditiously, James Gibbons had first

to give a notice in writing and then wait seven days to see
whether or not AIS remained in default, before it could
terminate forthwith under the determination clause.
213. On 20 September 1985, James Gibbons gave notice to AIS that they

required AIS to comply with clause 20 and work the full working day
required by that condition. The judge held that this was a notice of
default under clause 8:
... despite the fact that it does not refer to condition 8 or to the
consequences of non-compliance, although it would have been
preferable if the threat of termination in the event of noncompliance had been made explicitly.
214. Some 11 months later, on 21 August 1986, James Gibbons purported to

terminate under the determination clause, telexing that:

By reason of your withdrawal of labour from the above contract
without sufficient notice to ourselves we are obliged to hereby
give notice of termination of your contract.
215. The judge held:

Where, as often happens, a contract provides for termination of

the contract by a warning notice followed by a termination notice,
and two notices have been served, a party can only rely on that
provision if an ordinary commercial businessman can see that
there is a sensible connection between the two notices both in
content and in time.

94

AIS v James Gibbons Windows: note 93.

49

216. On the facts of AIS and James Gibbons, there was no sensible

connection in terms of either content or time, because:

216.1. The first notice referred to the length of the working day: the

second notice referred to the withdrawal of labour from site.

216.2. The two notices were separated by 11 months.
216.3. The time between the first and the second notice included both

continued work on the site and variation of the amount of the

work by amendment of the contract.
Therefore, the defendants could not rely on the determination clause
(clause 8) in support of their contention that the sub-contract was
rightfully terminated.

Lockland v Rickwood
217. Lockland v Rickwood concerned a contract which contained the

following determination clause:

[1] If the owner shall at any time during the progress of the said
works be dissatisfied with the rate of progress the quality of the
materials used or of the workmanship he may apply to the
President for the time being of the Southend-on-Sea District Law
Society to appoint a qualified Architect or a qualified Surveyor to
inspect the works and
[2] should such Architect or Surveyor certify in writing that the
rate of progress the materials used or the workmanship or any or
all of these is or are unsatisfactory or not in accordance with this
contract the Owner shall specify in writing the grounds of the
complaint and
[3] if the Contractor shall fail within a period of 21 days of the
date thereof to remedy the complaint the Owner may by notice in
writing send by registered post to the Contractor at his usual place
of business to immediately determine this agreement and
[4] the Owner may then enter upon the said works and call in
another builder to complete the same and may pay such other
builder the cost of such completion out of the balance of the
building price payable under this agreement to the Contractor ...95
[numbering inserted]
218. The employer Mr Rickwood was dissatisfied, and obtained a chartered

surveyors report which made various complaints as to Locklands

workmanship and the quality of materials which it had used. However,
Mr Rickwood engaged the surveyor in question unilaterally, and without
applying to the President of the local Law Society to make the
appointment.
219. He thus failed, as the Court of Appeal found, to comply with the

requirements of the determination clause set out above.

95

Lockland Builders Ltd v Rickwood (1995) 77 BLR 3, 46 Con LR 92 (CA), paras 45-46.

50

Ellis Tylin v Co-operative Retail Services

220. Events subsequent to the service of a contractual notice may be highly

relevant to the overall outcome, as illustrated by Ellis Tylin v Cooperative Retail Services.96
221. Ellis Tylin made a contract with CRS to maintain and repair mechanical

and electrical plant at its 730 or so Co-op premises across the UK. The
contractor started to provide services on 5 February 1996 and a written
contract was entered into in October 1996. The contract was to run for
three years with provision for revision of rates of payment at the end of
year 1 and year 2.
222. The mechanism provided that either party could propose a rate increase

after 10 months, starting from the date when Ellis Tylin commenced
work and if no agreement could be reached within the next two months
then the agreement could be terminated by either party on notice. The
clause read:
1.8.1 After the expiry of 10 months from the date specified in
Clause 10, either party may propose, and thereafter only
once every twelve months, in writing to the other an
alteration in the amount of the Fees to take effect from a
date not being earlier than two months after the date of its
proposal.
1.8.2 If the amount of the proposed alteration is not agreed
between the parties on or before the last day of the two
month period referred to in Clause 1.8.1, this Agreement
may be terminated by CRS giving to the Contractor not
less than one or more than three months notice in writing,
or by the Contractor giving to CRS three months notice in
writing. In the interim, the Fees shall continue to be paid at
the rate and in the manner existing at the date of the
proposal made under Clause 1.8.1.97
223. Matters proceeded as follows:
223.1. The expiry of 10 months from the date specified in clause 10 (5

February 1996) was in December 1996.

223.2. However, on 26 November 1996, Ellis Tylin gave notice of a

proposed increase for year 2.98

223.3. On 3 February 1997, no agreement having been reached, the

contractor purported to give notice of termination, with three

months notice period to expire on 4 May 1997. The letter read:
Further to our letters dated 15th and 26th November, 1996.
It is with regret that we have not been able to agree an
alteration of fees on or before the last day of the two month
96
97
98

Ellis Tylin Ltd v Co-operative Retail Services Ltd [1999] BLR 205, 68 Con LR 137
(QBD).
Ellis Tylin v Co-operative Retail Services, note 96, para 12.
See paras 42 and 49 of the judgment; year 2 commenced on 5 February 1997.

51

period following our letter of proposed alteration to fees

dated 15th November, 1996. In accordance with clause 1.8.2
we hereby give 3 months notice of termination of the
contract due to non-agreement of fees.
We will continue our efforts during the notice period to
secure agreement on fees, however for the avoidance of
doubt, the notice period will expire on 4th May 1997.
We hope that an agreement can be reached, the notice
withdrawn, and the considerable work put into this contract
allowed to develop to the benefit of all parties.99
223.4. On 4 February 1997, Ellis Tylin wrote to CRS again, as follows:

In accordance with the contract, Ellis Tylin have submitted

proposals for fee adjustment, as our letter of 26th November,
1996 defines.
At the anniversary of the contract, viz 5th February 1997, we
have not reached agreement on fee adjustment for 1997.
We confirm that outline agreement has been established as
of 3rd February, and subject to further clarification is to be
ratified between our two companies at Rochdale on 14th
February, any such agreement being backdated to 5th
February 1997.
Should agreement not be reached on that date, we confirm
that the notice of termination required in clause 1.8.2 is
effective from 5th February 1997, and will expire on 4th
May 1997.
We trust that our revised strategy and the efforts of both
companies will be allowed to develop to the benefit of both
companies.100
223.5. Discussions continued and on 14 February 1997 agreement was

reached on the level of fees to be paid for contract year 2 later

that same month.
223.6. On 17 February 1997, Ellis Tylin wrote to CRS confirming the

agreement reached on 14 February for the amount of the second

year fee, and saying:
We drew to your attention our continued commitment to the
contract despite considerable changes both in the
understandings reached in precontract discussions with your
consultants and the actual interpretation of the contract when
started. We also re-affirmed our commitment to the contract
for the future.101
223.7. On 4 May 1997, the contractor stopped work and brought

proceedings.
224. The battle lines at trial were drawn as follows:

99
100
101

Ellis Tylin v Co-operative Retail Services, note 96, para 54.

Ellis Tylin v Co-operative Retail Services, note 96, para 55.
Ellis Tylin v Co-operative Retail Services, note 96, para 69.

52

224.1. The employer CRS argued that the contractual timetable for

revision of rates was to be followed strictly and Ellis Tylins

notices given in November 1996 were premature. CRS cited
various textbooks and cases in support of a strict approach to
construing determination clauses;102
224.2. Ellis Tylin argued for a more flexible and commercial approach,

citing Mannai Investment v Eagle Star Life Assurance.103

225. Mannai Investment v Eagle Star concerned a clause in two leases giving

the tenant the right to determine the leases by serving not less than six
months notice in writing to expire on the third anniversary of the term
commencement date. The leases were for a term of ten years from and
including 13 January 1992.
226. The House of Lords held that an objective test had to be applied and the

question was how a reasonable recipient would have understood them,

bearing in mind their context: a reasonable recipient would have been in
no doubt that the tenant wished to determine the leases on 13 January
1995 but had wrongly described it as 12 January and that accordingly
the notices were effective to determine the leases. Lord Steyn said:
It is important not to lose sight of the purpose of a notice under
the break clause. It serves one purpose only: to inform the
landlord that the tenant has decided to determine the lease in
accordance with the right reserved. That purpose must be relevant
to the construction and validity of the notice. Prima facie one
would expect that if a notice unambiguously conveys a decision to
determine a court may nowadays ignore immaterial errors which
would not have misled a reasonable recipient.
There is no justification for placing notices under a break clause in
leases in a unique category. Making due allowance for contextual
differences, such notices belong to the general class of unilateral
notices served under contractual rights reserved, eg notices to quit,
notices to determine licences and notices to complete: Delta Vale
Properties Ltd v Mills [1990] 1 WLR 445, page 454E-G. To those
examples may be added notices under charterparties, contracts of
affreightment, and so forth. Even if such notices under contractual
rights reserved contain errors they may be valid if they are
102

103

CRS supported its argument for a strict approach by reference to: (1) the lease case
West Country Cleaners (Falmouth) Ltd v Saly [1966] 1 WLR 1485 per Dankwerts LJ,
page 1489; (2) the charterparty case Mardorf Peach & Co Ltd v African Sea Carriers
Corporation of Liberia [1977] AC 850, per Lord Wilberforce, page 870; (3) Bathavon
RDC v Carlisle [1958] 1 QB 461, a Court of Appeal decision about a notice to quit in a
tenancy case; (4) Afovos Shipping Co v Pagnan [1983] 1 WLR 195, a House of Lords
decision about a charterparty; (5) authorities regarding options to purchase, in which it
has been held that a party can only exercise or enforce if the conditions precedent have
been satisfied. See eg United Dominions Trust (Commercial) Ltd v Eagle Aircraft
Services Ltd [1968] 1 WLR 74. CRS also relied upon Goodwin v Fawcett (note 117),
Eriksson v Whalley (note 119), Hill v Camden (note 87) and Central Provident Fund v
Ho Bock Lee (note 122).
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; also
[1997] 2 WLR 945, [1997] 3 All ER 352, [1997] CLC 1124 (HL).

53

sufficiently clear and unambiguous to leave a reasonable recipient

in no reasonable doubt as to how and when they are intended to
operate: the Delta case, at p 454E-G, per Slade LJ and adopted by
Stocker and Bingham LJJ; see also Carradine Properties Ltd v
Aslam [1976] 1 WLR 442, 444. That test postulates that the
reasonable recipient is left in no doubt that the right reserved is
being exercised. It acknowledges the importance of such notices.
The application of that test is principled and cannot cause any
injustice to a recipient of the notice. I would gratefully adopt
it.104
227. HHJ Bowsher QCs judgment in Ellis Tylin v Co-operative Retail

Services provides a useful survey of the authorities.105

228. His conclusion was that those cases which stated that determination

clauses should be strictly applied should be applied to the facts of any

particular case bearing in mind the approach of Lord Diplock in
Miramar Maritime v Holborn Oil Trading106 and in The Antaios,
namely:
If detailed semantic and syntactical analysis of words in a
commercial contract is going to lead to a conclusion that flouts
business sense, it must be made to yield to business
commonsense.107
229. Judge Bowsher reminded himself that commercial contracts should be

construed with regard to their commercial purpose: ICS v West

Bromwich Building Society.108
230. Applying these principles to the case of Ellis Tylin, the judge held:
230.1. The commercial purpose of clause 1.8 was that the parties should

be free to negotiate for variation of the fee effective from the first
and second anniversaries of the contract, and if negotiations were
unsuccessful, either party should be at liberty to terminate, in the
case of Ellis Tylin by giving notice effective not earlier than
three months after the anniversary.
230.2. To take the benefit of clause 1.8, Ellis Tylin had to give the

notices required by that clause.

230.3. Equally, Ellis Tylin were not entitled to give a notice at a date or

in terms calculated to produce a termination of the contract

earlier than allowed for by the clause or otherwise produce a
result inconsistent with the purpose commercial purpose of
clause 1.8 as summarised above.
230.4. Ellis Tylins letter of 26 November 1996 was given less than 10

months after 5 February, 1996. However, there could be no

104
105
106
107
108

Mannai Investment v Eagle Star, note 104, page 768.

