What makes a breach repudiatory
A repudiatory breach is one serious enough to go to the root of the contract - conduct that deprives the innocent party of substantially the whole benefit it was intended to receive. The test, from Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, asks whether the breach deprives the innocent party of substantially the whole benefit of the contract. If it does, the innocent party may terminate; if not, only damages flow.
Breach of a term classified as a condition is always repudiatory, however small the breach. Breach of an innominate term is repudiatory only if its consequences are serious enough to meet the Hong Kong Fir threshold (see the conditions, warranties, and innominate terms guide).
Accepting the repudiation - and the election
A repudiatory breach does not end the contract by itself. The innocent party has an election: accept the repudiation, which terminates the contract and crystallises the right to damages; or affirm the contract, keeping it alive for both sides. The election must be communicated clearly, and once made it is generally irrevocable.
Acceptance is what unlocks loss of bargain damages - compensation for the loss of the whole bargain, putting the innocent party in the position it would have been in had the contract been performed. That is usually far more than the contract's own prescribed termination consequences.
Loss of bargain is only available for a common law termination
The critical, and often missed, point is that loss of bargain damages are available only where the innocent party has terminated for repudiatory breach at common law. Terminating purely under a contractual right - even for the same underlying conduct - does not treat the contract as discharged by breach, and so does not support a loss of bargain claim.
Phones 4u Ltd v EE Ltd [2018] EWHC 49 (Comm) decided exactly this. EE terminated under its contractual insolvency clause; a repudiatory breach existed, but the notice did not accept it. A general reservation of all rights and remedies did not cure the omission. The court gave summary judgment against EE's loss of bargain counterclaim, asserted at more than GBP 200 million - even though EE had a realistic prospect of proving the breach itself.
Drafting the termination notice
The lesson is to make the notice do the work. Where the conduct is both a contractual trigger and a repudiatory breach, terminate under the clause and, in the alternative, expressly accept the repudiatory breach at common law, reserving the right to loss of bargain damages. Merely reserving rights in general terms is not the same as exercising the common law right.
Equally, do not over-reach: if you accept a repudiation that a court later finds was not repudiatory, your own termination becomes the wrongful repudiation, exposing you to the counterparty's loss of bargain claim. The notice must be confident that the breach truly meets the threshold.
What to check
Before terminating for repudiatory breach, confirm the breach deprives you of substantially the whole benefit (or is breach of a true condition); decide deliberately whether to accept or affirm, and communicate it; and draft the notice to accept the repudiation expressly, not merely to reserve rights. If you also have a contractual right, invoke both.
The downside of getting it wrong is symmetrical: too cautious a notice forfeits loss of bargain; too aggressive a notice makes you the repudiating party. Precision in the notice is the whole game.
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Practical checklist
- Confirm the breach deprives you of substantially the whole benefit, or is breach of a condition (Hong Kong Fir [1962] 2 QB 26).
- Decide deliberately whether to accept the repudiation (terminate) or affirm - the election is generally irrevocable.
- Communicate acceptance of the repudiation expressly to claim loss of bargain damages.
- Do not rely on a bare reservation of rights to preserve loss of bargain (Phones 4u v EE [2018] EWHC 49 (Comm)).
- Invoke any contractual termination right in the alternative, in the same notice.
- Do not over-reach: accepting a non-repudiatory breach makes your own termination wrongful.
This guide is informational only and is not legal advice. It does not replace advice from licensed counsel on the facts of a specific transaction.
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