Repudiation
The general rule is that a breach of contract will not entitle the innocent party to treat the contract as discharged. The exception to this rule is where there is seriously defective performance or a refusal to perform which amounts to a repudiatory breach of contract, and the innocent party has the right to either affirm the contract or treat the contract as at an end. Where a contractor has rightly terminated the contract because of the other party’s repudiatory breach, the contractor is entitled to be placed in the position he would have been in if the contract had been completed without the breach.

Measure of damages
The normal measure of damages protects the contractor’s expectations under the contract, which should entitle it to receive payment under the contract for work done and its loss of profit on work not done. In other words, the damages will generally be measured as the loss of profits on the unfinished balance, but this must be subject to proof. The object of damages is always to compensate the innocent party, not to punish the wrongdoer, and a high level of evidence is required.

Does the contract still exist?
The authority is Heyman v Darwins [1942] 1 All ER 337 HL. Where a repudiatory breach of contract occurs and the innocent party accepts the repudiation, it is the performance of the contract which comes to an end, but the contract still exists and any rights arising under the contract remain to be enforced. It was held in Johnson v Agnew [1979] 1 All WR 883 HL: “…that acceptance of a repudiatory breach does not bring about rescission an initio.” The contract is therefore rescinded ab futuro (insofar that the future performance of the contract comes to an end) and not ab initio. This is important to remember as under section 108 of the Housing Grants, Construction and Regeneration Act 1996, a party to a construction contract only has the right to refer a dispute arising under the contract – hence damages sought as a result of a repudiatory breach arise under the contract.

Quarter 3 2006