Repudiatory breach of an implied obligation to co-operate

March 14, 2019

The England and Wales High Court (Technology and Construction Court) recently considered the circumstances in which a party’s failure to comply with an implied obligation to co-operate will be a repudiatory breach of a contract.

 

The dispute in Sanderson Limited v Simtom Food Products Limited [2019] EWHC 442 (TCC) involved a contract, signed in November 2014, for the provision of software services by Sanderson to Simtom. The software services were to be rolled out as a project and required collaboration between the parties including site visits, workshops and meetings between Sanderson and Simtom.

 

Between January 2015 and July 2015, the parties took steps towards implementing the project. Little progress was made however, and in February 2016 the parties met to discuss the way forward for the project. In the meeting the parties agreed to put the project on hold with a re-start date no later than 1 February 2017. At the time of the February 2016 meeting, Simtom was also in substantial arrears under the contract payment schedule and negotiated a new payment procedure.

 

In January 2017, Sanderson sought to schedule a “kick-off” project meeting with Simtom. Simtom failed to confirm a date for this meeting and instead responded to Sanderson’s request with an email that included comments to the effect that:

 

  • it had never actually committed to any specific date to restart the project;

  • in light of Sanderson causing numerous delays to the project, Simtom needed “to have our confidence fully in place before we can proceed”;

  • Simtom required written answers to questions regarding the software package and project; and

  • once Simtom’s confidence was re-established its own project manager would re plan the project, with Sanderson to be reduced to the role of senior supplier.

 

In April 2017, Sanderson wrote to Simtom notifying it that it considered Simtom’s rejection of the current arrangement and its attempt to impose new and onerous terms on the contract to be a repudiatory breach, which Sanderson accepted, thereby terminating the contract between the parties. In response, Simtom alleged that it was Sanderson that repudiated the contract when it purported to accept Simtom’s alleged repudiation and bring the contract to an end.

 

In interpreting the contract, Judge Halliwell held that despite there being no specific contractual provision requiring co-operation, an obligation to co-operate was to be implied, as the contract required close collaboration between the parties. Therefore, the critical question for the Court was whether, by words or conduct, Simtom evinced an intention to abandon and refuse to perform its obligation to co-operate under the contract, thus committing a repudiatory breach.

 

Judge Halliwell held that Simtom had renounced the contract and Sanderson was within its right to terminate for a repudiatory breach by Simtom, on the basis that:

 

  • it was an implied obligation under the contract that the parties would co-operate to give effect to the project;

  • at the February 2016 meeting the parties had agreed to restart the project in February 2017, and Sanderson was reasonably entitled to assume that Simtom would co-operate in facilitating the restart of the project;

  • by declining to make arrangements for the “kick-off” meeting and sending its email, Simtom committed a clear breach of its contractual obligations. This is on the basis that any reasonable person in Sanderson’s position would have been entitled to infer from Simtom’s email that it had no intention to perform in strict compliance with its contractual obligation to co-operate; and

  • Simtom renounced the contract when it declined to co-operate with Sanderson to re start the project in early 2017.

 

Where a contract involves an obligation to co-operate (express or implied), parties are reminded that conduct which results in the contract being unable to be performed may lead to a repudiatory breach of the contract and liability may be incurred.

 

The full decision can be found here.

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