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Tuesday, 29 November 2011

When a contract has been repudiated

The doctrine of repudiatory breach in contract law is notoriously difficult. It is not always clear which party is in breach and which has accepted the other's breach, which means it is then released from its obligations under the contract. The end result is that both parties are not doing what they agreed to do: which one started it?
The Court of Appeal considered just such a difficult case earlier this year, in DRLLimited v Wincaton Group Limited [2011] EWCA Civ 839. Wincanton provided logistics services to DRL and would invoice them weekly, deducting certain matters such as damage and stock loss liability. The invoices were to be agreed and signed off by both parties, and the agreement required DRL to pay without deduction, set-off or counterclaim although it was entitled to withhold payment of any sum subject to a bona fide dispute, provided it paid any sums not in dispute. A dispute did arise, and the parties agreed to suspend their respective positions to enable DRL to find another supplier. They would pay a lump sum to Wincanton, who would continue to perform the services, but shortly afterwards Wincanton threatened to stop deliveries unless sums relating to some old disputed invoices were paid. Later the threat was repeated and payment of one invoice demanded the same day. DRL refused to pay a current invoice, Wincanton stopped deliveries, and both parties claimed the other was in repudiatory breach.
The judge held that Wincanton's conduct had been improper and unjustified, but not repudiatory. DRL had committed the repudiatory breach by refusing to pay the current invoice, and Wincanton had accepted the repudiation when they stopped deliveries. The Court of Appeal disagreed.
Lloyd LJ, giving the leading judgment, said that Wincanton's demand for payment of the old invoices was a flagrant breach of the compromise that the parties had reached, especially given that under that agreement DRL had paid them a cool million pounds. He also referred to other things Wincanton had done: asserting a lien over goods held by them and diverting goods that were supposed to have gone to the new logistics company. He took the view that Wincanton were already
in breach before DRL's refusal to pay the invoice, notwithstanding that it was still delivering goods to customers day-to-day. Finally, its ultimatum to make no further deliveries unless payments were received the same day amounted to a repudiation of all its obligations under the compromise, and DRL accepted the repudiation when it said that it would not make any more payments.
Once this happened, the original agreement as a whole and the variations agreed in the compromise came to an end. DRL was not prevented from setting off amounts against the latest invoices, and it could assert cross-claims as reasons for not paying them: that meant that its refusal to pay the latest invoice was not a breach.

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