Repudiation and the repentance principle

December 1st, 2017

Primat Construction CC v Nelson Mandela Bay Metropolitan Municipality 2017 (5) SA 420 (SCA)

By Vuyokazi Ndamse

What is repudiation? Repudiation is defined in Van Rooyen v Minister van Openbare Werke en Gemeenskapsbou 1978 (2) 835 (A) at 845 as a situation where one party to a contract, without lawful grounds, indicates to the other party in words or by conduct a deliberate and unequivocal intention to no longer be bound by the contract. Repudiation is, therefore, a form of a breach of contract. Once a contract has been repudiated, the aggrieved party may either elect to enforce specific performance or accept the repudiation and proceed to cancel the contract and claim damages.

It is entrenched in our law that once an election is made, it is binding. However, what happens when the other party makes it impossible for you to act in accordance with your election? Can a party, who previously elected to enforce specific performance change its election, thereafter proceed to nevertheless cancel the contract and claim damages?

This question was recently considered by the Supreme Court of Appeal (SCA) in the matter of Primat Construction CC v Nelson Mandela Bay Metropolitan Municipality 2017 (5) SA 420 (SCA).

During or about March 2010, Primat entered into a contract with the municipality to upgrade the roads in Motherwell, Port Elizabeth, as well as to supply all materials required for the construction works (the works). The project was managed by Iliso Construction (Pty) Ltd (a firm of engineers) and the works commenced on 12 April 2010. There were various delays in the execution of the works, which according to Primat, were mainly attributed to non-payment, alternatively delays in payment by the municipality. The project was extended, and, during the extension period, heavy rain storms damaged the works, which at that time, were almost completed. During this period, Primat was unable to complete the works, but, indicated to the municipality that it would do so when it was able to.

On 17 January 2012, the municipality prematurely cancelled the contract without affording Primat notice to remedy breach. This constituted a repudiation on the part of the municipality. On the same day, Primat sought access to the construction site but was barred from entering the site by the municipality. On 19 January 2012, Primat wrote a letter to the municipality and recorded that it regarded the municipality’s cancellation letter as procedurally incorrect and that it intended to ‘remain servicing the contract until the matter is finalised’. In response, the municipality wrote to Primat on 24 January 2012 further emphasising its decision to terminate the contract and requested Primat to vacate the construction site. On 26 January 2012, Primat again sought access to the construction site, but was barred by the municipality. On 27 January 2012, Primat wrote a letter to the municipality demanding access to the construction site and recorded that it had been denied access on the previous day. In this letter, Primat further recorded that the conduct by the municipality constituted a breach of the provisions of the contract. On 30 January 2012, the municipality sent a letter to Primat advising that it was entitled to expel Primat from the construction site and arrange for the completion of the works via other contractors. On 3 February 2012, Primat wrote a further letter to the municipality and recorded that the municipality’s cancellation was bad in law, and that this purported cancellation also constituted a repudiation, which repudiation it did not accept.

On 9 February 2012, Primat’s attorneys addressed a letter to the municipality in which Primat referred to the correspondence exchanged between the parties from 17 January 2012 to 3 February 2012. In the letter it was recorded that Primat had persisted with its intention to proceed with the contract, and the fact that the municipality’s appointment of four other contractors to complete the works constituted a further repudiation. In this letter, the contract was cancelled by Primat.

Pursuant thereto, Primat brought an action against the Municipality in the Eastern Cape Local Division of the High Court, Port Elizabeth for damages suffered as result of the cancellation.

Revelas J, held that the municipality had made specific performance by Primat impossible. The court further held that the Municipality had acted over hastily in cancelling the contract when it did and that its premature cancellation constituted a repudiation. She further described this repudiation as an unequivocal intention to no longer be bound to the contract with immediate effect.

This is much evident from the fact that the premature cancellation by the municipality was effected shortly before the builder’s holiday commenced in December 2011, especially in circumstances whereby the municipality had previously granted Primat an extension to complete the work.

Revelas J then ordered that Primat was entitled to cancel the contract and further that it is entitled to damages.

The municipality brought an appeal against the decision by Revelas J before a Full Bench in the Eastern Cape Division of the High Court, Grahamstown. Counsel for the municipality argued that once an election had been made, the innocent party is not at liberty to seek redress against the defaulting party by way of remedies that are inconsistent with the election made.

Primat argued that it was entitled to change its election, it having been held by Wepener J in Sandown Travel (Pty) Ltd v Cricket South Africa 2013 (2) SA 502 (GSJ) that a party, which had once elected to reject a repudiation, may thereafter, if the other party persists in the repudiation, change its election and cancel the contract.

The municipality further argued that the application of the repentance principle is only limited to cases of anticipatory breach, as it was held in the Sandown case. Primat argued that this was incorrect and submitted that Wepener J did not hold that in other cases of repudiation, the repentance principle does not apply, and that there is, in principle, no distinction between the repudiation of a past, present or future obligation.

The Full Bench held that Primat would only have been entitled to cancel the contract if a new, positive act of repudiation occurred, and the appeal succeeded.

Pursuant thereto, Primat petitioned to the SCA, and was granted special leave to appeal against the decision of the Full Bench. Primat argued that ‘persistence in repudiation’ is not only limited to cases of ‘a new or separate act of repudiation’ and to insist on specific performance in the face of a continuing repudiation, whether past or present, is ‘as fruitless as insisting on specific performance of a future repudiation’. It was further argued that where a contracting party repudiates a contract by prematurely cancelling same, that party specifically indicates its intention of no longer being a party to the contract.

The municipality repeated its previous arguments in the court a quo and the Full Bench persisted that once the innocent party is put to an election, it cannot both ‘approbate and reprobate’. Primat further argued that it was precluded from pursuing a claim for damages on a purported cancellation as this remedy was no longer available to Primat in light of its earlier election to claim specific performance.

The SCA then held that if a contracting party repudiates a contract, the aggrieved party may elect to claim specific performance. However, should the repudiating party persist with its repudiation after this election is made, and shows an unequivocal intention not to be bound by the contract, the aggrieved party may change its election and cancel the contract and claim damages.

The SCA further held that the requirement for a fresh act of repudiation by the municipality before Primat could change its election and proceed to cancel the contract and claim damages made little or no sense, and that Primat was reasonable in perceiving that the municipality would not repent of its consistent repudiation of the contract.

The appeal was upheld with costs of two counsel.

Where a party repudiates a contract and shows no intention to abide by the contract, it is, therefore, superfluous to expect the party to, at some stage or another, change its intention. Where the defaulting party makes it clear that it no longer intends to be bound in terms of a contract, the innocent party is permitted to change its election to claim specific performance, proceed to cancel the contract and claim damages.

  • Adams and Adams appeared for the appellant.

Vuyokazi Ndamse LLB (Fort Hare) is an attorney at Adams & Adams in Pretoria.

This article was first published in De Rebus in 2017 (Dec) DR 52.