If the other party is able to repudiate i.e. reject the contract, the main party has the right to terminate it. This is a right existing in common law and outside the contract. Let us now see how it works.
Contract repudiation or rejection – what is it?
A repudiation is a situation where one party through its conduct demonstrates that it is either no longer able to substantially conduct its obligations under the contract, or that it is unwilling to do so. Repudiation aka rejection is beyond a normal breach.
When reading about it technically, the test for repudiation is whether a party via its conduct exhibited either:
- It no longer wishes to be bound by the contract, or
- It desires to fulfill the contract in a manner that is only substantially not consistent with the obligations of the party.
Such a test is applied objectively. A court will hence consider how a reasonable party would translate the conduct and behavior of the party repudiating, i.e. rejecting the contract. The actual intentions of the party repudiating the contract are an irrelevant consideration.
Here are some examples to help put the concept in context.
Example of Contractor repudiation aka rejection
In the context of construction, a worthwhile example of repudiation by a contractor is when the contractor moves away from the site and abandons the project before completion. Yet, project abandonment is not the only situation where such rejection can happen.
There was a case in the Australian state of Queensland. An expert services provider in construction claims explains that a contractor was found to have repudiated the contract as a result of significant defective works.
IN such a case, the court considered the extent of the rectification work required to address the defects demonstrated an intention by the contractor to carry out the works in a manner that was substantially not consistent with the obligations under the contract. In short, the contractor’s work was poor and it was found to have rejected the contract.
According to the judge: It is difficult to think of a more basic requirement of a contract in construction that the works are to be carried out in the needed and tactful manner. Reasonable care and skill should be exhibited in line with the specifications and plans, and also in accordance with the relevant laws of the area/region.
Instance of Principal repudiation
Repudiation by a principal occurs when the principal removed a considerable or substantial part of the work under the contract. Later they engaged a third party to carry out that work. There was no clear and express contractual provision in such a case that would have entitled the principal to take the course.
In a similar case, the principal ordered the contractor to go off the site (instead of purporting him to remove the work) and then engaged another person to finish the work. Again, in this matter, the principal did not have any express contractual right to take such a course. Hence, it was found to have rejected the contract.
Wrongful termination can lead to repudiation
Those who purport to terminate a contract where they have no right to do such a thing, this is equivalent to repudiation. Why? Because when applying the same examples above, the conduct demonstrates to any reasonable individual that the person wishing to terminate the contract no longer intends to be bound by the contract.
Wrongful termination of contracts has serious consequences, warns a quantum analysis Dubai expert. This is because the contract has been rejected on unfair grounds and also because if the party repudiates the contract, the other party can not only elect to terminate it but also sue the repudiating party for hefty damages.
This is the very reason why parties in construction must tread carefully before they venture towards terminating a contract. This is the reason construction claims experts advise these very parties to always seek legal advice at all costs. Why? Because no one can afford to end up on the wrong side of the tracks due to a small error.
COnstruction claims experts always advise being very careful when terminating a construction contract for repudiation. The parties involved should ensure maximum transparency to make sure no legal litigation happens.