Contractual breaches can come in many forms. Some are serious, giving the wronged party the right to terminate the contract. Others will be more minor, and might be easily remediable. It can be useful to think of contractual breaches as a sliding scale, with repudiatory breaches at one end, and minor, remediable breaches at the other.
When a counterparty commits a breach of contract, it is necessary to assess the severity of the breach, alongside the wording of the particular contract in question, before acting. Getting things wrong can have very serious consequences.
Conditions, warranties and innominate terms
Contracts are made up of different types of terms:
- Conditions are essential contract terms, of key importance to the parties. Most terms are not conditions. Any breach of a condition will justify an immediate termination of the contract at common law on the basis that the breach is repudiatory.
- Warranties carry the least weight. No breach of a warranty can constitute a repudiatory breach and trigger a right to terminate.
- Innominate terms are the most common types of term. The worst breaches can trigger a right to terminate for repudiatory breach at common law, less serious breaches will not.
Repudiatory breach
Parties to a contract normally retain their common law rights to accept a counterparty's repudiatory breach and terminate the contract. The parties are able to exclude that right, but express clear wording has to be used – unless they do so, it will be presumed they wanted to retain it.
Absent any guidance in the applicable contract as to what constitutes a repudiatory breach, a breach will be repudiatory at common law if it deprives the innocent party of the substantial benefit of the contract. A repudiatory breach will often be referred to as striking at the root of the contract. When faced with a breach one should step back and consider whether it meets this relatively high bar; if not, it won't be repudiatory.
In the event of a repudiatory breach, the innocent party has the right to choose whether to accept the breach, terminate the contract and claim damages, or affirm the contract (so it continues) and claim damages.
Substantial breach
Contract terms referring to 'substantial breach' are not that common, but do come up from time-to-time.
The Court of Appeal has held that a clause in a contract giving rise to a right to terminate for 'substantial breach' was no different to repudiatory breach (in Crane Co. v Wittenborg [1999] All ER (D) 1487).
Material or serious breach
'Material' or 'serious' breach are much more commonly found expressions within contracts. Contracts often include an express right to terminate if a party is in either material or serious breach.
If you're drafting a contract and considering including a 'material' or 'serious' breach provision, it can be useful to provide a list of potential examples of what actions or omissions would constitute a breach of that standard, along with the consequences of such breach. The list doesn't have to be exhaustive or to cover every given eventuality, but the provision of a few examples of breaches which meet the standard will allow comparison with the listed breaches by analogy.
If the contract doesn't include a list of examples, then you'll need to consider what constitutes a material breach. Judges have provided guidance, but those guiding principles can only go so far.
In Compass Group UK and Ireland Ltd v Mid Essex Hospital Services NHS Trust [2013] EWCA Civ 200, Lord Justice Jackson stated that a material breach was one which "connotes a breach of contract which is more than trivial, but need not be repudiatory", relating to a "serious matter, rather than a matter of little consequence."
Later in Mears v Costplan [2019] Civ 502, the High Court held that the meaning of 'material' could range from "not trivial" to "serious enough to justify termination at common law".
Context and the exact circumstances and the detail of your contract will be key in making your assessment as to whether a breach is material and whether that justifies termination.
Persistent breach
Although less common, contracts may refer to 'persistent' or 'repeated' breaches. An LLP agreement containing such a term was recently considered in the case of THJ Systems Ltd & Anor v Daniel Sheridan & Anor [2023] EWHC 927 (Ch). In respect of allegations of persistent breaches, the court found that repeated breaches need to have some gravity to them, and that taken together they must amount collectively to something serious in all the circumstances, taking into account the nature of the contract and the obligation breached, in order to give rise to a right to terminate.
Remediable breach
Often contracts will set out that a party which is in breach of contract be given a period to remedy the breach concerned, commonly known as a 'cure period'.
If your counterparty has committed such a remediable breach, you'll need to comply with the express terms set out. This will normally involve you serving a notice on the counterparty informing them that they are in breach and specifying the period in which they must remedy the breach. Once you've served your notice, you'll need to wait the full cure period to see if the breach is remedied before taking further action. Not all remediable breaches will be sufficiently serious to give rise to a right to terminate if they remain unremedied – so consider, in advance, the impact of the breach if it remains unremedied.
