Force India Formula 1 Team Limited v Etihad Airways PJSC
A recent Court of Appeal decision has looked at an area of the law fraught with procedural uncertainties, and considered how long a party can take to decide whether to accept a repudiatory breach of contract (and in turn, terminate the contract itself), before they lose the right to do so, and, by default, affirm the contract.
A repudiatory breach is considered to be one that is sufficiently serious, so as to entitle the other to treat the contract as terminated with immediate effect and sue for damages for breach of contract.
The main concern has always been whether inaction could in turn lead to an affirmation of the contract with the parties effectively waiving their right to terminate upon breach.
In the above case, Rix LJ identified the following categories of case, where any delay may well amount to an affirmation:
1. If timing of the transaction is of the essence – where the party in breach needs to know urgently, as in a sale of goods, where the seller needs to know if the buyer is accepting the goods delivered, or in transactions in a volatile market, such as share transactions.
2. Where silence is misleading.
In the case, the breaches had emerged over time, following a takeover of the party in breach, and sufficient time was needed by the innocent party to consider the position. The party in breach must have known that the party was considering their stance and there was no apparent urgency due to the winter break for the racing season.
Rix LJ therefore thought that 3 months was not enough time in this case, to amount to an affirmation.
Expressly reserving your rights to end the contract, while you consider your position will reduce any risk of this, but does not provide total protection. The period after you become aware of the right to termination is riddled with uncertainty and great attention must be paid to this latest ruling.
It is very much dependant on individual facts, but there are occasions where an inaction could lead to an affirmation of the contract, even if that is not the intention or objective.
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