Ellis Tylin v Co-operative Retail Services, note 97, paras 72-78.
Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676.
Antaios Compania v Salen Rederierna [1985] AC 191, page 201.
Ellis Tylin v Co-operative Retail Services, note 97, para 77 citing ICS v West Bromwich
Building Society [1998] 1 All ER 98, page 113, per Lord Hoffmanns famous speech.

54

doubt of the intention of Ellis Tylin, namely that negotiations

should take place for a revision of the fee from the beginning of
the second year (5 February 1996).
230.5. Indeed that was the intention of both parties. Ellis Tylins letter

of 26 November 2011 was written at CRSs request. Both parties

repeatedly referred to negotiation of the fee for the second year.
There was no doubt in the mind of either party, and there was no
attempt to shorten the period for negotiation, rather, it was
lengthened. If CRS had not been willing to start negotiations
until the end of the 10 month period, they could have said so.
Instead, CRS tried to elicit the sort of details which they
considered were necessary for the purpose of negotiation.
230.6. It would be contrary to all business common sense and justice to

allow CRS to say a substantial time after the event that the
clause 1.8 process never started because Ellis Tylins notice
under clause 1.8.1 was given too early.
230.7. CRS complained that the termination notice was given on the

wrong day to expire on the wrong day. Since the parties plainly
understood that the negotiations were for an alteration in fees to
come into effect on the first day of the second year (5 February
1997), the negotiations were due to end on the 4 February.
230.8. For Ellis Tylin to give notice on 3 February was on the face of it

premature.
230.9. If the parties had not been intending to continue negotiations, the

3 February letter would have cut short the negotiation period.

However, it is plain from the letter itself and from the evidence
that they did continue to negotiate after the notice, so
negotiations were not cut short.
230.10. The statement in the 3 February letter that the notice period was

to expire on 4 May 1977 would have made it clear to any

reasonable man that the intention was that the notice was to run
from 5 February 1997 to 4 May 1997, that is, for the first three
months of the second year.
230.11. The period from the date of each letter was more than three

months, but that does not cause the notices given by those letters
to be defeated by the clause 1.8.2 requirement on Ellis Tylin of
giving three months notice in writing. Three months notice
was given, and it was plain that the three months was to begin on
5 February. A party in the position of CRS might wish to insist
on receiving the whole of the three months notice, because to
receive any less would deprive them of a valuable right to have
their equipment serviced. However, the parties to the agreement
cannot have intended that the notice given should be not a day
more than three months.

55

230.12. Applying the principle in Mannai Investment v Eagle Star by

both letters of 3 and 4 February 1997, Ellis Tylin gave valid

notice of determination of the agreement.109
230.13. However, the notices of determination were conditional and were

overridden by the agreement which was made for the second year
fees on 14 February 1997. Ellis Tylins letter of 17 February
1997 was, to the judges mind, the clearest indication that the
notice of termination was withdrawn and that the contract was
proceeding in the second year.
230.14. Therefore, the contractor had repudiated the contract by ceasing

to work on 4 May 1996.110

The Afovos
231. The House of Lords decision in The Afovos serves as a warning to those

who wish to terminate not to jump the gun and cut short the period given
to the party receiving the notice to comply with its terms even if they
believe that there is no realistic prospect of the receiving party
complying if the full time is given.111
232. The contract in issue was a charterparty. The claimant owners let the

Afovos to the defendant charterers on a charterparty containing

provisions requiring the punctual payment of hire, and an antitechnicality clause which provided that if hire were late, the owners
would not be allowed to withdraw the ship unless they gave 48 hours
notice of their intentions, during which time the hire could be paid.
233. Due to a mistake by a bank (which accidentally sent payment to a sand

merchant in Reigate instead), the owners bankers did not receive the
hire on the expected date, namely 14 June 1979.
234. At 16:40 hours on 14 June after which time it was considered

impractical for the Charterers to pay the instalment the owners gave
notice that unless the hire were received by them, they were
withdrawing the vessel.
235. The House of Lords held that the owners notice was premature. Lord

Hailsham explained:
The question is not when the charterer would cease to be likely to
pay on time but when, to quote clause 5 punctual payment would
have failed. In my opinion this moment must relate to a particular
hour, and is not dependent on the modalities of the recipient bank.
It is the hour of midnight to which the general rule applies.112
236. The Afovos is authority for the sometimes useful proposition that where

a person under an obligation to do a particular act has to do it on or

109
110
111
112

Mannai Investment v Eagle Star: note 104.

Ellis Tylin v Co-operative Retail Services, note 108, paras 79-85.
Afovos Shipping Co SA v R Pagnan & Fratelli (The Afovos) [1983] 1 WLR 195; also
[1983] 1 All ER 449, [1983] 1 Lloyds Rep 335, [1983] Com LR 83 (HL).
The Afovos, note 112, page 201F.

56

before a particular date, in the absence of express provision to the

contrary, he has the whole of that day to perform his duty.113

MMP v Antal International Network

237. In 2011, the Commercial Court had to consider whether the

preconditions of termination under a contractual determination clause

had been satisfied.
238. The contract at issue in MMP GmbH v Antal International Network was

a 15-year franchise agreement between:

238.1. Antal, a London-based international recruitment agency and the

franchisor; and
238.2. MMP, the Swiss franchisee a company with two employees, a

Mr Bosshard (managing director and sole shareholder of MMP)

and his daughter Ann-Frances.114
239. Antal peremptorily determined the franchise agreement on the ground

that MMP was in breach of a term prohibiting the franchisee to affect

adversely [Antals] name, Trade Marks or other Intellectual Property.115
240. The franchise agreement provided that Antal could terminate it forthwith

for breach of any substantial term of the agreement. Otherwise, Antal

had to give MMP the opportunity to remedy its breach before
terminating the contract. The conduct on which Antal relied was that
Miss Bosshard had harassed a candidate for employment after her
relationship with him had come to an end. MMPs case was that the
behaviour of Mr Bosshards daughter was not a breach of the agreement
and that the purported termination by Antal was itself a repudiatory
breach.
241. Flaux J found that Antals termination was in fact a wrongful

renunciation of the contract, because Antal had not established on the

evidence that Miss Bosshards actions had in fact damaged the brand
only that there was a fear that it had been damaged. The judge held:
In my judgment, upon the true construction of clause 16.2(l) a
fortiori given that it is a substantial term breach of which entitles
Antal London to terminate immediately, a fear or concern that
MMPs conduct may damage the brand is not sufficient to
constitute a breach of the clause. There must be evidence that the
conduct has in fact adversely affected the brand, evidence which is
distinctly lacking in this case.116

113
114
115
116

The Afovos, note 112, pages 201B, 202C, 203H204A, D.

MMP GmbH (formerly Antal International Network GmbH) v Antal International
Network Ltd [2011] EWHC 1120 (Comm).
MMP v Antal International, note 114, para 13 (clause 16).
MMP v Antal International, note 114, para 77.

57

Goodwin v Fawcett
242. In Goodwin & Sons v Fawcett a contractor was building a house for an

architect who determined the contract for want of due diligence.117

243. The contractor argued that the employers determination notice was

invalid and his termination a repudiation of the contract: (a) because the
notice was sent by recorded delivery and not by registered post as
required under the contract; and (b) because the notice purported to
determine the contract and not merely the contractors employment
under the contract.
244. In arbitration, the contractors arguments succeeded. However, in the

High Court, Stephenson J allowed the employers appeal. The judge

held that registered post did not include recorded delivery, and although
similar in practice; in law they were two different things. However:
the whole contract must be construed in a common-sense
business way as a building contract, and this notice had been
properly served on the true interpretation of the words used.118

Eriksson v Whalley
245. A stricter approach was taken by Collins J in the Australian case of

Eriksson v Whalley.119
246. Collins J decided that a notice by the architect to the builder pursuant to

a clause of the contract specifying certain matters of default handed to

the builders foreman and not sent by registered post as specified in the
clause was not a valid notice.
247. He took the view that the parties agreed in imperative terms that the

notice should be given by registered post and that:

the provision of this method of service no doubt was intended for
the purpose of avoiding subsidiary disputes between the parties to
the contract as to whether the notice was given or received as it
provides for a mode of service and receipt of the required notice
which can be corroborated from an independent and official
source.

Yates Building v Pulleyn

248. In Yates Building v Pulleyn, the question was whether an option to

purchase land had been validly exercised by the option holder. The
option clause read:
The option hereby granted shall be exercisable by notice in
writing given by or on behalf of Yates to Pulleyns or to Pulleyns
solicitors at any time between 6 April 1973 and 6 May 1973 such
notice to be sent by registered or recorded delivery post to the

117
118
119

Goodwin & Sons v Fawcett [1965] EGD 186; the contract was made on 1 July 1961 in
the RIBA form.
Goodwin v Fawcett: note 117.
Eriksson v Whalley [1971] 1 NSWLR 397.

58

registered office of Pulleyns or the offices of their said

solicitors.120
249. On 30 April 1973 the solicitors for the buyers sent a letter by ordinary

post to the solicitors for the sellers exercising the option on behalf of the
buyers. Although the letter was received well in time the sellers
solicitors replied stating that the letter had not been sent by registered
post as provided for in the option clause. In an action for specific
performance by the buyers the judge held that the requirement that the
notice in writing had to be sent by registered post or recorded delivery
was a requirement that must be complied with. On appeal the Court of
Appeal held that the option had been validly exercised.
250. Lord Denning in his judgment took the view that the object of the

provision was for the benefit of the buyer so that he can be sure of his
position. He said (at p 126):
so long as he sends the letter by registered or recorded delivery
post, he has clear proof of postage and of the time of posting. But
if the buyer sends it by ordinary post, he will have no sufficient
proof of posting, or the time of posting. In that case, if the seller
proves that he never received it, or received it too late, the buyer
fails.
None of those reasons apply, however, when the seller does
receive it in time. So long as he gets the letter in time, he should
be bound. So I would hold, simply as a matter of interpretation,
that if the letter did reach the sellers in time, it was a valid exercise
of the option.121
251. Lord Scarman said:

I agree with the Master of the Rolls that the one question before
the court is the interpretation of clause 2 of the option agreement.
I read that agreement as requiring the option to be exercised by a
notice in writing which is to be actually received by Pulleyns or
Pulleyns solicitors.
When later in the clause one comes to the words which have to be
construed in this case such notice to be sent by registered or
recorded delivery post, I think they are a clear indication, and are
intended as such to the offeree, that if there is to be any issue as to
whether or not the notice has in fact been received, he had better
use registered or recorded delivery post if he wishes to put it
beyond doubt.
Of course, if there was any such issue, the burden would be upon
the party seeking to exercise the option to prove that his notice had
been received. The clause is a clear indication that one would
most easily and most efficaciously discharge that burden by using
registered or recorded delivery post.

120
121

Yates Building Co Ltd v Pulleyn & Sons (York) Ltd (1975) 237 EG 183, (1975) 119 SJ
370 (CA).
Yates Building v Pulleyn, note 120, page 128.

59

Central Provident Fund v Ho Bock Kee

252. In Central Provident Fund v Ho Bock Kee, the Singapore Court of

Appeal had to consider similar issues.122 Ho Bock Kee was a contractor

which agreed to erect a large building for the CPFB, which later
purported to terminate the contract. The contractor challenged the
termination, saying that the employer had failed to comply with
mandatory requirements of the contractual determination clause. The
Singapore Court of Appeal agreed with the contractor.
253. The determination clause (clause 34) read as follows:

34(a) Default: If the contractor shall make default in any of the

following namely:
(i) without reasonable cause wholly suspends the works before
completion;
(ii) fails to proceed with the works with reasonable diligence;
(iii) refuses or to a substantial degree persistently neglects after
notice in writing from the superintending officer to remove
defective work or improper materials,
then, if any such default shall continue for seven days after a
notice sent by registered post to the contractor from the
superintending officer specifying the same, the superintending
officer may without prejudice to any other rights herein contained
thereupon by notice sent by registered post determine this
contract; provided that notice hereunder shall not be given
unreasonably or vexatiously and such notice shall be void if the
Board is at the time of the notice in breach of this contract.123
[emphasis added]
254. However, clause 1A(d) of Ho Bock Kees contract read:

Notwithstanding any provision to the contrary in these conditions

contained, it is hereby agreed that the right to take action and/or
initiate proceedings on behalf of the Board under clauses 31, 32,
34, 35 or 40 hereof is expressly reserved to the chairman, Central
Provident Fund Board.
255. On 25 October 1974 the employers superintending officer (Mr Seah)

hand delivered a seven day warning notice to the contractor. On 2

November 1974, Mr Seah hand delivered a termination notice to the
contractor.
256. The contractor challenged the notices on two bases:
256.1. First, the relevant notices should have been issued by the

chairman of the Central Provident Fund Board; not by the

superintending officer Mr Seah.
256.2. Second, the notices should have been sent by registered post, not

hand delivered.
122
123

Central Provident Fund Board v Ho Bock Kee [1980-1981] SLR 180; [1981] SGCA 4,
decision dated 5 March 1981.
Central Provident Fund v Ho Bock Kee: note 122.