Any breach
Contractual terms giving parties a right to terminate an agreement for 'any breach' are uncommon, and are not widely used, as they are seen as uncommercial.
Such provisions have received some judicial attention, with 'any breach' having been interpreted as meaning a breach which is non-trivial (Vivienne Westwood Ltd v Conduit Street Development Ltd [2017] EWHC 350 (Ch). In other decisions, the court has interpreted a provision giving right to terminate for any breach, as meaning any repudiatory breach, i.e. as per the position at common law (as in Rice v Great Yarmouth Borough Council [2003] TCLR 1).
Why does it matter?
Put simply, the consequences of getting things wrong can be serious. If you don't act quickly when faced with a repudiatory breach, then you might be taken to have affirmed the contract. And if you seek to terminate on the wrong grounds or when you don't have a basis to do so, this is likely to constitute a repudiatory breach in itself.
When terminating for breach of contract, you want to be sure you've considered the position, and set this out correctly in any termination notice you serve. Once a termination notice has been sent, it can't be withdrawn. Once you've made your election, and set out the grounds on which you're terminating, you can't change course.
What should I do?
When faced with a breach of contract, you need to consider and assess the position. Go back to the wording of the contract, but don't forget your common law rights. Take advice if necessary to make sure you're acting appropriately. Don't wait too long before deciding on what action to take, or you may be taken to have affirmed the contract. If you're seeking to terminate the contract as a result of the breach, make sure you consider all possible grounds for termination you may have, and what damages each ground might give rise to – different types of damages may well be available for different types of breach. If the consequences of the different breaches aren't inconsistent or contradictory, then you could consider setting out alternative grounds for termination in your termination notice.
Our glossary of key terms referenced in this guide
For ease of reference, we have summarised some key terms referenced in this guide. Click on the links to where these terms are discussed for context and guidance.
Affirmation: A party can affirm a contract
following a repudiatory breach expressly or by way of conduct
(including delay). If a party affirms the contract (so it
continues) it can also claim damages. (See further, Repudiatory
breach, below.) Any breach: A contractual
provision giving a right to terminate for 'any breach', are
uncommon. This term has been interpreted as meaning a breach which
is non-trivial. In other decisions, the court has interpreted a
provision giving right to terminate for any breach, as meaning any
repudiatory breach, i.e. as per the position at common law.
Condition: An essential contract term, of
key importance to the parties. Any breach of a condition will
justify an immediate termination of the contract at common law,
should the innocent party so elect, on the basis that the breach is
repudiatory, together with the right to claim damages.
Innominate term (or intermediate term): Neither a condition, nor a warranty. The worst breaches of an innominate term can trigger a right to terminate for repudiatory breach at common law, less serious breaches will not.
Material or serious breach: A matter of
contractual interpretation and construction. In case law, this term
has been interpreted as a breach that is "more than trivial,
but need not be repudiatory", but also that the meaning of
'material' could range from "not trivial" to
"serious enough to justify termination at common law"
(i.e., repudiatory).
Persistent breach: In respect of allegations of
persistent breaches, the court has found that repeated breaches
need to have some gravity to them, and that taken together they
must amount collectively to something serious in all the
circumstances, taking into account the nature of the contract and
the obligation breached, in order to give rise to a right to
terminate.
Remediable breach: Often contracts will set out
that a party which is in breach of contract be given a period to
remedy the breach concerned, commonly known as a 'cure
period'. Not all remediable breaches will be sufficiently
serious to give rise to a right to terminate if they remain
unremedied.
Repudiatory breach: A breach will be repudiatory
at common law if it deprives the innocent party of the substantial
benefit of the contract. A repudiatory breach will often be
referred to as striking at the root of the contract. In the event
of a repudiatory breach, the innocent party has the right to choose
whether to accept the breach, terminate the contract and claim
damages, or affirm the contract (so it continues) and claim
damages.
Substantial breach: The Court of Appeal has held
that a clause in a contract giving rise to a right to terminate for
'substantial breach' was no different to repudiatory
breach.
Warranty: In the context of classification of
contractual terms: A contract term which does not give the innocent
party the right to treat the contract as repudiated in the event of
breach, but entitles that party to claim damages.
This piece forms part of our Contract Interpretation guide. The guide compiled by our Dispute Resolution team and looks at the meaning of some commonly used, but also commonly litigated, contractual terms. To view the full guide click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.