Valilas v Januzaj

A contractual obligation to make monthly payments on time is not ordinarily a condition. Unless the agreement makes time essential, it is an innominate term.

A breach or threatened breach justifies summary termination only where, assessed in all the circumstances, it deprives the innocent party of substantially the whole benefit of the contract, or makes it unfair to hold the party to the contract and leave damages as the remedy. The inquiry is fact-sensitive and non-discretionary. It considers the contract and relationship, the term, the nature and extent of the breach, its likely consequences, and the parties’ knowledge. A declared intention to perform in a substantially inconsistent manner is assessed by the same test.

Two dentists operated under an oral facilities contract. The claimant used the defendant’s premises, equipment and staff and paid 50% of his receipts. Most receipts arose under a yearly Primary Care Trust contract, under which payments were made monthly in advance but could require repayment if the required dental activity was not completed.

After the relationship deteriorated, the claimant withheld monthly payments and proposed payment by reference to completed activity. The defendant excluded him from the practice and claimed that the facilities contract had been terminated. The claimant sued for breach, and the defendant counterclaimed for unpaid sums.

His Honour Judge Hooper QC held that six months’ notice was required, that no effective notice had been given, and that the claimant’s conduct was neither renunciation nor repudiatory breach. The central issue on appeal was whether the deliberate withholding of payments and threatened continuation on modified terms entitled the defendant to terminate summarily.

1. Disposition. By a majority, Arden and Floyd LJJ dismissed the appeal. Underhill LJ dissented and would have allowed it.
2. Classification and test. The obligation to make monthly payments on time was not a contractual condition. Time was not made essential expressly or by necessary implication, so the term was innominate. The question whether its breach or threatened breach justified termination required a fact-sensitive evaluation of all the circumstances. It was not a matter of discretion. Relevant considerations included the nature of the contract and relationship, the nature of the term, the kind and degree of the breach, its consequences, and the parties’ knowledge of its likely effect. The governing approach was consistent with Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 and the multi-factor analysis identified in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61.
3. Application. The majority accepted the judge’s finding that the claimant was likely to complete the required activity and that the defendant would ultimately receive the sums due, although late. The defendant’s relationship with the claimant was commercial rather than analogous to employment. There was no sufficient evidence that delayed payment caused serious harm. The conditional nature of the claimant’s position, his genuine contractual concern, and the defendant’s failure at the time to assert fundamental departure from the contract also weighed against termination. The claimant therefore had not deprived the defendant of substantially the whole benefit of the contract. His exclusion from the practice was wrongful.
4. Dissent. Underhill LJ considered that the claimant had deliberately and indefinitely departed from his primary obligation by retaining all receipts and paying nothing until a final reconciliation. In his view, eventual payment was not decisive, and a feared future breach by the defendant could not justify the claimant’s own non-performance. The withholding of the August, September and October payments constituted repudiatory breach or renunciation.
5. The court proceeded on the judge’s assumption that any proportionate repayment by the claimant to the Primary Care Trust would give rise to a corresponding repayment obligation by the defendant. It did not decide that issue.

1. Court of Appeal (Civil Division): The appeal was dismissed by Arden and Floyd LJJ, with Underhill LJ dissenting.
2. Worcester County Court: His Honour Judge Hooper QC, judgment dated 11 March 2013, held that six months’ notice was required, that the defendant had not given effective notice, and that the claimant’s conduct did not justify summary termination. Damages were directed to be assessed, with an interim payment of £100,000.