60

257. The contractor Ho Bock Kee argued that these provisions were

mandatory:
257.1. Clause 1A(d) by its terms took precedence over clause 34. If Mr

Seah sent a seven day notice under clause 34, he was exercising
the right to take action under clause 1A(d), which was reserved
to the chairman alone.
257.2. The mode of delivery requirement was included for the

contractors benefit as well as the employers, so that it would be

warned that the determination procedure was being operated, and
to avoid subsidiary disputes as to whether the notice has been
given or received because it provides for a mode of service and
receipt which can be corroborated from an independent and
official source.
258. The Singapore Court of Appeal agreed with the contractor and found the

notices to be invalid.

SABIC v Punj Lloyd

259. Another issue which arises where a warning notice is required is as to

how much detail it needs to give in order to be valid, for example does it
need to say exactly what the receiving party has done wrong, does it
have to identify what is required to remedy the breach complained of,
and does it have to identify the particular clause relied upon and/or spell
out the consequences of failure to comply?
260. A not untypical example of a determination clause requiring a warning

notice is the case of SABIC v Punj Lloyd.124

261. The claimant (SABIC) was a manufacturer of petrochemical products.

The defendant was the parent company (and guarantor) of a contractor

(SCL) which specialised in delivery of LDPE plants, which made an
EPC contract with SABIC.
262. The EPC contract stated that SABIC could terminate:
262.1. If SCL failed to proceed with the works with due diligence

despite previous written warnings;

262.2. If SCL was otherwise persistently in material breach; or
262.3. If SCLs financial position deteriorated so as to jeopardise its

capability to fulfil its obligations.

263. On 3 October 2008, SABIC wrote to SCL detailing its concerns.
264. On 3 November 2008, SABIC terminated the contract, invoking the

performance guarantee and the advance payment guarantee.

265. One of the points taken by the defendant was that SABICs 3 October

2008 was not a sufficient and proper written warning for the purposes
of the EPC contract. The relevant clause (clause 27.2.10) entitled
SABIC to terminate SCLs employment forthwith if:
124

SABIC UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 2916, [2014] BLR 43
(QBD).

61

despite previous warning by the [SABIC] in writing the [SCL] is

failing to proceed with the Engineering Works with due diligence
or is otherwise persistently in material breach of its obligations
under the Contract ...125
266. The defendant argued that a warning under clause 27.2.10 had to

mirror the requirements under clause 27.2.1, which permitted the

SABIC to terminate the contract if the Contractor commits a material
breach of any of the terms and conditions of the Contract which is not
rectified within ten working days of notice from the Project Director to
take such steps to rectify such breach as shall reasonably satisfy the
Project Director.126
267. The defendant therefore submitted that a warning under clause 27.2.10

had to identify the respects in which SCL was failing to proceed with
due diligence and what was necessary in order to rectify it.
268. Stuart-Smith J rejected this argument. He reasoned as follows:
268.1. The terms of clause 27.2.1 and clause 27.2.10 were materially

different. Under clause 27.2.1 it is plain that the project director

must give notice to the contractor to take steps to rectify a
material breach and, if the contractor fails to take steps that
reasonably satisfy the Project Director within ten working days,
the right to terminate arises. Under this clause, it would be
commercially absurd for the draconian right of termination to
arise if the Purchaser has not identified the material breach in
question: it cannot be for the Contractor to work out what the
material breach is alleged to be without it being identified by the
Purchaser. If, however, the Purchaser identifies the breach and
the notice is clearly given under clause 27.2.1, the onus shifts to
the Contractor to take steps to rectify the breach which will
reasonably satisfy the Project Director. But the clause does not
state that the Project Director must identify the steps that the
Contractor must take. All that is required of the Purchaser is to
identify the material breach and to give notice that it is to be
rectified in ten working days.
268.2. Under clause 27.2.10 what is required to give rise to the right to

terminate is that the Contractor is failing to proceed with the

Engineering Works with due diligence or is otherwise
persistently in material breach of its obligations under the
contract after warning by the Purchaser in writing. The context
makes clear that the warning must be a warning that the
Contractor is failing to proceed with due diligence or is otherwise
persistently in material breach of its obligations under the
contract. As with clause 27.2.1 the notice must make plain to
the Contractor the breach that is alleged. But it does not follow
that, where the Purchaser gives warning of a failure to exercise

125
126

SABIC v Punj Lloyd, note 124, para 6.

SABIC v Punj Lloyd, note 124, para 156.

62

due diligence, he must particularise the respects in which the

contractor has failed.
268.3. The difference between a warning of failure to exercise due

diligence and an allegation of another material breach is that,

where material breach of another obligation is relied upon, the
particular obligation requires it to be specified so that the
Contractor may understand the allegation of breach; however,
where failure to exercise due diligence is relied upon, the
particular obligation (namely, to exercise due diligence) is fully
identified and the nature of the breach is sufficiently clear.
268.4. Once again, the clause does not say that the Purchaser must

prescribe the steps to be taken in order for the Contractor to

avoid termination: there was no need to do so because, once the
obligation (of due diligence or not otherwise to act in persistent
breach) was clearly identified, it was for the Contractor to
comply with its obligations as it sees fit.127
269. The judge then found that even if a letter under clause 27.2.10 was

required to specify the nature of the failure to exercise due diligence,

SABICs 3 October 2008 letter128 was sufficiently specific, because:
269.1. It identified that the warning related to a lack of due diligence

leading to delay.
269.2. It highlighted many, though not all, of the matters upon which

SABIC still relied at trial.

269.3. SCL could have been in no doubt about the nature of SABICs

concerns.
270. Although the case does not appear to have been cited to the court in

SABIC, Stuart-Smith Js decision in that case is in line with the

approach taken by the New South Wales Court of Appeal in Hometeam
Construction Pty Ltd v McCauley, which was to the effect that a notice
of default should be construed non-technically, in accordance with
business common sense, fairly in its context and in line with how a
reasonable recipient would have understood it.129 The Court endorsed
these statements in Hudsons Building and Engineering Contracts (11th
editon):
12.033 the clause must be carefully considered and closely
followed in all respects, both as to the contents and timing of the
notices, but the Courts will usually regard the notices as
commercial documents and provided they make clear reference to
the substance of what is required by the determination clause (and
ideally, of course, by express reference to the applicable cause of
the contract and special grounds in respect of which they are
given) the form of words used will usually not be important.
Applying this principle notices referring the reader to the
127
128
129

SABIC v Punj Lloyd, note 124, paras 157-158.

Extracted at paragraph 124 of the judgment.
Hometeam Construction Pty Ltd v McCauley [2005] NSWCA 303.

63

applicable clause of the contract and identifying the default are

generally likely to be sufficient.
(b) Contents of notice
12.034 Particularly where a determination clause is conditioned on
a number of different eventualities or defaults of the contractor, it
is evident that any required preliminary notice should sufficiently
identify the particular ground relied upon, if that is called for by
the contract (and particularly where continuation of the default is
made a condition of any second notice), but further detail,
particularly in regard to a generalised ground like due diligence,
will not usually be called for.
271. The New South Wales Court of Appeal in Hometeam Construction also

cited the decision of the Supreme Court of New South Wales in Re

Stewardson Stubbs & Collett & Bankstown Municipal Council, in which
Moffit J (as he then was) stated that the question whether the notice was
proper was to be determined from the practical viewpoint by asking
whether commercial persons would understand clearly that it was a
notice under the relevant clause.130
272. For an example of a case in which a warning notice was held not to

comply with the requirements of the contract, and hence to be invalid,

see Western Bulk Carriers K/S v Li Hai Maritime Inc, and the useful
discussion by Hirst J.131 Although this case focuses on an antitechnicality clause in a charterparty, an area replete with specialist case
law, it is an interesting example of a case where the court found that the
notice clause in question required a warning or ultimatum to be given
making it clear that the party receiving the notice had an opportunity to
remedy, whereas the notice-giving party instead simply stated
unconditionally that the vessel would be withdrawn in 72 hours, and
thereby failed to comply with the contractual notice requirements.
273. For a discussion of what is remedying a default in the context of a

commercial contract, see Schuler v Wickman Machine Tool Sales, in

which Lord Reid held that:
273.1. In the context of the particular clause under consideration there,

remedy did not mean obviate or nullify the effect of a breach

so that any damage already done is in some way made good but
only cure so that matters are put right for the future;
273.2. However, per Lord Reid: there are cases where it would seem a

misuse of language to say that a breach can be remedied. For

example, a breach of clause 14 by disclosure of confidential
information could not be said to be remedied by a promise not to
do it again.132
130
131
132

Hometeam Construction v McCauley, note 129, paras 137-139; Re Stewardson Stubbs

& Collett Pty Ltd & Bankstown Municipal Council [1965] NSWR 1671.
Western Bulk Carriers K/S v Li Hai Maritime Inc [2005] EWHC 73, [2005] 2 Lloyds
Rep 389, [2005] 1 CLC 704 (Comm), paras 70-94.
L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 (HL), pages 249-250;
also [1973] 2 WLR 683.

64

274. As pointed out in Chitty on Contracts, if a party issues a notice which

does not comply with the terms of the contract, and thereby breaches the
contract, the court is unlikely to find that to be a repudiatory breach by
the notice-giver if he made a genuine mistake in issuing the deficient
notice and the recipient was aware of the mistake and deliberately or
opportunistically refrained from pointing it out until after the noticegiver purported to terminate in reliance upon the deficient notice.133
275. In this regard, see for example the Court of Appeals 2010 decision in

Oates v Hooper in which the seller of a property purported to give a

notice of rescission under the Law Societys 2003 Standard Conditions
of Sale, which was in fact premature, but in circumstances where the
reasonable person in the buyers position would have realised that the
seller would have been willing to complete if the buyer had pointed out
the error and tendered the balance of the purchase money within the time
that the contract allowed.134
276. Therefore the Court of Appeal, applying Etherton LJs formulation of

the relevant test at paragraph 61 of Eminence Property Developments v

Heaney,135 held that on the facts of Oates v Hooper it was not the case
that, 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 had clearly shown an intention to abandon and
altogether to refuse to perform the contract.

3.

Do determination clauses exclude common law rights of

termination?

277. As so often, Chitty on Contracts provides a useful starting point, stating:

The fact that one party is contractually entitled to terminate the

agreement in the event of a breach by the other party does not
preclude that party from treating the agreement as discharged by
reason of the others repudiation or breach of condition, unless the
agreement itself expressly or impliedly provides that it can only be
terminated by exercise of the contractual right.
Whether the procedure laid down for termination in the contract
excludes, expressly or impliedly, the common law right to
terminate further performance of the contract in respect of a breach
which falls within the scope of the clause is a question of
construction of the contract.136

AIS v James Gibbons Windows

278. In AIS v James Gibbon Windows, referred to above, HHJ Bowsher QC

ultimately found for the defendant contractor because he considered that

contrary to the claimant subcontractors submissions the

133
134
135
136

Chitty on Contracts (31st edition), note 1, para 24-020.

Oates v Hooper [2010] EWCA Civ 1346.
Eminence v Heaney: note 29.
Chitty on Contracts (31st edition), note 1, para 22-049.

65

determination clause in that case was not a comprehensive code which

excludes any right to terminate at common law.137 Thus:
278.1. There was no express term to that effect.
278.2. There was no reason at all to imply any term to the effect that the

determination clause was to be the only machinery for

terminating the contract, to the exclusion of common law rights
of termination.
278.3. Were the determination clause provided the only means of

terminating for breach, then if Architectural Installations were to

say to James Gibbons We are leaving the site and we shall not
return and we shall not change our minds about this, James
Gibbons would still have to go through the two notice procedure
in order to terminate the contract, which the judge considered
would be contrary to any business sense and a nonsensical
result.138
278.4. The judge was unimpressed by the claimants submission that the

absence of the words without prejudice to other rights and

remedies pointed to the determination clause providing an
exclusive code for termination, saying:
I would be sorry if draughtsmen of contracts felt it
necessary to include such legal verbiage in order to avoid
unintended results of their drafting. Construction contracts
are already sufficiently complicated when the draughtsmen
seek to state what they do mean. They should not be
burdened with the additional task of stating what they do not
mean.
279. Therefore, James Gibbonss telex of 21 August 1986 was a rightful

termination of the contract at common law.

