Repudiation occurs where one party to an agreement displays to the other party a deliberate and clear intention to no longer honour its obligations under the agreement and to no longer be bound by the agreement. Repudiation of an agreement by one party affords the other party a right to make an election to (a) accept such repudiation and terminate the agreement, or (b) to reject such repudiation and insist that the other party perform its obligations under the agreement.- In MSC Depots (Pty) Ltd v WK Construction (Pty) Ltd[1] the court had to decide on the evidence provided to it, whether the contractor’s cancellation of the construction agreement was valid. If so, whether the contractor was entitled to an order for absolution from the instance[2] which was brought in response to the employer’s claims that the contractor had repudiated the agreement as certain defects in the contractor’s works at the time of its cancellation allegedly constituted a material breach by the contractor of its obligations.
- The employer’s cause of action against the contractor arose from a standard building agreement (JBCC series 2000) entered between the parties for the construction by the contractor of a container depot where the employer’s shipping containers could be stored. Upon completion of the container depot, but prior to its full operational capacity being reached, premature surface deformation of the surface paving occurred. The extent of the defective works was apparent from an inspection report compiled by the employer’s experts which the employer used as the basis of its contentions that the contractor materially breached its obligations under the agreement to execute the works with due skill, diligence, regularity, and expedition to bring the works to completion.
- On consideration of the evidence provided by the employer in support of its aforesaid contentions, the court held that there was insufficient evidence to show that the contractor neither performed the work entrusted to it properly, nor strictly in conformance to the design and/or instructions issued to it from time to time, nor without due skill, diligence, regularity and expedition.
- The court found that the snag lists which were issued to the contractor were duly attended to by it and that any defects which arose were duly remedied by the contractor until it was instructed to desist from attending to such remedial works. The court found in favour of the contractor on the basis that if it was willing and able to attend to defects that manifested themselves prior to final completion of the project, then the contractor could not be in breach of its obligations, if it remedied such defects with due skill, diligence, regularity and expeditions.
- In terms of the contractor’s alleged repudiation, the employer contended, inter alia, that the contractor was precluded from cancelling the agreement as the contractor was in material breach of the agreement at the time of such cancellation.
- The court considered the grounds of the contractor’s cancellation which allows the contractor to cancel the agreement if the employer and/or principal agent (i) fails to issue payment certificates; (ii) fails to issue a statement to the contractor; (iii) fails to make payment of the certified amounts and (iv) the employer prevented the principal agent from exercising its independent judgment regarding the performance of its duties and the prejudice suffered by the contractor as a consequence thereof. The court held that the contractor was, on any one of the aforesaid grounds entitled to cancel the agreement and if the employer failed to establish that each of the grounds were not sound, then absolution must be granted to the contractor.
- In respect of the contractor’s first two grounds of cancellation, the employer contended that the contractor could not cancel the agreement based on non-payment in respect of payment certificates that were never issued to it. On the evidence, the court found that the agreement expressly provides that payment certificate may be for a nil or negative amount and that a failure to issue a payment certificate, including the failure to issue statements, amounted to a breach of the agreement and the contractor was entitled to cancel the agreement.
- In response to the contractor’s third and fourth ground for cancellation, the employer conceded that the amount was not paid but argued that it was entitled to withhold payment as the contractor’s works were not according to specification and that the costs to remedy the defects would be more than the amount due to the contractor. The court held that the principal agent’s certification of amounts due to the contractor was an exercise of its independent judgment. The employer’s refusal to make payment was contrary to that judgment and therefore prejudicial to the contractor. This, the court held, further entitled the contractor to cancel the agreement.
- The employer appealed the decision of the court’s a quo, but the Supreme Court of Appeal dismissed the employer’s appeal on the basis of the court a quo’s findings above namely that the employer failed to provide sufficient evidence to support its cause of action against the contractor and granted the contractor absolution from the instance, with an order for costs against the employer.
- The employer’s inability to substantiate or provide sufficient proof in support of its contentions that the contractor repudiated the contract, not only resulted in the court deciding that the contractor lawfully cancelled the agreement by virtue of its compliance with the terms of the agreement, but also granting the contractor’s application for absolution from the instance even though it may have been in breach of its obligations in respect of the defects found in works.
- Recourse to repudiation of an agreement must be very carefully considered by a party who wish to rely thereon and proof in support of such allegations must be properly substantiated.
[1] MSC Depots (Pty) Ltd v WK Construction (Pty) Ltd and Others 2011 (2) SA 417 (ECP); MSC Depots (Pty) Ltd v WK Construction (Pty) Ltd & Another (157/10) [2011] ZASCA 115 (08 June 2011).
[2] An order of absolution from the instance occurs when a court grants a dismissal of the plaintiff’s case without the defendant having to lead evidence in rebuttal because the plaintiff failed to lead sufficient evidence to support the different elements of its claim.
