Posts tagged: repudiation

Accepting Repudiation or Terminating for Breach? An expensive choice?

Shell Egypt v Dana Gas [2010] (the case is separately reported on whether “final, conclusive and binding” excludes a right of appeal – it does not) is a useful illustration of the need for precision in drafting notices to end contracts.  

Dana was in repudiatory breach and had also breached a specific term of the contract entitling Shell to terminate and providing specific remedies.  The repudiation entitled Shell to damages at common law, the breach to the contractual remedies that were, importantly, different from common law damages for repudiation.

 Shell accepted the breach and terminated the contract.  Later it appreciated that common law damages would have been considerably more valuable than the contractual remedy.  It sought to argue that its notice to accept the breach and the termination should also be capable of being construed as also accepting the repudiation.

 The Court upheld the award of the arbitrators and summarised the law as follows:

  • Acceptance of repudiation requires only that there is a clear and unequivocal intention to treat the contract as discharged communicated to the party in breach (Vitol v Norelf [1996])
  • If the contract and common law provide alternative rights which have different consequences, the innocent party will have to elect between them (Dalkia Utilities v Celtech International [2006])
  • Where the contractual right to terminate corresponds to the common law rights, no election is necessary (Stocznia Gdynia v Gearbulk Holdings [2010])

To rub salt in the wound the Judge commented that Shell could have served a notice which accepted the repudiatory breach as discharging the contract but, in the alternative, in case they were wrong in asserting that Dana were in repudiatory breach, exercised the contractual right to terminate.  That is the lesson for the future – the choice can be made later.

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