Lockland v Rickwood
280. The Court of Appeal in Lockland v Rickwood took a somewhat different

approach to the exclusive code question. Having considered AIS v

James Gibbons Windows, Russell LJ commented:
With all respect to the judge, for my part I do attach significance
to the absence of such words as without prejudice to other rights

137
138

AIS v James Gibbons Windows: note 93.

This should not be taken as a rule of general application in every contract. It will
depend upon the particular contract in question and all other indicia as to whether or
not a comprehensive and exclusive code was intended. Arguments in favour of
requiring the parties to operate notice machinery even where this is prima facie likely
to be a futile exercise given the previous conduct of the contract breaker include the
following: (1) if the notice periods are comparatively short, then no great delay or
burden is engendered by requiring the promisee to comply with them; (2) often even
previously intransigent parties stop and reconsider their position (and take professional
advice) when faced with the warning shot of a formal notice, and the prompting of
such a response is one of the purposes of such a notice; (3) formal notice requirements
are included for the sake of mutual certainty.

66

and remedies, and I do not think that to include them would, as

Judge Bowsher thought, involve verbiage in drafting.139
281. In Lockland v Rickwood, there was a dispute between the parties as to

whether the determination clause restricted or excluded Mr Rickwoods

common law rights to bring the contract to an end.
282. Russell LJs conclusion140 was that on the facts of that case:
282.1. The determination clause at issue and the common law right to

accept a repudiatory breach could exist side by side, but only in

circumstances where the contractor displays a clear intention not
to be bound by his contract.
282.2. Examples of such a display might include walking off the site

long before completion or failing to comply with plans in a very

fundamental way, eg by not building a third storey when
contractually bound to do so.
282.3. The default of Lockland was far short of that. Mr Rickwood had

moved into the house, and thus (as Russell LJ commented):

certainly regarded it as habitable, which is a matter which
I consider, if there is any suggestion that Mr Ryan had
committed a fundamental breach of the contract.141
282.4. Therefore, the determination clause created the only effective

way in which Mr Rickwood could determine the agreement.

282.5. It was, in Russell LJs opinion, difficult to understand why the

determination clause should be there at all if that were not the

true position.
283. Hirst LJ took a similar approach, saying142 that the relevant principle at

law was helpfully and accurately stated in Chitty on Contracts, which

stated, so far as relevant:
The fact that one party is contractually entitled to terminate the
agreement in the event of a breach by the other party does not
preclude that party from treating the agreement as discharged by
reason of the others repudiation or breach of condition, unless the
agreement itself expressly or impliedly provides that it can only be
terminated by exercise of the contractual right.143
284. Like Russell LJ, Hirst LJ thought that:
284.1. The contract did impliedly preclude Mr Rickwood from

terminating on the facts found otherwise than by the exercise of

his rights under the determination clause because the complaints
made being complaints as to the quality of materials and

139
140
141
142
143

Lockland v Rickwood, note 95, pages 45-46; AIS v James Gibbons Windows, note 93.
Having considered Judge Bowshers analysis in AIS v James Gibbons Windows, as
indicated above.
Lockland v Rickwood, note 95, para 99.
Lockland v Rickwood, note 95, paras 101-102.
Chitty on Contracts (27th edition), note 64, page 1091, para 22044.

67

workmanship fell squarely within the scope of that

determination clause.
284.2. However, the determination clause in question would not have

precluded common law termination in relation to breaches

outside its ambit, eg by Lockland walking off the site when the
works were still substantially incomplete.
285. Rose LJ agreed with both Russell and Hirst LJJ.
286. The terms of the determination clause may in effect fix a minimum

threshold of seriousness which must be achieved before a breach of an

innominate term can be relied upon as justifying termination at common
law. See for example Langley J in Amoco v British American Offshore,
who held in the context of the purported termination of an agreement for
the hire of oil drilling equipment, that:
The Contract itself contained its own scheme for compensating
Amoco for reduced efficiency or performance by reduction in the
operating rate for the period of the reduction in efficiency or
performance (Appendix 10) and by a breakdown rate reduced to a
nil rate after 48 hours. It also contained in Clause 28.1 its own
provisions for termination which were effective after a breakdown
of sufficient gravity to cause BAO to be unable to perform its
obligations under the contract lasting 30 days or a major fault
causing a suspension of operations for more than 30 days.
Those provisions themselves must in my judgment form part of an
appreciation of the benefit the parties were intended to derive from
the contract.
Thus circumstances otherwise within the scope of the termination
provisions but falling short of the precise terms would in my
judgment not give rise to the right to terminate at common law for
the very reason that the parties agreed when and how such
circumstances should have that consequence: see Lockland
Builders Ltd v Rickwood (1995) 46 Con LR 92 (CA).
The provisions are ones for the benefit of both parties not just for
the benefit of Amoco involving as they do time and notice
constraints.
For present purposes loosely expressed what I think that comes to
is that to justify termination at common law something worse or
not addressed by those provisions would be required.144
287. Having considered Lockland v Rickwood and Amoco v Bristish

American Offshore Ramsey J in BSkyB Ltd v HP Enterprise Services UK

Ltd held:

144

Amoco (UK) Exploration Company v British American Offshore Ltd [2001] EWHC
485 (Com Crt), para 104. Here, as elsewhere in this paper, paragraphs have been split
for ease of reading, and reference should be made to the original judgment for original
breaks in paragraphs.

68

I do not read those decisions as laying down any hard and fast
rules. Rather, in deciding whether by its conduct a party evinces
an intention not to be bound by the terms of the contract, the way
in which parties agreed to treat breaches within the terms of their
contract must be a factor to take into account.
In particular, if a breach of a term had to reach a degree of
seriousness before a contractual termination clause could be
applied, it is unlikely that a breach which was lessserious would,
by itself, amount to arepudiatory breach.
Equally, the fact that for a particular breach the contract provided
that there should be a period of notice to remedy the breach would
indicate that the breach without the notice would not, in itself,
amount to a repudiatory breach.145
288. However, it has also been said that there is a general presumption that a

determination clause does not exclude parties common law rights of

termination for repudiatory breach (eg an outright refusal to perform)
unless there are clear express words to that effect. See Christopher
Clarke J in Dalkia v Celtech,146 citing Modern Engineering v Gilbert
Ash, where Lord Diplock said that:
It is, of course, open to parties to a contract for sale of goods or
for work and labour or for both to exclude by express agreement a
remedy for its breach which would otherwise arise by operation of
law or such remedy may be excluded by usage binding upon the
parties (cf Sale of Goods Act 1893, section 55). But in construing
such a contract one starts with the presumption that neither party
intends to abandon any remedies for its breach arising by operation
of law, and clear express words must be used in order to rebut this
presumption.147

4.

Can the terminating party advance different reasons

later?

289. As stated above, generally speaking a party who refuses to perform

citing a bad ground for doing so may justify his refusal by showing that
a good ground for his refusal in fact existed.
290. However, the general rule is subject to a number of exceptions, some of

which are explored below.

145

146
147

BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86, [2010] BLR 267, 129
Con LR 147, (2010) 26 Const LJ 289 (TCC), para 1366; Lockland v Rickwood: note 95
and Amoco v Bristish American Offshore: note145.
Dalkia v Celtech, note 21, para 21.
Modern Engineering (Bristol) Ltd v Gilbert Ash (Northern) Ltd [1974] AC 689 (HL),
page 717; also [1973] 3 WLR 421.

69

(a)

The general rule

Taylor v Oakes Roncoroni

291. Taylor v Oakes Roncoroni, a January 1922 decision of Greer J, affirmed

by the Court of Appeal in March 1922, is often cited as authority for the
proposition that:
It is a long established rule of law that a contracting party, who,
after he has become entitled to refuse performance of his
contractual obligations, gives a wrong reason for his refusal, does
not thereby deprive himself of a justification which in fact existed,
whether he was aware of it or not. 148
292. Roncoroni was a dispute arising out of a contract between the claimant

sellers and defendant buyers for the sale and purchase by five
instalments of large numbers of rabbit fur for use in making hats.
293. The defendant buyers took delivery of the first instalment of skins, but

refused to take delivery of the balance on the (wrongful) grounds that

their sub-purchasers for financial reasons would not take the goods. At
the time of their refusal to take up the balance of the goods, the
defendant buyers neither knew of nor suggested any ground which could
be alleged as a justification for their refusal.
294. The sellers sued for damages for wrongful repudiation by the buyers of

the contract of sale. The buyers then obtained evidence that the goods
delivered did not comply with the contract description, because the fur
in question fell short of the quality stipulated in the contractual
description to a slight but appreciable degree, such that the defendant
buyers could have rejected the furs had they ascertained the fact in time.

British & Beningtons v Cachar Tea

295. Within eight months of the Court of Appeals decision in Roncoroni, but

without reference to that case, in November 1922 the House of Lords

gave judgment in British & Beningtons v North Western Cachar Tea.149
296. Beningtons was a dispute arising out of a contract for the sale of tea.

The defendant sellers relied upon the Court of Appeals decision in

Braithwaite v Foreign Hardwood150 as authority for the proposition that
148
149
150

Taylor v Oakes Roncoroni & Co [1922] All ER Rep Ext 866, page 869; (1922) 127 LT
267, page 269.
British & Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48; also
(1922) 13 Lloyds LR 67 (HL).
Braithwaite v Foreign Hardwood Company [1905] 2 KB 543 (CA). This case had
been described by the Commercial Court as a notoriously difficult decision to
explain. See Teare J in Flame SA v Glory Wealth Shipping Pte Ltd [2013] EWHC
3153, [2014] 2 WLR 1405, [2014] 1 All ER (Com Crt) 1043, [2013] 2 Lloyds Rep
653, [2013] 2 CLC 527 (Com Crt), who said (para 27): The problem arises from the
fact that the decision appears to be inconsistent with the rule that a party who refuses to
perform citing a bad ground for doing so may justify his refusal by showing that a good
ground for his refusal in fact existed. Attempts to explain the decision have been made
by Greer J in Taylor v Oakes, Roncoroni and Co (1922) 27 Comm Cas 262 at p268,
by Lord Sumner (the losing counsel in Braithwaite) in British and Benningtons Ltd v
NW Cachar Tea Co [1923] AC 48 at p70, by Scrutton LJ (the successful counsel in
Braithwaite) in Continental Contractors v Medway Oil and Storage Company (1925)

70

the claimant buyers, having terminated the contract exclusively on the

ground that the sellers had not delivered within a reasonable time (when
in fact a reasonable time had not yet expired), could not later rely upon
the ground that the sellers were not ready and willing to deliver in
London, as the contract required.
297. Lord Sumner rejected the sellers argument, saying:

I do not think that the case [Braithwaite v Foreign Hardwood

Co], as reported, lays it down that a buyer, who has repudiated a
contract for a given reason which fails him, has, therefore, no other
opportunity of defence either as to the whole or as to part, but must
fail utterly.
If he had repudiated, giving no reason at all, I suppose all reasons
and all defences in the action, partial or complete, would be open
to him. His motives certainly are immaterial, and I do not see why
his reasons should be crucial.
What he says is of course very material upon the question whether
he means to repudiate at all, and, if so, how far, and how much,
and on the question in what respects he waives the performance of
conditions still performable in futuro or dispenses the opposite
party from performing his own obligations any further; but I do
not see how the fact, that the buyers have wrongly said we treat
this contract as being at an end, owing to your unreasonable delay
in the performance of it obliges them, when that reason fails, to
pay in full, if, at the very time of this repudiation, the sellers had
become wholly and finally disabled from performing essential
terms of the contract altogether.151
298. Lord Sumners dictum was applied by Lord Denning MR in The Mihalis

Angelos.152

(b) Exceptions to the general rule that a terminating party can

advance different reasons later
The three exceptions mentioned in Glencore v LORICO
299. The limits of the general rule stated by Greer J in Roncoroni and by

Lord Sumner in Beningtons were explored by the Court of Appeal in

Glencore v LORICO.153

151
152

23 Lloyds List Reports 124 at pp132-134 and by Salmon LJ in Esmail v J Rosenthal &
Sons Ltd [1964] 2 Lloyds Reports 447 at p466, whose views were endorsed by Lord
Ackner in [Fercometal SARL v Mediterranean Shipping Co SA] The Simona [1989] 1
AC 788 at p805. Sir Guenter Treitel has carried out a masterly and comprehensive
review of the facts of Braithwaite and of three possible justifications for the decision in
Benjamins Sale of Goods at paragraphs 19-176 - 19-180. The first justification is that
there was no breach by the sellers, the second is that if there was a breach it was not
repudiatory and the third was that the buyer was precluded by his conduct from relying
upon the sellers breach.
British & Beningtons v North Western Cachar Tea, note 149, pages 71-72.
Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos)
[1971] 1 QB 164 (CA), pages 193B and 195; also [1971] 1 QB 164, [1970] 3 WLR
601, [1970] 3 All ER 125, [1970] 2 Lloyd's Rep. 43.

