Anticipatory breach of contract

Anticipatory breach of contract in the context of contract law refers to the notice given by one party to another of their inability or unwillingness to perform their obligations under a contract. The repudiating party who unwilling and unable to perform a contractual obligation must deprive the aggrieved party of substantially the whole of the benefit of which they would had received if the repudiating party performed its side of the bargain. Also known as an ‘anticipatory repudiation’, the aggrieved party has two options:

  • They can affirm the contract by ignoring the anticipatory breach and hold the other party to their side of the contractual bargain (by seeking specific performance); or
  • They can accept the repudiation, terminate the contract and claim damages.

The key issue facing an aggrieved party in this situation and influencing the choices that they make is that of mitigation of loss. If a party chooses not to terminate the contract before the time arises for its performance, they are under no immediate obligation to mitigate (i.e. diminish) their loss resulting from the failure of the repudiating party to perform their side of the bargain (see Huppert v Stock Options of Australia Pty Ltd (1965) 112 CLR 414). However, if a party chooses to terminate the contract before the time for the performance of their obligations they are under an immediate obligation to mitigate their loss (however they can sue for damages immediately).