Remedies for repudiation or material breach of employment contract

Remedies for repudiation of employment contract

“A breach of a contract by repudiation occurs when a party evinces an intention no longer to be bound by it or to fulfil it only in a manner substantially inconsistent with the contractual obligations. Repudiation will arise where there is conduct consistent with a renunciation either of the contract as a whole or a fundamental obligation under it: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [44]. Repudiation of a contract is a serious matter and is not to be lightly found or inferred: Shevill v Builders Licensing Board (1982) 149 CLR 620 at 633. To amount to a refusal to perform the contract, the breach must be sufficiently serious: see, for example, Re Rubel Bronze and Metal Company Ltd [1918] 1 KB 315 at 322; The Product Star [1993] 1 Lloyd’s Rep 397 at 407 and Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at 394, 429, 435……………………
The available options were identified by the Full Court (at 436) as being “warranty, condition or intermediate term …”. These categories were identified in the joint judgment of Gleeson CJ, Gummow, Heydon and Crennan JJ in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 (“Koompahtoo”). In dealing with the concepts of conditions and warranties (at 137) their Honours quoted with approval from the judgment of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Limited (1938) 38 SR (NSW) 632 at 641–2 where his Honour said that:
“The question whether a term in a contract is a condition or a warranty, ie, an essential or non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor. If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. If he contracted in reliance upon a substantial performance of the promise, any substantial breach will ordinarily justify a discharge.”
The “intermediate” category emerged from later case law. As the plurality explained in Koompahtoo (at 138–9):
“ What Jordan CJ said as to substantial performance, and substantial breach, is now to be read in the light of later developments in the law. What is of immediate significance is his reference to the question he was addressing as one of construction of the contract. It is the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and (in a case such as the present) the commercial purpose it served, that determines whether a term is “essential”, so that any breach will justify termination.
The second relevant circumstance is where there has been a sufficiently serious breach of a non-essential term. In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, the English Court of Appeal was concerned with a stipulation as to seaworthiness in a charterparty. Breaches of such a stipulation could vary widely in importance. They could be trivial or serious. The Court of Appeal held that to the accepted distinction between “conditions” and “warranties”, that is, between stipulations that were in their nature essential and others, there must be added a distinction, operative within the class of non-essential obligations, between breaches that are significantly serious to justify termination and other breaches. This was a recognition that, although as a matter of construction of a contract it may not be the case that any breach of a given term will entitle the other party to terminate, some breaches of such a term may do so. Diplock LJ said that the question whether a breach by one party relieves the other of further performance of his obligations cannot always be answered by treating a contractual undertaking as either a “condition” or a “warranty”. Of some stipulations “all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise”.
In this way Diplock LJ set the policy of the law favouring certainty of outcome through the classification of terms as conditions against that which encourages contractual performance and favours restriction of the right to terminate to cases where breach occasions serious prejudice. As it is put in the eleventh edition of Treitel:
“[T]he policy of leaning in favour of classifying stipulations as intermediate terms can be said to promote the interests of justice by preventing the injured party from rescinding on grounds that are technical or unmeritorious.”
Perhaps the adoption of other taxonomies for contractual stipulations might achieve similar outcomes. However, Hongkong Fir was decided in 1961 and has long since passed into the mainstream law of contract as understood and practised in Australia.
In assessing the seriousness of breaches for the purposes of determining whether the offending party has repudiated the contract the court is concerned to form a judgment as to whether the breaches were “sufficiently serious as to change the character of the grant to, or of the obligations or entitlements of, the other party to the contract to such a degree that it can be said to be a commercially different bargain” and that the offended party “has been deprived of substantially the whole benefit of the contract (as originally agreed)”: see Byrnes v Jokona Pty Ltd [2002] FCA 41 at [78]–[79] (Allsop J, as he then was).
Allsop J, in Byrnes, identified a number of factors relevant to the assessment of seriousness as follows:
“Whatever be the most appropriate expression of the degree of seriousness required to amount to circumstances which entitle termination, it is also necessary to identify the kinds of factors to which the court will or may have regard, in addition to the question of interpretation and construction of the contract, in assessing the seriousness of any breach. The following are relevant considerations in assessing that seriousness: the adequacy of damages and the ability to quantify damages; any apparent injustice, including unjust enrichment of the innocent party, should that party terminate; the possibility of forfeiture by the party in breach; the uncertainty or not surrounding future compliance with the contract; the history of the standard of contractual compliance hitherto; the expressed or otherwise evident attitude of the party in breach to its obligations; the ability of either party to cure the breach; and, perhaps, the extent to which the behaviour of the party in breach comports with standards of good faith and fair dealing. These matters may not be exhaustive, but they may, in any given case, assist in an assessment of a breach as of sufficient seriousness or not to warrant termination. See generally Treitel, Remedies for Breach of Contract pp 356-60; Treitel The Law of Contract (7th Ed) pp 585-618; and the Restatement of the Law of Contract 2d. [241].”
………………………..In assessing whether the breach is sufficiently serious to justify termination, the court will take into account “the nature of the contract and the relationship it creates, the nature of the term, the kind and degree of the breach, and the consequences of the breach for the other party” Koompahtoo at 140 (per Gleeson CJ, Gummow, Heydon and Crennan JJ). The majority also added that “the adequacy of damages as a remedy may be a material factor in deciding whether the breach goes to the root of the contract”. A breach without any proved loss is less likely to be serious: Carter v The Dennis Family Corporation [2010] VSC 406 at [165].”

Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 3) [2016] FCA 1453 delivered 8 December 2016 per Tracey J