71

300. In that case:

300.1. When the buyers vessel arrived one day later than planned for

loading, the sellers under an FOB contract had unjustifiably

demanded an increase in the contract price, and that demand by
the sellers amounted to a refusal to perform.
300.2. However, the buyers had previously to that demand refused to

provide a letter of credit except one which unjustifiably required

presentation of freight pre-paid bills of lading, a refusal which
was in itself repudiatory.
300.3. It was held that the sellers demand for a price increase as a

condition of delivery had the effect of accepting the buyers

conduct as a repudiation even though it was founded only on the
late arrival of the vessel (an invalid ground).
301. The Court of Appeal in Glencore v LORICO (Nourse, Evans LJJ and Sir

Ralph Gibson) held:

301.1. A contracting party who, after he became entitled to refuse

performance of his contractual obligations, gave a wrong reason

for his refusal, did not thereby deprive himself of a justification
which in fact existed, whether he was aware of it or not; Greer
Js dictum in Roncoroni applied.
301.2. However, that principle did not apply:

(1) If the point which was not taken could have been put right.
See the Court of Appeals decision in Heisler v AngloDal;154 or
(2) If an unequivocal representation to the contrary effect was
made and acted on by the other party, so that it would be
unfair and unjust for the party who made the representation
to rely on his contractual rights.
302. On the facts of Glencore v LORICO, neither the Heisler nor the

waiver/estoppel exceptions to the general rule in Roncoroni existed, and

the general rule applied:
302.1. The buyers breach of contract could not have been put right by

the buyers because by then the time for contractual performance

of the buyers letter of credit obligation had passed and the
sellers refusal was already justified by the buyers breach.
302.2. Furthermore, in the absence of any unequivocal representation by

the sellers that they relinquished or would relinquish their rights

arising out of the buyers failure to open a letter of credit in the
form required by the sale contract, the sellers could not be said to
153

154

Glencore Grain Rotterdam BV v Lebanese Organisation for International Commerce

(The Lorico) [1997] 4 All ER 514; also [1997] 2 Lloyds Rep 386, [1997] CLC 1274
(CA); RoncoroniI: note 148 and British & Beningtons v North Western Cachar Tea:
note 149.
Heisler v Anglo-Dal Ltd [1954] 1 WLR 1273, page 1278; also [1954] 2 All ER 770,
page 773, per Somervell LJ, with whom Birkett and Romer LJJ agreed.

72

have misled the buyers into believing that the freight pre-paid
requirement was no longer important to them.
302.3. It followed that the sellers were entitled to rely on the buyers

breach of contract in failing to open a letter of credit conforming

with the sale contract even though they had not asserted that they
were relying on it at the time of their refusal to perform the
contract.
303. A third exception to the general rule mentioned in Glencore is

acceptance of goods in the circumstances described in section 35 of the

Sale of Goods Act 1979, namely:
The buyer is deemed to have accepted the goods when he
intimates to the seller that he has accepted them, or when the
goods have been delivered to him and he does any act in relation
to them which is inconsistent with the ownership of the seller, or
when after the lapse of a reasonable time he retains the goods
without intimating to the seller that he has rejected them
304. If these facts are established, then the buyer cannot thereafter raise a

ground for rejection, however valid it may be, and the general in
Roncoroni does not save him. He is precluded from raising even a valid
ground, not because he failed to raise it at the time but because he
retained the goods and did not reject them on any ground. The basic rule
could apply, of course, if he did reject the goods, though giving an
invalid reason for doing so.155
305. A recent example of a case in which the Heisler exception applied,

because the Court found (obiter) that had the point been identified it
could have been put right, is Thai Maparn Trading v Louis Drefyus
Commodities.156
Cases of termination pursuant to determination clauses
306. As discussed above, determination clauses often involve a machinery

whereby a warning notice is first given and time to remedy or rectify is

granted to the party receiving the notice. In that scenario, a party who
wishes to operate a determination clause must consider carefully what
the determination clause in question requires as regards reasons, and if
he does not advance a particular reason in a notice which he gives, then
he may well find that he is precluded from relying upon that
unmentioned reason later to defend terminating by means of that notice.
307. Further, a party terminating a contract by express reference to a

determination clause may not be able to rely upon the rule in

Roncoroni157 if he is thereby prevented from terminating at common
law, because the claim made under his notice of termination is
inconsistent with and not simply less than the claim which arises
upon his acceptance of a repudiation. As explained by Christopher
155
156
157

See Evans LJs judgment in Glencore, note 153, page 528E-G; Roncoroni: note 148.
Thai Maparn Trading Co Ltd v Louis Drefyus Commodities Asia Pte Ltd [2011]
EWHC 2494, [2011] 2 Lloyds Rep 704 (Com Crt); Heisler: note 154.
Roncoroni: note 148.

73

Clarke J in Dalkia v Celtech, (cited by Tomlinson J in Shell Egypt v

Dana Gas158):
307.1. The same conduct may be such as to give rise to a contractual

right to terminate and a common law entitlement to accept a

repudiatory breach. ...
307.2. In such a case the innocent party can exercise either his

contractual or his common law right of termination. Prima facie

he can rely on both. He is not disentitled to rely on the latter on
the ground that recourse to the former constitutes an affirmation
of the contract since in both cases he is electing to terminate the
contract for the future (ie to bring to an end the primary
obligations of the parties remaining unperformed) in accordance
with rights that are either given to him expressly by contract or
arise in his favour by implication of law.
307.3. If he can rely on both there is no reason in principle why, if he

terminates the contract without stating the basis on which he does

so, he cannot be treated as doing so under any clause which
entitles him to do so and in accordance with his rights at common
law. ...
307.4. Even if he refers to a particular clause upon which he relies, that

would not inevitably mean that he was only relying on that

clause. If that were so an innocent party who, in the face of a
repudiatory breach, terminated the contract by reference to a
clause which was in fact inapplicable, might, on that account,
find himself disentitled to terminate at all.
307.5. [However] the fact that service of a contractual notice of

termination is not inconsistent with the acceptance of a

repudiation does not ... mean that in all cases such a notice
amounts to such an acceptance. If the notice makes explicit
reference to a particular contractual clause, and nothing else, that
may, in context, show that the giver of the notice was not
intending to accept the repudiation and was only relying on the
contractual clause; for instance if the claim made under the
notice of termination is inconsistent with, and not simply less
than, that which arises on acceptance of a repudiation: United
Dominions Trust (Commercial) Ltd v Ennis [1968] 1 QB 54, 65,
68.159
307.6. In some cases (eg in Dalkia v Celtech160) different consequences

would arise depending upon whether there was termination under

a contractual determination clause or acceptance of a repudiatory
breach. In that situation, the same notice cannot operate so as to
produce diametrically opposing consequences.
In those
circumstances, a termination expressed to be pursuant to a
158
159
160

Shell Egypt West Manzala GmbH v Dana Gas Egypt Ltd [2010] EWHC 465 (Com
Crt).
Dalkia v Celtech, note 21, paras 143-144.
Dalkia v Celtech: note 21.

74

determination clause would take effect only in that guise and

would not also operate as an acceptance of repudiatory breach.
308. See also Moore-Bick LJ in Stocznia Gdynia v Gearbulk Holdings161 who

explained:
308.1. All that is required for acceptance of a repudiation at common

law is for the injured party to communicate clearly and

unequivocally his intention to treat the contract as discharged:
Vitol SA v Norelf.162
308.2. If the contract and the general law provide the injured party with

alternative rights which have different consequences, as was held

to be the case in Dalkia v Celtech, he will necessarily have to
elect between them and the precise terms in which he informs the
other party of his decision will be significant.
308.3. However, where the contract provides a right to terminate which

corresponds to a right under the general law (because the breach

goes to the root of the contract or the parties have agreed that it
should be treated as doing so) no election is necessary. In such
cases it is sufficient for the injured party simply to make it clear
that he is treating the contract as discharged. If he gives a bad
reason for doing so, his action is nonetheless effective if the
circumstances support it.163

5.

What are the consequences of terminating pursuant to an

express termination clause?

309. The consequences of terminating pursuant to a determination clause are

very often specified in the contract.

310. Not every termination pursuant to a determination clause will entitle the

terminating party to damages for loss of bargain. If the breach for which
the determination clause was operated was not a repudiatory breach
giving rise to a right to terminate at common law, then absent express
provision the terminating party may only be able to recover damages
in respect of loss suffered at the date of the termination.164
311. Further, questions of mitigation generally remain relevant.

If the
determination clause threshold is a relatively minor breach, then on
appropriate facts the court may say that the duty to mitigate obliged
the terminating party to enter into a new contract with the breaching
party.

161
162
163
164

Stocznia Gdynia v Gearbulk Holdings: note 82, para 44..

Vitol SA v Norelf Ltd [1996] AC 800 (HL), pages 810-811, Lord Steyn.
See Rix LJ in Stocznia Gdanska A v Latvian Shipping, note 49, para 32.
See Chitty on Contracts (31st edition), note 1, para 22-049 and the cases cited there,
including the Court of Appeals decisions in three hire purchase cases: Financings Ltd
v Baldock [1963] 2 QB 104, Brady v St Margarets Trust [1963] 2 QB 494, and AngloAuto Finance Ltd v James [1963] 1 WLR 1042.

75

312. See for example The Solholt, in which the Court of Appeal was

concerned with a contract for the sale of a ship.165 The vessel was not
available for delivery on the cancellation date and the buyer cancelled
and claimed damages of $500,000 being the difference between the
contract price and the market price of the vessel at the time of
termination. The seller conceded that the buyer was entitled to cancel.
However, the Court of Appeal dismissed the buyers damages claim,
holding that it could and should have avoided its loss by entering into a
new contract to buy the ship from the seller at the original price.
313. The principle in The Solholt was applied in Astea v Time Group, in

which Seymour J accepted the argument that even if there had been a
repudiatory breach of contract on the part of Astea, Time Group ought to
have permitted Astea to complete the services in reasonable mitigation
of its damages.166
314. For a useful discussion of the limits of the principle in The Solholt, see

the 2013 decision of the Court of Appeal in Manton Hire and Sales v
Ash Manor Cheese,167 per Tomlinson LJ, including a reminder of:
314.1. Lord MacMillans dictum in Banco de Portugal v Waterlow that:

Where the sufferer from a breach of contract finds himself in

consequence of that breach placed in a position of embarrassment
the measures which he may be driven to adopt in order to
extricate himself ought not to be weighed in nice scales at the
instance of the party whose breach of contract has occasioned the
difficulty.168
314.2. Bankes LJs dictum in Payzu v Saundersthat: There may be

cases where as a matter of fact it would be unreasonable to

expect a plaintiff to consider any offer made in view of the
treatment he has received from the defendant.169

6.

What sorts of triggers or thresholds are commonly

adopted for termination?

