| Date | 9 January 2002 |
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| Judgment | Shyam Jewellers Limited -v- M Cheeseman, CA 29 November 2001 |
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| The Issue | Discussion of the circumstances which will give rise to an entitlement to treat a contract as repudiated. |
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| Implication |
In a typical construction contract a breakdown in the relationship of confidence between the parties will not of itself justify an assertion of repudiation. |
printA repudiation, or more accurately a repudiatory breach of a contract, can occur when a party intimates by words or conduct that it does not intend to honour its obligations under the contract. In the event of a repudiatory breach, the innocent party may either elect to affirm the contract, if that is possible, or accept the repudiation and so bring the contract to an end. The innocent party may sue for the damages it has suffered, consequent upon the breach. Whether a particular breach or series of breaches of contract may be regarded as repudiatory in nature will depend upon the facts. It is often said that a repudiatory breach is one which goes to the very root of the contract. This may be said to arise when the breach is so grave as to have the effect of substantially depriving the other party of the intended benefit of the contract. The consequences of alleging a repudiatory breach are clearly wide reaching. It is surprising, therefore, that all too often situations are found where the termination of a construction contract has been poorly handled, the protagonists driven by irritation at the behaviour of the other party rather than sound commercial judgment. The Court of Appeal recently had to consider a case where repudiation was an issue. Shyam Jewellers Limited had engaged M Cheeseman to undertake shopfitting design and installation works to its jewellery shop. A written contract was signed for works to the value of approximately £84,000. The contract provided for completion broadly in accordance with an agreed programme of works and for interim payments to be made during the period for manufacture and installation of the works. In common with most shopfitting works, the programme was very tight. Off-site manufacture of joinery works was to be completed in approximately four weeks and installation on-site over a period of approximately three weeks. This tight programme was important for both parties. Cheeseman had a practice of only undertaking such work at any one time that he would be able to fulfil. The short programme would require to be observed to avoid knock-on delay to other projects. From the outset relationships were extremely poor. An agreed initial deposit of £20,000 was not paid upon the signing of the contract, but instead Shyam paid £10,000 the following day, followed two weeks later by a cheque for a further £10,000 drawn on Christmas Eve, with the effect that it could not be cleared through Cheeseman's account until the new year. Moreover, a significant number of changes were ordered to the works, with the effect that the cost had risen from the original sum of £84,000 to a figure somewhere in excess of £110,000. A delay in producing revised drawings which were required by these changes meant that site work could not start as originally planned. In the light of all the changes and the inevitable increase in the cost of the contract works as a result, Cheeseman was concerned, as the judge put it, to establish three things. Firstly, an agreed revised contract sum to take account of the changes. Secondly, a programme of work that could be met, and thirdly, to establish the finance for the project. Accordingly, Cheeseman asked Shyam to agree to a meeting the following day. A meeting was held, but the parties disputed what was said at that meeting. Cheeseman insisted that he had asked for a substantial further interim payment, whereas Shyam indicated that no such request for payment had been made. Shyam contended that he had asked for a breakdown of the costings of the additional works and that both parties had agreed to meet the following day to discuss this. Cheeseman arrived the following day with the requested costings, only to be told that the representative of Shyam was not available. Cheeseman returned empty handed and the following day sent a fax to Shyam, in which he indicated that "it is with regret that I have come to a business decision to consider the contract for shopfitting of your premises as repudiated". In witness statements put before the court, Cheeseman explained that he had totally lost confidence in whether or not Shyam had the ability to fund the project within the agreed terms of the contract. The Court of Appeal was asked to reconsider whether there had been sufficient grounds for a finding that Shyam had indeed repudiated the contract. Lord Justice Potter noted that in contracts of employment and agency, there was a need to maintain a relationship of confidence which could give rise to an implied term to that effect. Such a notion, however, was not necessarily a part of the relationship of the parties to an arm's length contract for work and materials. Indeed, in Lord Justice Potter's view, a relationship of confidence was not characteristic of such contracts. In addition, where the amount for interim payment was not specified within the contract, but dependent upon a demand by one party, it would be necessary for that party to crystallise the payment obligations by precisely specifying the amount due and the date upon which it is payable. Cheeseman had simply asked for a "substantial interim" payment, without more precision. Lord Justice Potter concluded that Cheeseman had jumped the gun at a time of irritation and disillusion at the way he had been treated. Whilst the court was sympathetic to his position, Cheeseman had nonetheless repudiated the contract by writing that he considered the contract at an end. Accordingly, the appeal was allowed and the judgment of the lower court reversed in favour of Shyam.
CJ-0201
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