Commercial Law Update - An Analysis of Cases and Developments from October 2010

Serving Termination Notices Prematurely Does Not Necessarily Amount to Repudiatory Breach

Eminence Property Developments Limited v Heaney [2010] EWCA Civ 1168

Mr Heaney had agreed in a series of contracts to buy 13 flats from Eminence. Completion was to take place when the relevant flats were ready for occupation. Time was not to be of the essence unless a notice to complete had been served. In due course, the flats became ready for occupation, by which time the property market had turned and Heaney was unable to find finance to complete. On 5 December 2008, Eminence served notices to complete, stating that it had calculated that the final date for completion was 15 December 2008. In fact, as was common ground, the date should have been 19 December. On 17 December, Eminence's solicitors sent notices of rescission. In response, Heaney's solicitors stated that the act of rescinding the contracts on 17 December constituted repudiatory breach. Mr Heaney accepted the breach and elected to rescind the contracts himself. In due course, he brought an action for return of his deposits. The High Court held that the notices of rescission did constitute repudiatory breach by Eminence as they indicated a clear refusal to perform its future obligations under the sale contracts. Eminence appealed.

The Court of Appeal held that, on the facts, the sending of the rescission notices did not constitute repudiatory breach. It made the point that whether or not there has been a repudiatory breach is highly fact sensitive, so comparison with other cases is of limited value. All circumstances must be taken into account insofar as they bear on an objective assessment of the intention of the contract breaker. "So far as concerns repudiatory conduct, the legal test was simply 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 or altogether refused to perform the contract". The court applied the test as follows:-

Eminence was "ready, able and willing to complete" and so entitled to serve the notices to complete. The wording of the notice stated that the solicitors had "calculated the final date for completion as 15 December". This was clearly a calculation based on contractual provisions and not an attempt to vary the contractual provisions, or abandon them. Mr Heaney's solicitors did not point out the obvious error – they lay in wait for Eminence to act on the mistake, so Mr Heaney could be fortuitously extricated from his contracts. A reasonable recipient of the notice of rescission would have appreciated that, had the error been pointed out, it would immediately have been acknowledged by Eminence. This was not a case like many of those cited where the parties were maintaining different interpretations of contractual provisions. It was impossible to find an intention for Eminence to abandon and altogether to refuse to perform the contracts which, in view of the state of the market, had become highly advantageous to it and onerous to Mr Heaney. On the contrary, the obvious inference was that Mr Heaney was aware that Eminence very much wanted to enforce the contracts. The rescission notices, far from clearly indicating an intention to abandon the contracts, showed an intention to implement the contractual procedure for bringing the contracts to an end. Many will be relieved to see the Court of Appeal refrain from insisting on perfection in relation to notices to terminate a contract which has been repudiated by the other party.

Acceptance of Repudiation Depends on the Facts

Force India Formula One Team Limited v Etihad Airways PJSC [2010] EWC Civ 1051.

The High Court decision was reported in Bulletin 59 for November 2009.

Spyker owned and operated a Formula 1 motor racing team. In early 2007, just before the Australian Grand Prix, it found a title sponsor in the form of Etihad (an Abu Dhabi airline) and entered into a 3 year sponsorship agreement with it. The agreement provided that Spyker would not enter into any sponsorship that might conflict with Etihad's activities. Spyker had the right to source an alternative team sponsor, but, if it did so, Etihad would have the right to terminate. Etihad could terminate for breach as long as it gave...