Key takeaways
Be aware of your contractual obligations from the outset
Whilst obvious, this ensures that you remain compliant with the contract and understand when a counterparty is failing to fulfil their obligations.
Properly communicate your intention to terminate a contract
This can be done by serving a formal notice of termination of the contract for breach, ensuring compliance with any contractual notice requirements.
Serving notice to terminate a contract can itself be a repudiatory breach if not done correctly
Ensure that the correct grounds for termination are included in any notice and that the correct method of service is adhered to. Any delay in termination can be prejudicial to the terminating party.
The term ‘breach of contract’ is commonly heard within a business context and occurs when one party fails to fulfil some or all of its contractual obligations. But what is a ‘repudiatory breach’ of contract?
In short, a repudiatory breach is a serious breach of contract by one party which goes to the root of the contract, depriving the innocent party of the whole benefit of the contract. This can consist of either an actual breach of contract or an anticipatory breach by which, for example, the defaulting party confirms that it will be unable to fulfil its contractual obligations such as compliance with an agreed deadline or failure to ensure that deliverables meet the agreed specifications.
Within the technology sector, businesses are likely to engage in Service Level Agreements (SLAs), software development contracts, cloud computing contracts, IT consultancy contracts and licencing agreements. Agreements such as SLAs are likely to exhibit a Statement of Work setting out the contractual services and deliverables a supplier is obligated to provide.
It is essential for the parties to understand their contractual obligations before any contract is signed to ensure that they remain compliant with the contract and can understand when one party is not fulfilling their obligations.
Practical steps to take
If your business considers that it has grounds to terminate a contract based on a repudiatory breach, it is important to consider the following:
Ensure that you are aware of the specific contractual provisions that have been breached and that you are able to point to specific examples relating to the defaulting party’s performance of the contract. It is good practice to keep a record of any breaches, including dates and a note of any subsequent loss or damages caused to the business as a result of the breach.
Communicate your intention to terminate the contract by sending a formal notice of termination of the contract for breach, unequivocally stating the grounds for termination.
Consider any notice provisions in the contract as this may specify the method by which notice to terminate the contract is to be sent to the defaulting party. For example, if notice is to be sent by post, the contract may specify a business address or persons to send it to. Alternatively, if notice is to be sent by email, the contract may specify an email address. Any failure to abide by the notice provision in the contract could render a notice to terminate the contract as defective.
What can go wrong?
Serving notice to terminate a contract based on a repudiatory breach can, if not done correctly, be a repudiatory breach in itself as it is essentially communicating to the other party an intention to stop performing the contract. On that basis, the other party could accept the repudiation and seek damages for any loss attributed to the termination of the contract. There are various ways of getting termination wrong, such as:
Failing to terminate in accordance with the contractual provisions such as serving notice via a different method prescribed by the Contract or serving on the wrong individual or entity.
Stating the incorrect grounds for termination within the notice itself or by failing to rescind the whole contract.
Delaying termination of a contract when the innocent party is aware that a repudiatory breach has occurred but continues to perform the contract anyway. This has the effect of the innocent party affirming the contract, accepting the repudiatory breach and losing the right to terminate.
The recent Court of Appeal decision in Advanced Multi-Technology for Medical Industry & Ors -v- Uniserve Limited [2025] EWCA Civ 1212 has acted as a useful reminder to parties who choose not to accept a breach as bringing a contract to an end that they must continue performing their own obligations under the contract. Failure to do so exposes that party to the risk that its counterpart, having previously been in breach, might have a new opportunity to terminate the contract lawfully (Court of Appeal considers parties’ termination rights).
