Contract repudiation – Knowing your rights

It is important that parties to a contract know their rights under a contract. Firstly so that they can perform the contract as they are required to; but also so that they know when they are entitled to terminate and when they are not. A recent case in New South Wales highlights how getting the latter wrong can be costly.

In Southern Cross Autoglass Pty Ltd v Protector Glass Industries Pty Ltd [2014] NSWSC 261 the parties entered an asset sale agreement whereby  PGI would purchase SCA’s assets and employ their staff. Throughout the sale process an external issue arose with the liquidation of one of SGA’s predecessor companies. After discussions on the matter PGI wrote to SCA and demanded that they remedy the situation within 30 days. The demand stated that if the situation was not remedied within 30 days PGI would terminate the agreement. PGI did not have the right to make this demand, or to terminate the contact if SCA did not comply with it. SCA successfully claimed for repudiatory breach of the sale agreement.

The New South Wales Supreme Court stating that a contract will be repudiated where a party manifests the intention to no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with that party’s obligations and not in any other way.

Following the repudiation act of one party the other (‘innocent’) party needs to accept for a claim to crystallise. In the above case the repudiation was accepted when SCA began selling its assets to other parties. The result being that PGI is liable for damages as a result of the repudiation. Click here for an Australian overview of the case.

Parties to a contract should be sure that they understand their  rights under the contract to avoid any inadvertent breaches.

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