Your building contractor stops turning up, packs up their tools and stops answering the phone. Your biggest client stops paying invoices but keeps demanding work. A supplier tells you it can no longer source the materials your contract specifies. These situations all raise the same question: has the other side repudiated the contract, and if so, what are you actually entitled to do about it? This article sets out what the law treats as repudiation, the decision you face once it happens, the remedies you can pursue, and the alternatives to a court fight.
What counts as repudiation
A party repudiates a contract when their words or conduct show they are unwilling or unable to perform it substantially. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61, the High Court described repudiation as conduct evincing an intention no longer to be bound by the contract, or to fulfil it only in a manner substantially inconsistent with the party's obligations. The test is objective: would a reasonable person in your position, knowing what you know, conclude that the other party has renounced the contract as a whole, or a fundamental obligation under it? Your own feeling that you have been let down is not enough; the conduct has to convey that conclusion to a reasonable observer.
Repudiation typically shows up in one of two ways:
- Refusal to perform: The party refuses, in words or by conduct, to carry out its obligations. A contractor who walks off site, removes its equipment and stops responding has evinced an unwillingness to perform. A client who stops paying for services while continuing to demand them is refusing to carry out its side of the bargain. Abandoning a project altogether falls in the same category. As the High Court noted in Koompahtoo, in contractual renunciation actions may speak louder than words, so a party can repudiate without ever saying it will not perform.
- Conduct that makes performance impossible: The party acts in a way that prevents you from executing your own obligations. If your publishing client rejects every proposed design without reason and refuses to hand over the manuscript, it may be preventing you, the publisher, from performing your side of the arrangement. If a landlord locks a tenant out of the premises, it has made the tenant's performance impossible. In the High Court's language, the party has evinced an inability to render substantial performance of the contract.
Repudiation can also happen before performance is due. This is called anticipatory repudiation. If a buyer tells you a month before delivery that it no longer wants the goods, or a vendor announces it will not complete the sale on the settlement date, the contract has been repudiated in advance. You do not have to wait for the breach to actually occur before responding. The courts allow you to act on the repudiation immediately, as the High Court recognised in Foran v Wight (1989) 168 CLR 385 and as applied in Upside Property Group Pty Ltd v Tekin [2017] NSWCA 336.
Not every breach is a repudiation, and this distinction matters. A one-off late payment that causes no real loss is a breach, but it will not usually justify terminating the contract. Termination is only available where the promise broken is an essential term of the contract, or where the breach is so serious that it goes to the root of the contract, as Koompahtoo explains. The essentiality of a term depends on its importance to the parties as the contract as a whole shows it: whether the promisee would not have entered the contract without an assurance of strict or substantial performance. Calling a routine breach a repudiation and terminating on that basis is itself a repudiation, and it can turn you into the party in breach. That is why a careful reading of your contract's terms comes before any decision to act.
Terminate or keep the contract alive: the election you must make
Repudiation does not automatically end the contract. It gives you a choice, and the law requires you to make it. You can terminate the contract, treating it as at an end, or you can affirm it, insisting that it continue. This choice is called an election, and once made it is generally final, as the High Court confirmed in Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27. You cannot terminate later for a repudiation you have already chosen to overlook, and you cannot treat the contract as continuing while claiming it is at an end.
If you choose to terminate, you must tell the other party. A clear letter or email stating that you treat the contract as at an end, and why, is the safest way to do it. Termination for repudiation is prospective: both parties are released from their remaining obligations, but rights that have already accrued, including the right to damages for the breach, survive the termination.
Alternatively, you can affirm the contract, which is sometimes described as waiving the repudiation. You insist the contract continues, perhaps by demanding that the other party perform on the agreed date, or by continuing to perform your own side of the bargain. The contract stays on foot and you keep your right to damages for the breach that has already occurred. What you give up is the right to terminate for that particular repudiation. Waiving the repudiation is not the same as forgiving the breach: the other party's failure still supports a claim for damages.
The trap here is delay. If you keep quiet and keep performing, or keep demanding performance without reserving your rights, the law may treat your conduct as an affirmation of the contract. Do this for long enough and you can lose the right to terminate altogether, leaving you locked into a contract with a counterparty who has already shown it will not perform. If you are not ready to decide, say so in writing and reserve your rights while you obtain advice. A short, carefully worded letter can preserve the choice that silence would forfeit.
If you terminate: the remedies you can pursue
Terminating is not the end of the dispute; it is the beginning of the claims you can make. The main remedies are damages, specific performance and the recovery of money you have paid under the contract.
