In determining whether a breach of a contract had been repudiatory an important factor to be taken into account was whether, although serious, the breach had been remedied before the injured party had purported to exercise a right of termination of the contract. Likewise, if there had been delay in performance of an ongoing obligation, it might be possible for the delay to be made up by faster performance. The court had to consider the position as at the date when the injured party purported to terminate. In the absence of time being of the essence, delay would only become a repudiatory breach if it were so prolonged as to frustrate the contract.

The Court of Appeal so held when it allowed the appeal of the defendant property development and construction company, Telford Homes (Creekside) Ltd, from Roth J [2012] EWHC 1820 (Ch); [2012] BLR 387 who on 4 July 2012 had given judgment for the claimant, Ampurius Nu Homes Holdings Ltd, a company also engaged in property development, holding that, inter alia, the defendant’s breach of a construction contract between the parties had become sufficiently substantial to entitle the claimant to accept repudiation of the contract.

The parties had entered into the contract in October 2008 after the defendant had acquired the freehold of land close to the south bank of the River Thames in south-east London, for the development of four mixed blocks consisting of commercial units on lower floors and some 371 flats above. Under the contract the defendant had agreed to build the blocks to shell and core, using due diligence and reasonable endeavours to procure completion of the works by target dates. The ultimate objective was the grant of four 999-year leases of the commercial units to the claimant investor. The target date for the completion of the defendant’s work on two of the blocks was 21 July 2010, which was not achieved (the works were eventually completed in January and April 2011 respectively). For the other two blocks the target date was 28 February 2011 but because of funding difficulties the work on them had been suspended. Although the claimant had complained bitterly the defendant had assured it that it was committed to the project and that it would resume work, which it did on 4 October 2010. On 22 October the claimant had purported to terminate the agreement on the basis that the delay was a repudiatory breach by the defendant.

LEWISON LJ said that the judge had applied the tests stated in Chitty on Contracts, 30th ed (2008), para 24–040 (31st ed (2012), para 24–041) based on Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, 64, 66, 69, 72–73. Three points emerged from that case: (i) the task of the court was to look at the position as at the date of purported termination of the contract even in a case of actual rather than anticipatory breach; (ii) in looking at the position at that date, the court had to take into account any steps taken by the guilty party to remedy accrued breaches of contract; and (iii) the court had also to take account of likely future events, judged by reference to objective facts as at the date of purported termination. That court had approved Universaql Cargo Carriers Corpn v Citati [1957] 2 QB 401 where it had benn said, at p 430, that “when the delay becomes so prolonged that the breach assumes a character so grave as to go to the root of the contract, the aggrieved party is entitled to rescind.” The test favoured in the Hongkong Fir case, applied in Shawton Engineering Ltd v DGP International Ltd [2006] BLR 1, para 32, was whether the breach had deprived the injured party of substantially the whole benefit of the contract. In Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WL:R 361, 380 it had been said that to constitute repudiation the threatened breach had to be such “as to deprive the injured party of a substantial part of the benefit to which he is entitled under the contract.” On the face of it there was a tension between the test of deprivation of substantially the whole benefit and a substantial part of the benefit. But whatever test was adopted, the starting point had to be to consider what benefit the injured party was intended to obtain from performance of the contract: in the present case the claimant was to obtain a leasehold interest of 999 years duration in four blocks, to be taken in pairs with a gap of seven months between each handover. The judge had not given adequate weight to the ultimate objective of the contract; rather he had concentrated on the expected effects on the marketing period. The next consideration was the effect of the breach on the injured party, such as any financial loss, and whether he could be adequately compensated by an award of damages. On the judge’s findings, delay did not appear to have caused the claimant any loss at all. The claimant accepted that the delay occasioned up to and including the date of termination (22 October 2010) had not caused any actual loss. No findings had been made as to future loss. His Lordship accepted calculations made by the defendant as to likely losses through additional funding costs which the claimant might expect to incur: the claimant could have been readily compensated in damages or by way of set-off against the purchase price. The claimant contended that whether a breach did or did not amount to repudiation of the contract had to be judged as at the date of the breach. However what fell to be considered was the position as at the date when the injured party purported to terminate the contract: The Hermosa [1982] 1 Lloyd’s Rep 570, 573 which was entirely consistent with the Hongkong Fir case. The judge had applied the test to the wrong moment in time. By the date of purported termination work on the two further blocks had been in progress for two and a half weeks. It could not be said, as the judge did, that the cessation of work was indeterminate and prolonged. Further, the defendant had made strenuous efforts to find the necessary funding and to persuade its bank to bring forward the release date of the funds; and it was committed to building out the whole project. It was simply not possible to say that the actual and reasonably foreseeable effects of the defendant’s breaches of contract were such as to deprive the claimant of a substantial part, let alone substantially the whole, of the benefit of the contract. Nor was it possible to say that the delay had had the effect of frustrating the contract, the overall objective of which was the grant of 999-year leases of the commercial units in each block.

TOMLINSON LJ gave a concurring judgment.

LONGMORE LJ agreed with both judgments.