Court finds repudiation in software customer’s non-co-operation’

Out-Law News | 03 Apr 2019 | 4:17 pm | 3 min. read

A recent ruling has highlighted how businesses might be said to be responsible for a repudiatory breach of contract through the indications they give in their words or conduct, an expert in the resolution of technology contract disputes has said.

The High Court held that food manufacturer Sanderson was responsible for a repudiatory breach of its contract with software and services supplier Simtom Food Products and that this entitled the supplier to terminate the agreement between them.

One party is said to have 'repudiated' a contract if they act in a way so completely against the terms of the contract that their actions mean that the other party is deprived of the benefits of the contract. Where there has been a repudiatory breach by a party, the other party has a right to terminate the contract without penalty so long as they have accepted the repudiatory breach.

David McIlwaine of Pinsent Masons, the law firm behind, said the case before the High Court was not a typical dispute over an alleged repudiatory breach. Those cases, he said, usually concern an allegation of breach sufficiently serious so as to go to the root of the contract.

Instead, though, the High Court examined whether there had been repudiatory breach by Simtom Food Products by virtue of the conditions it indicated it would place on performing its contractual obligations to Sanderson.

Under common law in England and Wales, a business is considered to have refused to perform their obligations under contract if it "evinces an intention to perform but 'only in a manner substantially inconsistent with [its] obligations and not in any other way'", the High Court said in its ruling.

The contract between Simtom Food Products and Sanderson was signed in November 2014. The contract concerned the supply of software, equipment and services by Sanderson to Simtom Food Products. However, the project hit difficulties. At a meeting in February 2016 the businesses agreed to reschedule payments and re-start their contract in 2017, according to the ruling.

In April 2017, following an exchange of correspondence about recommencing the contract in the previous two months, Sanderson sued Simtom Food Products for damages. Sanderson claimed Simtom Food Products was responsible for a repudiatory breach of contract, and said that it had accepted that breach and elected to exercise its right to terminate the contract. However, Simtom Food Products challenged Sanderson's claims of repudiatory breach and argued that Sanderson's termination was itself a repudiatory breach of contract.

In considering the dispute, the High Court assessed the contract signed in November 2014 as well as what the businesses had agreed at their February 2016 meeting.

The High Court determined that there was an implied term in the contract that required the two businesses to "co-operate closely with one another to give effect to the project". It also held that the businesses had "informally agreed to suspend and re-start the project no later than 1st February 2017" and that they "were again under a duty to collaborate with one another in doing so".

Sanderson asked Simtom Food Products on 13 February 2017 to set a date for a "project kick-off meeting within the next four weeks", but the High Court said that the response from Simtom Food Products on 21 February 2017 showed that the company declined to co-operate with Sanderson on re-starting the project in February or March 2017. The High Court said that this was "a clear breach of [Simtom Food Products'] contractual commitments".

According to the court, Simtom Food Products "demanded written answers to a series of questions, many of which could more conveniently have been dealt with at the [kick-off] meeting itself; sought to cast responsibility on [Sanderson], rather than [itself], for the 'numerous issues which arose in 2015'; stated that 'we need to have our confidence fully in place before we can proceed'; and asserted, baldly, that [Simtom Food Products] had 'never committed to any specific date' [to re-start the project] notwithstanding the discussions at the February 2016 meeting and [a director's] confirmation, in answer to a question from [Sanderson's sales director], that the project would re-start on 1st February or sooner."

The High Court said a reasonable person in Sanderson's position reading Simtom Food Products' email of 21 February 2017 "would have been entitled to infer that [Simton Food Products] had no intention of performing in strict compliance with its contractual commitments" and that the company "did not accept that it was under an immediate obligation to proceed with the project at that stage".

The court said it was "striking that [Simton Food Products] allowed the March deadline to pass without taking any steps to offer dates for a project kick-off meeting or to do anything to co-operate in the provision of such a meeting".

The High Court ruled that Simtom Food Products had "renounced the contract" with Sanderson "by declining to co-operate … in re-starting the project at any time in February or March 2017", that this constituted a repudiatory breach of contract, that Sanderson accepted that breach with its lawyer's letter in April 2017 and was entitled to terminate the contract and claim damages.

David McIlwaine of Pinsent Masons said: "Many programmes are paused or suspended for a period. This case makes it clear that in contracts which require co-operation, it will not be open to one party to seek to avoid re-starting. Whilst this is helpful, it is always best to ensure that a party – usually the customer – has a contractual right to restart a contract on notice, in order to avoid any need to rely on implied conditions."