In the jaws of a dilemma: repudiatory breaches

If your contractual counterparty commits a repudiatory breach of contract, you are entitled to elect between affirming the contract and terminating the contract. In either case you may bring a claim for damages. Difficulties arise, however, where it is not clear whether or not a court would consider a particular breach to be repudiatory. If a court subsequently decides that the original breach was not repudiatory, terminating the contract will itself be a repudiatory breach, which may give rise to a substantial damages claim against you. This situation arose in the recent case of Valilas v Januzaj [2014] EWCA Civ 436, where the Court of Appeal held that a refusal to pay sums due under a contract on time did not give rise to a right to terminate.

The case concerned two dentists, Mr Valilas (V) and Mr Januzaj (J).

J ran a dental practice and V practised there under an oral agreement whereby V could use the premises, equipment and facilities at the practice and in return would pay J 50 per cent of his receipts each month. V received most of his earnings under a contract with the local primary care trust (PCT) where he received a fixed price per ‘unit of dental activity’. Payment was made by the PCT in advance in equal monthly instalments but if V did not achieve the requisite number of units by the end of the year he had to refund the overpayment to the PCT…

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