- Damages: Damages aim to put you in the financial position you would have been in if the contract had been performed. If a contractor abandons your renovation, your damages may include the extra cost of engaging a replacement builder to finish the work, less what you would have paid the original contractor. Where the contract was profitable, you can claim loss of bargain damages: the difference between the contract price and the market value, or your lost profit, at the time of the repudiation, as the purchaser did in Upside Property Group v Tekin. To claim damages after terminating you must be able to show you were ready, willing and able to perform your own side of the contract at the time of termination, as Tekin illustrates. You must also take reasonable steps to reduce your loss, because the court will not compensate you for losses you could reasonably have avoided, a principle applied in Bell v Hunters Hill Council [2012] NSWSC 1522. Practical mitigation in the contractor example means engaging a replacement builder promptly rather than letting the site sit idle.
- Specific performance: Specific performance is a court order requiring the repudiating party to actually do what it promised. It is a discretionary remedy, not a right. Courts will only order it where damages would not be an adequate remedy, and they are reluctant to order it where it would require ongoing supervision of continuous performance, such as obligations of a personal-service kind, as the High Court explained in JC Williamson Ltd v Lukey and Mulholland [1931] HCA 15. For a unique asset, such as a particular property or a one-off piece of equipment, specific performance may be the practical remedy. For a building contract it is possible but far from guaranteed; courts often prefer damages and a replacement contractor.
- Recovery of money paid: Termination also opens the way to recovering money you paid under the contract. A deposit paid for work that was never done can be recovered, as in Tekin, where the purchaser recovered its deposit after terminating for the vendor's repudiation. Where one party has received a benefit under the contract, such as an advance payment for services never delivered, the law of restitution may require that benefit to be given back.
Options short of terminating
Litigation is expensive, and terminating is not always the commercial answer. Before treating the contract as dead, consider whether the dispute can be resolved while keeping the deal, or at least keeping it out of court, through one of the following options:
- Varying the contract: If the failure was caused by a practical problem, such as difficulty sourcing materials, the parties can vary the contract: different materials, a reduced scope, a later date. A variation agreed by both sides is binding, but you should document it in writing and have both parties sign it, ideally with a clause confirming the rest of the contract continues unchanged. An oral variation is difficult to prove, and some contracts state that variations must be in writing to be effective.
- Mediation: Mediation uses an impartial third party to help the parties reach their own agreement. The mediator does not decide the dispute; the mediator facilitates a negotiated outcome. Mediation is usually faster and cheaper than court, and many commercial contracts require mediation as a first step in their dispute resolution clause. If an agreement is reached in mediation, record it in writing so that it is enforceable.
- Arbitration: Arbitration is a private hearing before an arbitrator chosen by the parties, whose decision is binding, instead of a public court. In Australia, domestic commercial arbitration is governed by state legislation based on the international Model Law, such as the Commercial Arbitration Act 2010 (NSW), which applies to domestic commercial arbitrations under s 1. If your contract has an arbitration clause, you are generally required to use it before you can sue. Arbitration can be quicker and more confidential than court, but it still costs money, and the arbitrator's award is final in most cases.
When you need a lawyer's judgment
Repudiation disputes turn on judgment calls that are difficult to make from inside the dispute, and the cost of getting them wrong can be high. A lawyer can help with the assessment and with protecting your position while you decide:
- Whether repudiation has occurred: applying the objective test to the other party's words and conduct, and distinguishing repudiation from a mere breach that does not justify termination.
- Whether you are safe to terminate: whether the broken promise is an essential term or the breach serious enough to go to the root of the contract, because terminating wrongly can itself make you the repudiating party.
- Managing the election: what to say and write to preserve your right to terminate while you decide, and how to avoid affirming the contract through silence or continued performance.
- Drafting the documents: the termination notice, any variation or settlement agreement, and correspondence that reserves your rights.
- Quantifying the claim: damages for loss of bargain, the extra cost of replacement performance, and the practical effect of your duty to mitigate.
- Resolving the dispute: negotiating a settlement, or running mediation or arbitration under your contract's dispute clause before any court proceedings are started.
An Artificer Legal lawyer can assess whether the other side's conduct amounts to repudiation, protect your position while you decide how to respond, and pursue or defend the claim, whether that means a negotiated outcome or court proceedings.
The decision you cannot avoid making
The most expensive mistake in a repudiation dispute is usually not choosing the wrong option between terminating and affirming. It is failing to choose at all. While you wait, the other party's conduct hardens, your losses grow, and your silence can be read as acceptance of a contract you no longer want. The law gives the innocent party a genuine choice, but it expects that choice to be made and communicated. If the stakes are significant, get advice before you act, and act deliberately rather than hoping the problem resolves itself.
In short: repudiation is conduct showing that the other party will not perform the contract substantially, judged objectively. On repudiation you must elect between terminating and affirming, and you must communicate that choice. If you terminate, you may claim damages, specific performance in limited cases, and recovery of money paid, subject to your own readiness to perform and your duty to mitigate. Before court, renegotiation, mediation and arbitration may resolve the dispute more cheaply, and a lawyer can help you weigh those options without forfeiting your rights.