315. In principle the parties are free to agree whatever terms they wish for

termination.170 There are however certain stock ways of doing it. For
example:
315.1. Any breach and similar phrases;
315.2. A substantial breach;
165
166
167
168
169
170

Sotiros Shipping Inc v Sameiet Solholt (The Solhol) [1983] 1 Lloyds Rep 605, [1983]
CLR 114 (CA).
Astea (UK) Ltd v Time Group Ltd [2003] EWHC 725 (TCC).
Manton Hire and Sales Ltd v Ash Manor Cheese Company Ltd, [2013] EWCA Civ
548, especially paras 29-41.
Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 (HL), page 506; also [1932]
All ER 181.
Payzu Ltd v Saunders [1919] 2 KB 581 (CA), page 588.
However in certain circumstances the Uunfair Contract Terms Act 1977 may require a
party to show that the terms is fair or reasonable (section 3(2)(b)(ii)) and relief may be
given if the situation is one in which equity would grant relief against forfeiture. See
also the Unfair Terms in Consumer Contracts Regulations 1999.

76

315.3. A material breach.

(a)

Any breach and similar phrases

316. The courts have shown some reluctance to interpret a termination clause

in a complex contract containing many innominate terms as providing a

party with the right to terminate for any breach, however minor.
317. There are a number of examples of the courts interpreting phrases such

as any breach or breach of any term, in context, as denoting breaches

which would amount to a repudiation at common law.
318. In May 2010, the High Court in Dominion Corporate Trustees v

Debenhams Properties had to construe a determination clause in an

agreement for a lease.171 The agreement comprised three phases:
318.1. First, the claimant landlords (Dominion) had to construct the

retail units to be occupied by Debenhams;

318.2. Second, Debenhams would be granted access to carry out fitting

works;
318.3. Third, the landlords would grant Debenhams a lease of the

premises.
319. The landlords were to make a payment to Debenhams in three

instalments at specified points in the project.

320. The determination clause in question, clause 19.1, stated:

19.1 If:
19.1.1
either party shall in any respect fail or neglect to
observe or perform any of the provisions of this Agreement; or
19.1.2

an Event of Insolvency arises,

then either party may by notice to the defaulting party any time
after such occurrence terminate this Agreement, and upon service
of such notice this Agreement shall determine but any such
determination shall be without prejudice to any pre-existing right
of action of any party in respect of any breach by any other party
of its obligations under this Agreement. [emphasis added]
321. The landlord did not pay its second instalment on time. Two days after

the due date, Debenhams served a notice on the landlord terminating the
agreement under clause 19.
322. The landlord did not accept that Debenhams was entitled to terminate

the agreement and tried to persuade Debenhams to accept the money

late, but Debenhams refused on the basis that time was of the essence
and the failure to pay by the due date was therefore a repudiatory breach
of the agreement.172 Debenhams maintained that the reason time was of
171
172

Dominion Corporate Trustees Ltd v Debenhams Properties Ltd [2010] EWHC 1193
(Ch).
This argument by Debenhams was also rejected by the court. The landlords failure to
pay the second instalment punctually had not rendered Debenhams incapable of
performing its own obligations, nor had it substantially deprived Debenhams of the

77

the essence was because the payment was a contribution towards its
fitting works and it had to be paid on time so that the fitting works
deadlines as stipulated in the agreement could be met. The landlord
viewed Debenhams termination of the agreement as a repudiatory
breach and elected to accept it, thereby terminating the agreement
themselves.
323. Kitchin J gave judgment for the claimant landlords. In relation to clause

19 he held as follows:
323.1. Stripped of their context and relevant background, the words of

clause 19 could be understood to mean that either party may

terminate the agreement if the other failed to perform any
provision in the agreement in any respect, however minor the
provision and however insignificant the failure may be.
323.2. However, the agreement contained a multitude of obligations,

many of which were of minor importance and could be broken in

many different ways.173 The interpretation for which Debenhams
contended flouted business commonsense.
323.3. A reasonable commercial person would understand clause 19 as

meaning that if either party should fail to perform any provision

of the agreement in a way that amounted to a repudiatory breach,
or if an insolvency event arose, then the innocent party may
terminate by giving the appropriate notice, The Antaios and Rice
v Great Yarmouth applied.174
324. In Rice v Great Yarmouth Borough Council the Court of Appeal was

concerned with two contracts made between the Council and the
contractor to provide leisure management and grounds maintenance
services for a four year period. The contracts were in a standard form,
drafted by the Association of Metropolitan Authorities, and commonly
used by local authorities for contracts of this type.
325. The clause at the centre of the dispute was clause 23.2.1 which read:

173

174

whole benefit of the agreement. The landlords failure to pay the second instalment on
time did not go to the root of the contract and therefore did not constitute a repudiatory
breach of the agreement. Throughout the period in issue, the landlord had made it
quite clear that the payment was unlikely to be made on time and had explained why.
They had sought to establish whether Debenhams would consider taking some or all of
the payment as a rent-free period instead. They had also made it clear that they were
committed to the agreement and to the project generally, and that they intended to pay
the amount due. Debenhams had not been entitled to terminate the agreement,
especially as it had never given the landlord any warning of its intention to do so.
For example, clause 3 contained a series of obligations arising from what are defined as
Tenants Variations to Landlords Works. Clause 4 imposed on Dominion a series of
obligations to arrange project meetings and inspections, and specified how notice of
them was to be provided. Clause 6 required Debenhams to prepare in triplicate and
submit to Dominion plans and a specification of the Tenants Works. Clause 26
imposed on Dominion obligations in respect of the new ground lease from the council
required to allow delivery and completion of the Landlords Works.
Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191;
also [1984] 3 WLR 592, [1984] 3 All ER 229, [1984] 2 Lloyds Rep 235 (HL) and Rice
(t/a Garden Guardian) v Great Yarmouth Borough Council [2003] TCLR 1, [2000] All
ER(D) 902 (CA).

78

If the contractor... commits a breach of any of its obligations

under the Contract; ... the Council may ... terminate the
Contractors employment under the Contract by notice in writing
having immediate effect. [emphasis added]
326. The judge held that a commercial, common sense interpretation should

be imposed on the strict words of the contract and that a repudiatory

breach or an accumulation of breaches, that as a whole could properly be
described as repudiatory, was a precondition to termination under clause
23.2.1. The factors that appear to have been important were:
326.1. The intended four year duration of the contract;
326.2. The fact that the contract involved substantial investment or

substantial undertaking of financial obligations by one party; and

326.3. The fact that the contract covered many different obligations of

differing importance and varying frequency.

327. The Court of Appeal held that the judge was entirely right to reach the

conclusion that he did on this issue and for the reasons he gave.175
328. This is not an exceptional decision. In The Antaios, the key issue was

the meaning of a clause in a charterparty which entitled the owners to

withdraw the relevant vessel. Lord Diplock (with whom the other
members of the House of Lords agreed) said:
The arbitrators decided this issue against the shipowners. Their
reasons can be adequately summarised as being (1) that any other
breach of this charter party in the withdrawal clause means a
repudiatory breach that is to say: a fundamental breach of an
innominate term or breach of a term expressly stated to be a
condition, such as would entitle the shipowners to elect to treat the
contract as wrongfully repudiated by the charterers, a category into
which in the arbitrators opinion the breaches complained of did
not fall To the semantic analysis the arbitrators added an
uncomplicated reason based simply upon business commonsense:
We always return to the point that the owners construction is
wholly unreasonable, totally uncommercial and in total
contradiction to the whole purpose of the NYPE time charter form.
The owners relied on what they said was the literal meaning of the
words in the clause. We would say that if necessary, in a situation
such as this, a purposive construction should be given to the clause
so as not to defeat the commercial purpose of the contract.
... While deprecating the extension of the use of the expression
purposive construction from the interpretation of statutes to the
interpretation of private contracts, I agree with the passage I have
cited from the arbitrators award and I take this opportunity of restating that if detailed semantic and syntactical analysis of words
175

The case is also useful on the approach to be taken to the question of whether the
cumulative effect of proven breaches is sufficiently serious as to justify the innocent
party in bringing the contract to a premature end, see also Alan Auld Associates Ltd v
Rick Pollard Associates [2008] EWCA Civ 655, [2008] BLR 419.

79

in a commercial contract is going to lead to a conclusion that flouts

business commonsense, it must be made to yield to business
commonsense.176
329. The approach was also followed/conceded in Peregrine Systems v

Steria.177 Clause 7 dealt with termination and provided in part that:

b) Licensee shall have the right to terminate this Agreement or
any Product Schedule(s) if: (i) Peregrine breaches any term of this
Agreement and (if it is possible to remedy the breach) fails to
remedy that breach within thirty (30) days of written notice of the
breach being given to it by Licensee; [emphasis added]
330. HHJ Richard Seymour QC held that a termination under this clause 7

was only possible in respect of a breach of the agreement which was

repudiatory at common law.

(b) A substantial breach

331. The phrase substantial breach has, in context, been held to be

equivalent to a repudiatory breach.

332. In Crane v Wittenborg, the Court of Appeal was concerned with a

determination clause in an exclusive vending machine distribution

agreement dated 1 August 1991, which provided:
15. Termination
A. This Agreement will continue until terminated by either party
by two (2) years notice in writing. During the last year parties
can negotiate new agreement with third party, or otherwise prepare
themselves for the situation that arises after the notice period. In
any event, this Agreement shall cease automatically on 1st May
2008.
B. Either party shall be entitled forthwith to terminate this
Agreement by written notice to the other if that other party
commits any substantial breach of any of the provisions of this
Agreement and in the case of breach capable of remedy fails to
remedy the same within 90 days of receipt of a written notice
giving full particulars of the breach and requiring it to be
remedied.
C. Any waiver by either party of a breach of any provision of this
Agreement shall not be considered as a waiver of any subsequent
breach of the same of any other provision hereof.
D. The rights to terminate this Agreement given by this clause
shall be without prejudice to any right or remedy of either party in
respect of the breach concerned (if any), or any breach.178
333. Mance LJ, as he then was, with whom Stuart-Smith and Aldous LJJ

agreed held:
176
177
178

The Antaios, note 174, pages 200-201.

Peregrine Systems Ltd v Steria Ltd [2004] EWHC 275 (TCC).
Crane Co v Wittenborg A/S, unreported, 21 December 1999 (CA).

80

I for my part doubt whether there is any distinction to be drawn

between the substantial breach required by that clause and a
breach of condition or repudiatory breach.
In The Antaios [1985] AC 191, 200D-201E Lord Diplock, in a
speech with which all other members of the House concurred,
treated it as self-evident that a clause entitling an owner to cancel a
charterparty on any breach of this charterparty referred only to a
repudiatory breach.
The inclusion of the word substantial does not seem to me to
lead to any other conclusion under clause 15B. Substantial
deprivation of the intended contractual benefit is after all one way
in which the test of repudiatory breach is often expressed.
The only recognised alternative meaning I can attach to
substantial is not de minimis. If that were right, the conclusion
would be that these parties intended to introduce a right to cancel
for any breach which was not de minimis, so long as it was either
not remediable (even though it only caused very limited damages)
or not remedied within 90 days.
The requirement, in the case of a remediable breach, that a notice
to remedy should have been given and a 90 day period should have
elapsed before any termination does not persuade me that the
parties must have had in mind breaches which were less than
repudiatory.
I therefore consider that substantial should be read as equivalent to
repudiatory.179

(c)

A material breach

334. A popular form of wording is material breach. What is a material

breach?
335. In Glolite v Jasper Conran Neuberger J said that:

Whether a breach of an agreement is material must depend upon

all the facts of the particular case, including the terms and durations
of the agreement in question, the nature of the breach, and the
consequences of the breach. and that, When judging what the
parties meant when they referred to a breach having to be
material and remediable (sic) it seems to me that they must
have had in mind, at least to some extent, the commercial
consequences of the breach.180
336. Neuberger J held that there had been neither a material nor an

irremediable breach of a ten or, if extended, twenty year agreement

whereby the claimant had an exclusive licence to manufacture products
designed by Jasper Conran. The breach complained of was the use by
the claimant of the JC logo without the prior consultation required by
the agreement over at most a ten day period (with only limited publicity)
179
180

Crane v Wittenborg, note 178, Mance LJ (para 21), Stuart-Smith and Aldous LJJ.
Glolite Ltd v Jasper Conran Ltd unreported, 21 January 1998 (ChD).

81

on Leyton Orient football club shirts, which were not made available to
the public during that time.
337. In National Power v United Gas Colman J was concerned with a

termination clause which entitled either party to terminate the agreement

with immediate effect if:
... the other party shall be in material breach of any of its
obligations hereunder and fails to commence to remedy the same
within seven (7) days after notice requiring such breach to be
remedied.181
338. It was argued that for a breach to be material it must be repudiatory.

