Carter & Anor v Lifeplan Products Ltd

A breach of a contractual condition does not automatically terminate the contract unless that consequence has itself been properly implied. Ordinarily, the breach gives the innocent party an election to accept the repudiation and terminate, or to affirm the contract. Affirmation is a positive factual case. It must be pleaded and supported by evidence, so a court cannot find affirmation on its own initiative where the parties had no opportunity to address it. Acceptance of repudiation requires no particular form. Conduct, including a defence, is sufficient if it communicates with adequate clarity an intention to terminate. Once repudiation and acceptance are established, the innocent party has a complete defence to a claim for further contractual performance.

Lifeplan sold its 50% shareholding in Proline Botanicals Ltd to Anthony and Beverley Carter under a share purchase agreement dated 23 March 2010. Clause 4.6.1 required the buyers to procure repayment of an inter-company balance. Proline failed to make the required payments and entered creditors’ voluntary winding-up. Lifeplan sued under the guarantee provision.

Recorder Cameron awarded Lifeplan £44,932.12 and dismissed the counterclaim. He accepted that an implied non-solicitation term had been breached and treated it as a condition, but held that the Carters had affirmed the agreement by arranging agreed contra payments. The appeal concerned whether affirmation could be found when it had not been pleaded or supported by evidence, and whether the Defence amounted to acceptance of repudiation.

The judgment of Mr Justice Mann, with which Lord Justice McFarlane and Lord Justice Laws agreed, allowed the appeal.

1. Affirmation. The Recorder’s finding that the Carters had affirmed the agreement could not stand. Affirmation requires a factual basis and is a positive case which must be pleaded, enabling the allegedly affirming party to know that it is raised and to address it in evidence. No such case was pleaded or argued at trial, and no evidence was directed to it. The Recorder had therefore taken a point of his own devising ([13]).
2. Effect of the contractual condition. The unchallenged findings were that the implied non-solicitation term was a condition and that its breach entitled the Carters to bring the agreement to an end. The Court rejected the suggestion that the breach automatically terminated the agreement. That would require a further implication, which would fail the standard tests of business efficacy, the officious bystander and necessity ([14]–[16]).
3. Acceptance of repudiation. Acceptance requires no particular form. It is sufficient that the defendant’s acts communicate, with sufficient clarity, an intention to terminate. A defence may constitute acceptance. In its context, the Defence stating that the Carters were discharged because Lifeplan was in repudiatory breach communicated reliance on the repudiation immediately. The use of the future tense did not alter that conclusion ([17]–[18]).
4. Disposition. The unchallenged findings established a repudiatory breach, and the Defence constituted acceptance. The Carters therefore had a complete defence to Lifeplan’s claim. The remaining grounds, concerning the amount of the debt and causation, did not arise. The judgment requiring payment of the balance was set aside ([19]–[20]).

• Court of Appeal (Civil Division): In [2013] EWCA Civ 453, the appeal was allowed and the order requiring the Carters to pay the balance found due was set aside.
• Leeds County Court: Recorder Cameron gave judgment for Lifeplan on 7 October 2012 in the sum of £44,932.12 and dismissed the counterclaim.