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…

Click on the link below to read the rest of the Macfarlanes briefing.

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