Repudiation of a contract: the role of reasonable perception

Repudiation is contractual conduct which is similar to and to a degree extends over the traditional contractual conduct which amounts to breach of contract.

Repudiation has been expressed to be a party’s demonstration, by words or conduct, and without lawful excuse, of an unequivocal intention no longer to be bound by the contract or by any obligation forming part of it, which if accepted by the innocent party, entitles the innocent party to cancel the agreement.

In the early half of the century, following a line of cases, it was held in SCHLINKMANN v VAN DER WALT 1947 2 SA 900 (E) when defining the conduct of repudiation the Court held that repudiation “in the main is a question of intention of the party alleged to have repudiated” and quoting the English case of Freeth v Burr held that the “true question is whether the acts or conduct of the party evince an intention no longer to be bound by the contract”.

The concept of conduct amounting to repudiation, being constituted by the intention of the repudiating party, slowly evolved so that the primary requirement as to whether conduct amounted to repudiation or not, was not the intention of the repudiating party but the reasonable perception of the innocent party that the conduct amounts to repudiation.

In the landmark decision of Data Color International (Pty) Ltd v Intamarket (Pty) Ltd the Supreme Court of Appeal (“SCA”) held that the test for repudiation was not subjective but rather objective and that the emphasis must shift from the state of mind of the repudiating party to what someone in the position of the innocent party would think the repudiating party intended to do. In other words it was held that repudiation was not a matter of intention but the perception a reasonable person, placed in the position of the aggrieved party would conclude that the proper performance of the terms of a contract would not be forthcoming.

The Court held that repudiation was a serious matter “requiring anxious consideration and because the parties must be assumed to be pre-disposed to respect rather than disregard their contractual commitments”.

In the decision of B Braun Medical (Pty) Ltd and Ambasaam CC the SCA, reiterated what it had held in Data Color concerning the requirements for a finding that a party had repudiated its contractual obligations. In this matter Braun’s attorney had written letters of demand for performance, which letters concluded, that should the performance not take place Braun would proceed to cancel an agreement concluded with Ambasaam CC, without further notice and claim damages from Ambasaam.

Ambasaam’s attorneys had responded that the alleging that allegations of non performance levelled against Ambasaam were unfounded and the “threat” contained in the letters, Ambasaam led a reasonable person to the conclusion that Braun did not intend to honour the terms of the agreement.

Action thereafter followed in the High Court he where, inter alia, Ambasaam pleaded that the Agreement, had come to an end whether by an accepted repudiation by it or a purported cancellation by Braun.

The Court a quo found that the allegations of non-performance by Ambasaam were “unfounded and unsubstantiated” and were made with the intention of Braun not to continue with the agreement and it had indeed repudiated the agreement. Further, the Court held that Braun’s conduct objectively created, without lawful excuse, a perception which placed Ambasaam in a position to conclude a proper performance of the agreement would not be forthcoming.

In the appeal, the SCA referred to the passage in the Data Color matter that “the emphasis is not on the repudiating party’s state of mind on what he subjectively intended but on what someone in the position of the innocent party would think he intended to do”.

Repudiation is accordingly not a matter of intention but it is a matter of perception. The perception is that if a reasonable person placed the position of the aggrieved party. The test is whether such a notional reasonable person would conclude the proper performance (in accordance with a true interpretation of the agreement) will not be forthcoming.

The SCA held that the Court a quo albeit referring to the principles of Data Color did not apply them to the facts of the case and that essential reasoning of the Court a quo decision was that Braun possessed the subject intention “to get out of the agreement” and in order to do so made unfounded and unsubstantiated allegations against Ambasaam which constitute a repudiation of the agreement. The SCA held that the Court a quo was mistaken in firstly placing emphasis on the subjective intention of Braun, whereas the correct enquiry should have been how a reasonable person in in the position of Ambasaam would have perceived the conduct.

Secondly that the Court a quo had decided that Ambasaam, justifiably perceived the proper performance of the agreement by Braun would not be forthcoming whereas the correct test is not subjective but an objective one and therefore, the Court a quo approached the issue as a matter of subjective intention and not perception, contrary to Data Color. For this reason and for the reason that the Court held that a reasonable person in the position of Ambasaam would not have perceived the demand for performance as an act of repudiation and upheld the appeal.

The case law therefore cautions parties to not act in haste in electing to consider conduct by a contracting party willy nilly as repudiation accepting the alleged repudiation and cancelling an Agreement. A party must consider the true nature of the act and whether a reasonable person in the position of the alleged aggrieved party would reasonably consider such act as conduct which unequivocally manifests the party’s intention not to be bound by a contract.