In its June 2021 judgement, the Constitutional Court restated the principles relevant to repudiation of a contract. A party commits the breach of repudiation when through words or conduct that party manifests an unequivocal intention to no longer be bound by the contract or by material obligations forming part of the contract. The intention to repudiate is determined objectively.
The test is whether that party acted in a manner that would lead a reasonable person in the position of an innocent party to believe that they did not intend to fulfil or completely fulfil their part of the contract.
In this case the court was required to determine the permissibility of the cession of the rights in a long-term lease agreement.
The University landlord was of the view that the rights in the lease agreement were personal to its lessee and the lessee had repudiated the lease agreement by purporting to cede to a third party rights that were incapable of cession.
The University purported to accept the repudiation and cancelled the lease agreement.
The lessee disputed the landlord’s rights to do so.
The relationship between the parties centred on the role of both parties in tertiary education and the provision of land by the University to its lessee for its project of providing tertiary education on the leased premises.
The type of performance reasonably expected at the conclusion of the contract was that the lessee would establish an institution of higher learning on the leased premises, which was intended by the parties to be used for the purposes relating to tertiary education.
In motivating for the contract at the time it was entered into, it was expressly stated that the lessee planned to establish a theological college as an institution of higher learning on the property.
The court held that given the very personal nature of the lease and the use of the property rights in particular it was reasonable of the University to believe that, through the lessee’s conduct of ceding the rights to another institution which would be unable to use the land in accordance with how the lease required it to be used, that the lessee no longer intended to be bound by the lease agreement.
The cession of the rights under the lease to the third party therefore amounted to a repudiation of the lease agreement.
Before a party to a contract may cancel by accepting the repudiation, the repudiation must be material and of a sufficiently serious nature to warrant rescission.
On the facts, the conduct of the lessee was of a nature that it could no longer establish an institute of higher education on the land. That was the reason for which the lease agreement was concluded. The third party did not and did not intend to provide tertiary education meaning that the property could not be used as intended.
The court held that the repudiation by the lessee was of a serious nature. It defeated the entire purpose for which the contract was entered into. The cession of the right was tantamount to the unequivocal intimation on the part of the lessee that it no longer wanted to perform or be bound by an essential part of the lease agreement to establish an institute of higher education or related purpose. The university was justified in cancelling the agreement upon accepting the repudiation.