Colman J held that that clause contemplated a breach that was capable of
being remedied, that material related to the magnitude of the
commercial consequences of the breach for the innocent party were it to
remain unremedied, and meant a breach which was:
... wholly or partly remediable and is or, if not remedied, is likely
to become, serious in the wide sense of having a serious effect on
the benefit which the innocent party would otherwise derive from
performance of the contract in accordance with its terms.
339. The particular breach was a failure to provide information as to past non

performance of contractual obligations. This was an ancillary term and

of relatively small commercial consequence. The parties could not have
intended that such a breach would have such draconian consequences.
340. In Phoenix Media v Cobweb Information Neuberger J said materiality

involved considering
... the actual breaches, the consequences of the breaches (the)
explanation for the breaches, the breaches in the context of the
Agreement, the consequences of holding the Agreement
determined, and the consequences of holding the Agreement
continues.182
341. It is sometimes suggested often on the strength of Dalkia v Caltech

that as a matter of law a right to terminate for material breach

necessarily always confers a right to terminate for something less than
repudiatory breach.183 However, it is doubtful whether that is correct.
The better view, it is suggested, is that in some cases, depending upon
the nature and precise terms of the contract in question, a threshold
specifying material breach may in fact require a repudiatory breach.
Thus:
341.1. In Dalkia v Caltech, it was in fact common ground between

counsel that the expression material breach in clause 14.4 of the

parties agreement did not mean a repudiatory breach. That was
because the parties agreed that if, in clause 14.4, material had
been synonymous with repudiatory, then the termination clause
in that contract (clause 15.4), would not have added anything to
181
182
183

National Power plc v United Gas Company Ltd unreported 3 July 1998.
Phoenix Media Ltd v Cobweb Information Ltd unreported, 16 May 2000 (ChD).
Dalkia v Celtech: note 21.

82

Dalkias remedies at common law, which both parties considered

it must have been intended to do. A similar approach (essentially
construction against redundancy) was taken by Colman J in
National Power, saying that in the case before him:
the tenor of conferment of the termination rights
either party shall be entitled to give notice of termination
(emphasis added [by Colman J]) suggests a contractual
extension of available remedies, a view supported by the
substance of clause 17.1.1, and not merely a confirmation of
existing remedies [I]f the term relates only to actual
repudiatory breaches, the innocent party may in the case of
such a breach terminate at once as a matter of law or may
confer a last chance by means of a notice to remedy, exactly
his position at common law. For these reasons I am unable
to accept NPs submissions on construction [that material
breach in clause 17 required a repudiatory breach] and I
conclude that a material breach under clause 17.1.1 is one
which in all the circumstances is wholly or partly remediable
and is or, if not remedied, is likely to become, serious in the
wide sense of having a serious effect on the benefit which
the innocent party would otherwise derive from performance
of the contract in accordance with its terms 184 [emphasis
added]
341.2. In cases where unlike in Dalkia v Caltech

185

and National
Power the determination clause in question does more than
simply confirm existing common law remedies, for example by
conferring additional remedies upon the terminating party,
questions of construction against redundancy will not arise, and it
will not be necessary to infer that the parties must have intended
to lower the bar for activation of the determination clause in
order to avoid the result that otherwise their contract will be
simply declaratory of the common law position (if indeed that is
such an objectionable result).

(d) An alternative approach

342. One of the ways to make the termination provision clearer is to define

what is meant by material. In Tele2 v Post Office the relevant contract

clause said this:
11.4 Each Contractor or POL may terminate this Agreement at
any time by giving notice in writing to POL or each of the
Contractors, as the case may be, if:
11.4.1 any of the other parties, unless such other party is another
Contractor in the case of a Contractor giving notice, is in material
breach of any of its obligations under this Agreement, including
without limitation if any Contractor is in breach of any of Clauses
3.10.1, 3.10.2 and 3.10.3 (and in the case of a breach capable of
184
185

National Power, note 181, page 32.

Dalkia v Celtech: note 21.

83

remedy fails to remedy the breach within three months of receipt

of a written notice requiring it so to do, the parties acknowledging
that a breach of any of Clauses 3.10.1, 3.10.2 and 3.10.3 is a
breach incapable of remedy therefore entitling POL to terminate
this Agreement).186 [emphasis added]
343. Tele2 accepted it was in breach of clause 3.10.2 but said that the PO had

to go further and prove that such breach was actually material. Clause
11.4 should be construed so that the reference to breaches of clause 3.10
was not to any breach but to a material breach.
344. The trial judge dismissed this. In his view the clause was clear. The

parties agreed that any breach of clauses 3.10.1, 3.10.2 and 3.10.3 was to
be material and irremediable. The parties plainly attributed great
significance to compliance with those provisions. That was a matter for
them to decide. It was not a case of rather unfocused, general words
being contended to have a particular effect which seemed surprising.
The decision of HHJ Seymour on this aspect was not challenged in the
Court of Appeal.187

(e)

Material breach non payment of money

345. Christopher Clark J in Dalkia v Celtech considered the meaning of

material breach in the context of a failure to pay money.188

346. Dalkia had agreed to design, build and operate a combined heat and

energy plant to supply electricity and steam to Celtechs paper mill. The
agreement was to last for 15 years and Celtech were to pay Dalkia
annual charges consisting of a finance and operation element. Payment
of the financing element amortised the capital cost of the plant over the
term.
347. Dalkia was entitled to terminate the contract if Celtch was in material

breach of its obligations to pay the CHARGES as defined.

348. If so determined Dalkia was entitled to receive a termination sum

equivalent to the outstanding amount of the finance charges and Celtech

was entitled to keep the plant.
349. Dalkia terminated for material breach when a total of just over

332,000 (three monthly instalments) was due and owing, for periods
ranging from about 73 to 12 days.
350. Celtech said this was not a material breach as:
350.1. this was 15 year term collaborative joint venture;
350.2. Dalkia was entitled to suspend services for non payment and had

done so. There was no question of Celtech continuing to enjoy

the services without paying;

186
187
188

Tele2 International Card Company SA v Post Office Ltd [2008] EWHC 158 (QB).
Tele 2 Interantional Card Company SA v Post Office Ltd [2009] EWCA Civ 9, [2009]
All ER(D) 144. The construction of clause 11.4 was not in issue.
Dalkia v Celtech: note 21.

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350.3. Celtech had paid charges of approximately 7,900,000 (inc

VAT) of about 14,000,000 (ex VAT) payable over the term; and
350.4. the alleged breach was a failure to pay three monthly instalments

out of total of 174 due during the term in the context of an

agreement which provided for interest to be paid on late payment
and where time was not of the essence.
351. However the judge was not persuaded and held that the Celtech was in

material breach for the following reasons:

351.1. The whole of three separate instalments of Charges was due and

unpaid. The third instalment had only just become due and
Dalkia had been willing to postpone payment of it for a month.
The non-payment of that instalment, taken on its own, was,
therefore, of less significance than the non payment of the other
two. At the same time this instalment was the third of a series
and there was nothing to suggest that it had any better prospect of
being paid than its predecessors. ...
351.2. The sums involved were neither trivial nor minimal. ... the

amounts due were a very small proportion of the total amount

due over [the term] [but] they were the amounts due in respect of
a quarter of the current year and just over 8.5% of the total
charges unpaid, including interest, for the remainder of the initial
period. and
351.3. The reason why payment was not forthcoming ... was not

because of some mishap, mistake or misunderstanding. Celtech

failed to pay because it did not then have the money to do so, in
circumstances where the picture presented by Celtech to Dalkia
was that it was facing insolvency, could not presently pay any
part of the outstanding debt, and needed a 6 month moratorium
(during which further debts would accrue) in order to be able to
do so ... Contractually Dalkia could not realise the Plant, unless
there was a termination. To the judge a clause of this kind, in
this context, is designed to protect a client where the default is
minimal or inconsequential or (even if it is not) is accidental or
inadvertent, but otherwise to enable a supplier such as Dalkia to
bring the period over which it is effectively extending credit to an
end where there is a failure to keep up the payment schedule
established by the contract.189 [emphasis added]
352. The judge also considered the consequences of Dalkias termination on

Celtech. It would have the consequences that Celtech would have to pay
a sum representing the capital value of the plant, the commercial impact
of which would depend on whether it was able to obtain refinance.
However it would, on payment, be entitled to keep the plant. Whilst this
was a serious consequence it was not draconian. Moreover in relation to
the question of material breach the primary focus must be on the
character of the breach rather than the consequences to the guilty party
if the innocent party avails himself of his contractual remedy.
189

Dalkia v Celtech, note 21, para 102.

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D. DETERMINATION FOR CAUSE IN THE 2011 JCT

STANDARD FORM
353. Construction contracts often provide for one or both parties to determine

the contract in certain specific situations. These situations will often, but
not invariably, involve a breach of contract by the other party.
354. For example, section 8 of the 2011 JCT Standard Form of Building

Contract provides that if the contractor is in default in a number of

specified ways, the Architect/Contract Administrator may give a notice
identifying these defaults.190 If the contractor continues a specified
default for 14 days from receipt of the notice, the employer may on, or
within ten days from, the expiry of that 14 day period, serve a further
notice to terminate the contractors employment under the contract.
355. The specified defaults are:
355.1. without reasonable cause wholly or substantially suspends the

carrying out of the works or the design of the Contractors

Designed Portion;
355.2. fails to proceed regularly and diligently with the Works or the

design of the Contractors Designed Portion;

355.3. refuses or neglects to comply with a written notice or instruction

from the Architect/Contract Administrator requiring him to

remove any work, materials or goods not in accordance with the
contract and by such refusal or neglect the Works are materially
affected;
355.4. fails to comply with clause 3.7 (requirement for consent for

subcontracting) or clause 7.1 (prohibition on assignment);

355.5. fails to comply with clause 3.25 (CDM Regulations).
356. Clause 8.3.1 provides that a notice of termination of the contractors

employment may not be given unreasonably or vexatiously.191

357. The meaning of the predecessor to this clause was considered by the

Court of Appeal in Hill v Camden. Ormrod LJ said that unreasonably

was to protect an employer who had committed a minor and
unintentional breach from a contractor seeking to take advantage of such
an error.192
358. In Reinwood v L Brown & Sons, HHJ Gilliland QC set out the following

principles to be applied:
1.

190
191
192

It is for the employer to show on the balance of probabilities

that the contractor has determined the contract unreasonably
or vexatiously.

Standard Form of Building Contract, 2011 edition, The Joint Contracts Tribunal Ltd.
See also John Jarvis Ltd v Rockdale Housing Association (1987) 36 BLR 48, 10 Con
LR 51, (1987) 3 Const LJ 24 (CA).
Hill v Camden, note 87.

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2.

By vexatiously is meant that the contractor determined the

contract with the ulterior motive or purpose of oppressing,
harassing or annoying the employer.

3.

The test of what is an unreasonable determination is to be

ascertained by reference to how a reasonable contractor
would have acted in all the circumstances.

4.

It is not for the court to substitute its own view of what is

reasonable for the view taken by the contractor if that is one
which a reasonable contractor might have taken in the
circumstances.

5.

Although the motive or purpose which a contractor had in

exercising the right of determination is a relevant
consideration, the test of what is unreasonable conduct in
this context is objective and the fact that the individual
contractor may have thought that his conduct in determining
the contract was reasonable is not conclusive.

6.

The effect on the employer of determination by the

contractor is a factor to be taken into account and a
determination may be unreasonable if it disproportionately
disadvantages the employer.193

359. In giving a notice of determination, the contractor is entitled to have

regard to his own commercial interests.

360. In Ferrara Quay v Carillion, HHJ Toulmin QC held that where it was

clear that a contractor was threatening determination of a contract for a

substantial building development in order to safeguard its financial
position, it could not be said to be acting unreasonably or vexatiously.194
361. The JCT 2011 Building Contract then sets out the consequences of

termination by the employer.

362. Clause 8.9 sets out the grounds for termination by the contractor

following default by the employer and clause 8.12 sets out the
consequences of such termination.

E. THE INNOCENT PARTYS RIGHT TO ELECT

1.

The principles

363. What is the position of the innocent party if the defaulting party is guilty

of a breach of contract which entitles the innocent party to accept the

breach and bring the contract to an end?
364. The innocent party has a choice: treat the contract as continuing

(affirming the contract) or bring it to an end (acceptance of the

repudiation).

193
194

Reinwood Ltd v L Brown & Sons Ltd [2007] BLR 10 (TCC), para 39.
Ferrara Quay Ltd v Carillion Construction Ltd [2009] BLR 367 (TCC).

87

365. However, the decision of whether to affirm the contract or to accept the

repudiatory breach is not an easy one and the courts have recognised that
the innocent party is entitled to a period of time for considering its
position.
366. This was made clear by Rix LJ in Stocznia Gdanska v Latvian Shipping:

there is of course a middle ground between acceptance of

repudiation and affirmation of the contract, and that is the period
when the innocent party is making up his mind what to do. If he
does nothing for too long, there may come a time when the law
will treat him as having affirmed. If he maintains the contract in
being for the moment, while reserving his right to treat it as
repudiated if his contract partner persists in his repudiation, then
he has not yet elected.195 [emphasis added]
367. However, the innocent party must be aware that so long as it does not

accept the repudiatory breach:

367.1. an anticipatory (as opposed to actual) repudiatory breach may

be overtaken by another event which prejudices the innocent

partys rights under the contract such as frustration or even its
own breach; and
367.2. the defaulting party will resume performance of the contract

and thus end any continuing right to elect to accept the former
repudiation as terminating the contract. Whether the innocent
party wishes to terminate at common law or under the contract,
the validity of the decision to bring the contract to an end will
be judged at the date of acceptance or the date of decision.
368. Unfortunately, the question of how long the innocent party has to decide

whether to affirm the contract or accept the repudiatory breach is highly

fact sensitive.
369. The principles applicable to affirmation by election were set out by Lord

Goff in The Kanchenjunga.196 In Tele2 v Post Office, the Court of

Appeal summarised those principles as follows:
If a contract gives a party a right to terminate upon the
occurrence of defined actions or inactions of the other party and
those actions or inactions occur, the innocent party is entitled to
exercise that right. The innocent party has to decide whether or
not to do so. Its decision is, in law, an election.
369.1. It is a prerequisite to the exercise of the election that the party

concerned is aware of the facts giving rise to its right and the
right itself.
369.2. The innocent party has to make a decision, because if it does not

do so then the time may come when the law takes the decision
out if [its] hands, either by holding [it] to have elected not to
195
196

Stocznia Gdanska v Latvian Shipping, note 45, para 87.

Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The
Kanchenjunga) [1990] 1 Lloyds Rep 391 (HL), pages 397-399.

88

exercise the right which has become available to [it], or

sometimes by holding [it] to have elected to exercise it.
369.3. Where, with knowledge of the relevant facts, the party that has

the right to terminate the contract acts in a manner which is

consistent only with it having chosen one or other of two
alternative and inconsistent courses of action open to it (ie to
terminate or affirm the contract), then it will be held to have
made its election accordingly.
369.4. An election can be communicated to the other party by words or

conduct. However, in cases where it is alleged that a party has

elected not to exercise a right, such as a right to terminate a
contract on the happening of defined events, it will only be held
to have elected not to exercise that right if the party has so
communicated [its] election to the other party in clear and
unequivocal terms.197
370. The innocent party has some time, but not forever, to make up its mind.

There is no easy way to determine how long the innocent party has as
the issue is highly fact sensitive. The innocent party will (usually) be
found to have elected to affirm the contract if:
370.1. it knows (or has obvious means of knowing) of the facts giving

rise to the breach;

370.2. it has knowledge of its legal right to choose between the

alternatives open to it; and

370.3. it makes a clear and unequivocal representation (express or

implied) to the other party that it will not exercise its strict legal
rights to treat the contract as repudiated. Such a representation
will be found if the innocent party has acted in a manner that is
consistent only with its having chosen to affirm the contract.
371. Once communicated affirmation is irrevocable. The innocent party is

only entitled to recover damages. There is no need to establish reliance

or detriment by the party in default.

Reinwood v Brown
372. In Reinwood v Brown, the contract was in the form of a JCT Standard

Form of Contract, 1998 edition, With Quantities incorporating

Amendments 1 of 1999, 2 of 2000 and 3 of 2001.198
373. Determination by the contractor was governed by clause 28, which

provided:
28.2.1 If the Employer shall make default in any one or more of
the following respects:
1.1 he does not pay by the final date for payment the
amount properly due to the Contractor in respect of any
197
198

Tele2 v Post Office, note 187, para 53.

Reinwood Ltd v L Brown & Sons Ltd [2008] EWCA Civ 1090; [2009] BLR 37, 121
Con LR 1.

89

certificate and/or any VAT on that amount pursuant to the

VAT agreement; ...
the Contractor may give to the Employer a notice specifying the
default or defaults (the specified default or defaults) ...
28.2.3 If the Employer continues a specified default for 14
days from receipt of the notice under clause 28.2.1 then the
Contractor may on, or within 10 days from, the expiry of that 14
days by a further notice to the Employer determine the
employment of the Contractor under this Contract.
Such
determination shall take effect on the date of receipt of such
further notice.
28.2.4

If ...
- the Contractor does not give the further notice referred to
in clause 28.2.3 and
- the Employer repeats (whether previously repeated or
not) a specified default ...

then, upon or within a reasonable time after such repetition, the

Contractor may by notice to the Employer determine the
employment of the Contractor under this Contract.
Such
determination shall take effect on the date of receipt of such
notice.
28.2.5 A notice of determination under clause 28.2.3 or clause
28.2.4 shall not be given unreasonably or vexatiously.199
374. The contractor served a notice of default in May 2005, which was valid,

and a further notice of default in January 2006, which was not valid.
375. The contractor then served a notice of determination in July 2006. The

July 2006 notice of determination referred expressly to the (invalid)

January 2006 notice of default and not the May 2005 notice of default.
376. The employer disputed the notice of determination on the basis that the

contractor had waived its right to rely on the first notice of default
because:
376.1. in January 2006, it had served a second notice of default rather

than a notice of determination;

376.2. the notice of determination referred only to the second notice of

default.
377. The Court of Appeal held:
377.1. The service of a valid notice of default in January 2006 would

not have entailed the waiver of the May 2005 notice of default.
There was nothing in the service of a second valid notice of
default that was inconsistent with continued reliance on the first
notice of default.

199

Reinwood v Brown, note 198, para 10.

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377.2. The employers argument based on the notice of determination

only making reference to the January 2006 notice of default

was inconsistent with the general principle of contract law that if
a party refuses to perform a contract, giving a reason which is
wrong or inadequate, or giving no reason at all, or terminates a
contract under a contractual provision to that effect, the refusal or
termination may nevertheless be justified if there were at the time
facts in existence which would have provided a good reason for
the refusal.200 That principle is often used in relation to facts
unknown to the party refusing at the time of its refusal, but there
is no reason why it should not be used in relation to facts which
were known to that party at that time. Waiver can apply to
qualify that principle, but only in cases of, in effect, estoppels (ie
where there was some reliance by the representee.

2.

Non-waiver clauses

378. In Tele2 v Post Office, the Court of Appeal was required to consider the

impact of a non-waiver clause on affirmation of a repudiatory breach.

The relevant clause was clause 16 which provided:
Waiver
In no event shall any delay, neglect or forbearance on the part of
any party in enforcing (in whole or in part) any provision of this
Agreement be or be deemed to be a waiver thereof or a waiver of
any other provision or shall in any way prejudice any right of that
party under this Agreement.201
379. The Court of Appeal held:

It is clear from Lord Goffs analysis that when a party to a

contract is put in a position where it has to decide whether or not
to exercise a right to terminate that it is given by the terms of a
contract and it is disputed whether that party has terminated or has
elected to abandon the right to terminate, then a court has to make
a finding one way or the other. Whether a party has elected to
terminate or to affirm the contract is a question of fact: either a
party has affirmed the contract or it has not. If the innocent party
has not affirmed the contract, then the right to terminate will be
exercisable still.
Therefore, it seems to me, clause 16 of the Agreement is of no
particular help to POL, except perhaps in terms of emphasising the
requirement that an election to abandon a right will only be shown
if there was a clear and unequivocal communication of an election
to abandon the right to terminate and to continue the Agreement.
As a matter of fact, either POL elected to abandon its right to
terminate the Agreement for Tele2s breach of clause 3.10.2 or it
did not. If POL did elect to abandon its right to terminate for

200
201

Chitty on Contracts (31st edition), note 1, para 29-014.

Tele2 v Post Office, note 187, para 18. CA

91

breach, then the whole contract, including clause 16, would

continue in existence. ...
In short, clause 16 cannot prevent the fact of an election to
abandon the right to terminate from existing: either it does or it
does not. This conclusion is reinforced, I think, by the terms of
clause 16 itself. Although it stipulates that in no event shall any
delay, neglect or forbearance on the part of any party in enforcing
a provision of the Agreement be or be deemed to be a waiver
of the provision or shall in any way prejudice any right of that
party under this Agreement, it does not deal at all with the issue
of election of whether or not to exercise a contractual right. The
general law demands that a party which has a contractual right to
terminate a contract must elect whether or not to do so. This
clause does not attempt to say that the doctrine of election shall not
apply even assuming that any contractual provision could
exclude the operation of the doctrine.202

3.

The implications in practice

380. There is the risk of getting it wrong. If the innocent party accepts what

it thinks is a repudiatory breach, but the court disagrees, then the

innocent party runs the risk of a finding that it has acted in repudiatory
breach itself.
381. If you or your clients are faced with a potential repudiatory breach

and/or other events that may give rise to the right to terminate:
381.1. Be prepared to act quickly. You and your clients only have a

limited time to decide what to do and a lot of investigation and

thinking to do.
381.2. Be careful not to lose your clients rights.

Do not rely on
uncommunicated reservations of rights to protect your clients
position. And

381.3. Make sure that everyone who is involved with the day-to-day

management of the contract knows what to do and say in relation

to the other side.

F.

REMEDIES AT COMMON LAW

382. If an innocent party validly accepts a repudiatory breach, the contract is

brought to an end so that both parties are discharged from future

performance. However, both parties retain all rights under the contract
which had accrued prior to the date of termination: Hyundai Heavy
Industries v Papadopoulos and Dies v International Mining and
Finance.203

202
203

Tele2 v Post Office, note 187, paras 54-56.

Hyundai Heavy Industries Company Ltd v Papadopoulos [1980] 1 WLR 1129, [1980]
2 All ER 29, [1980] 2 Lloyds Rep 1 (HL) and Dies v British International Mining and
Finance Corporation [1939] 1 KB 724 (KBD).

92

383. For example, any instalments of the price which have been paid or

which were due prior to the date of termination will be retained or can
be claimed by the receiving party, even if that party is the defaulting
party.
384. In the construction context, this means that an employer who has

accrued a right to liquidated damages for delay prior to terminating the

contract remains entitled to those liquidated damages.
385. In addition, the innocent party will be entitled to damages for breach of

contract and this will include any loss of profit on the contract,
calculated in the usual way.
386. The innocent party can also elect to claim loss of wasted expenditure,

instead of loss of profit.204

387. In Ferguson v Sohl, Sohl engaged Ferguson to carry out building works

to a shop for a total contract sum of 32,000.205 Before the work was
completed, and after having been paid 26,000, Ferguson repudiated the
contract and this was accepted by Sohl. Sohl was able to complete the
works for less than the 6,000 left under the contract with Ferguson.
However, Sohl claimed against Ferguson in breach of contract and for
restitution for total failure of consideration.
388. The Court of Appeal held that Sohl had suffered no loss so that his

damages for breach of contract were nominal. However, the work

actually carried out by Ferguson was valued at 22,000 using the
contract rates and the Court of Appeal upheld the judges award of
4,000 as restitution on the basis that it had been made for a
consideration which had totally failed.

Adam Robb, Jess Connors and Patrick Hennessey are barristers

practising at 39 Essex Street, London.

Andrew Robb, Jess Connors and Patrick Hennessey and the Society of
Construction Law 2014

The views expressed by the authors in this paper are theirs alone, and do not
necessarily represent the views of the Society of Construction Law or the editors.
Neither the authors, the Society, nor the editors can accept any liability in respect of
any use to which this paper or any information or views expressed in it may be put,
whether arising through negligence or otherwise.

204
205

Anglia Television Ltd v Reed [1972] 1 QB 60, [1971] 3 WLR 528, [1971] 3 All ER 690
(CA).
DO Ferguson Associates v Sohl (1992) 62 BLR 95 (CA).

93

The object of the Society

is to promote the study and understanding of
construction law amongst all those involved
in the construction industry

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94