Neither In Nor Out

A buyer can tell you, in writing and even under oath, that it fully intends to go ahead with a deal, and can still be in the wrong in law for the way it walks away from it. That sounds impossible, but it is not. It is one of the most costly misunderstandings in the business of contract law, and it does the most damage when the company on the other side of the table is fighting for its life.

We acted for the seller in a large mining transaction that turned on exactly this problem. The buyer never once said the words ‘we will not perform’. It kept telling us it was committed to the deal. Everything it actually did told a very different story. This article explains what repudiation is and how to recognise it when the other side says yes but behaves as though the answer is no.

Neither In Nor Out

What repudiation is, and how to spot a deal partner who says yes but will not perform

Every experienced dealmaker knows the counterparty who walks away. He is a problem, but at least he is an honest one. He tells you he is out, and the law gives you a clear set of remedies. The harder counterparty is the one who sits on the fence. He will not climb down and close the deal, and he will not climb off the pot and let you go. He sits there and assures you, at length, that he is committed. In an ordinary deal you can live with him for a while. When the company on your side of the table is in business rescue, you cannot, because every week he sits on the fence costs money the company does not have.

Business rescue is the legal process that gives a financially distressed company some breathing space from its creditors while it either trades its way back to health or sells its business for the best price it can get. A company in rescue is racing against the clock and running out of cash at the same time. That is the pressure the fence-sitter uses, whether he means to or not.

A yes that is really a no.

What does the doctrine of repudiation of a contract actually test? Most businesspeople assume it turns on what the other side meant to do. It does not. The law measures repudiation by what a reasonable person in your position would understand from the other side's conduct, and the other party's private intentions simply do not come into it.

Repudiation is a bit of jargon used in contract law.  It happens when one party to a contract shows, by its words or by its conduct, and without any lawful excuse, that it will not perform its side of the bargain, or will not perform it properly.  This can happen even before a contract is breached when it looks like a breach in the making.  When that happens, the innocent party may accept the repudiation, cancel the contract, and claim damages. The clearest explanation in our law was written more than twenty years ago by one of our most respected appeal judges, Nienaber JA, in Datacolor International (Pty) Ltd v Intamarket (Pty) Ltd. He held that repudiation is not a question of intention at all. It is a question of perception. The real test is what a reasonable person, standing in the shoes of the innocent party, would conclude the other side was going to do.

Let us consider this for a moment, because it matters to every deal you will ever sign. Your counterparty's sincerity does not save him. He may honestly believe he will close the deal one day, when it suits him. If his conduct would lead a reasonable person in your position to conclude that he is not going to perform properly, he has repudiated the contract, and his good intentions change nothing. The court looks at what he does, not at what is going on in his head.

Why the clock runs faster in a rescue.

Every seasoned dealmaker will tell you that time kills deals. Delay lets doubt creep in, markets move, and circumstances change. In business rescue that ordinary truth becomes far more dangerous, because a company in rescue is spending borrowed cash it cannot easily replace. In our matter, the business rescue practitioners were keeping the mine alive at a cost of around R4 million a month, funded out of money advanced to see the deal through. The company also faced a payment of more than R35 million falling due to a contractor at the end of that same August, which it could only meet once the deal had closed. Its long-standing funder, itself in business rescue, had told us it would stop paying the running costs if the buyer kept stalling. Every week the deal stayed open pushed the company closer to the one outcome that rescue exists to prevent, which is liquidation and the loss of the mining right that made the business worth buying in the first place.

So when the buyer asked, in the middle of the first Covid lockdown, to push the closing of the deal out by six months, it was not asking a small favour. It was asking us to find millions the company did not have, and to hold off a major creditor, so that the buyer could put off taking on a business it did not want to run just yet. We did not have to guess whether the buyer was sincere. We only had to do the arithmetic.

Where the words ran out.

The buyer's assurances were real, and there were plenty of them. It had advanced R150 million to fund the deal. It had signed a revival agreement at a point when the whole transaction could easily have been left to collapse. It had registered its security. More than once, and in writing, it told us that it recognised the contract and would pay the cash portion of the price in due course. On the strength of all this, its lawyers argued that no reasonable person could read its conduct as a refusal to be bound. That argument deserves to be taken seriously, because it is the argument the fence-sitter always makes, and he is often telling the truth about what he intends.

Intention, though, was never the point. We had pressed hard for the cash portion of the purchase price, R241 million, to be paid into trust, and by this stage we were getting desperate, because the company was running out of road. The buyer refused, on the ground that nothing was payable until the cession of the mining right had first been signed. On that narrow point the arbitrator later held that the buyer was right, and so it was. Our demand that the money be paid on a date of our own choosing went further than the contract allowed, and a refusal to comply with a demand the contract does not support is not a repudiation. That finding cut against us, and it is worth stating plainly, because it shows that not every hard line a party takes is a repudiation. Sometimes a party is simply standing on its rights.

The demand for the six months delay was different. Here the buyer was not asking for something we were free to refuse. Its lawyer wrote that, because we would not agree to delay the closing by six months, the buyer intended to claim that delay as a right in the arbitration, relying on the Covid pandemic as an event of force majeure and on the argument that circumstances had changed. In a sworn affidavit it went further, saying that whether or not we signed the cession of the mining right, it would carry on pursuing the six-month reprieve. When a lawyer says his client will seek relief as of right, he is not asking politely. He is asserting an entitlement. A reasonable person reading those words, from a buyer that plainly did not want to run the business during lockdown, would conclude that the buyer would not perform when performance fell due, but only when it suited. That is repudiation. It is the buyer telling you, through its conduct, that it will not do the deal on the terms that were agreed.

How long can you keep waiting?

There was one more hurdle, and it catches out careful parties more often than reckless ones. For months, we had accepted no repudiation. We had done the opposite. We had demanded that the buyer perform, we travelled to New York to meet the buyer in person and just made it back days before lock down, and even gone to court for an urgent order forcing the deal to close. The buyer argued that, having chosen to hold it to the contract, we could not later change our minds and cancel. There is an old rule that a party cannot both approbate and reprobate, which in plain terms means you cannot accept a contract when it suits you and reject it when it does not. Once you have chosen your remedy, the rule says, you are bound by that choice.

The answer came from a later judgment of the Supreme Court of Appeal, written by Lewis JA, a judge well known for her practical grasp of how contracts work in the real world. In Primat Construction CC v Nelson Mandela Bay Metropolitan Municipality she held that this rule is not absolute. Where the innocent party has chosen to hold the other side to the contract, and the other side keeps breaching it and refuses every chance to put things right, the innocent party may give up the fruitless demand for performance, change its mind, cancel, and claim damages. This is sometimes called the repentance principle. It gives the party in default a fair chance to repent and perform. If he will not take that chance, the innocent party does not have to wait forever. You can wait a reasonable time. You do not have to wait until your company has gone under.

Why later meant no.

This brings us to the heart of the case. The buyer's real defence was that it had always meant to do the deal, and that meaning to complete, even late, cannot be a repudiation. That is wrong, and it is worth understanding why. A party can fully intend to perform and still repudiate a contract, if what it intends is to perform on terms the contract does not allow. Our contract made timing a critical term. The whole deal had been built around a company losing money every month in business rescue, and both sides knew it. A demand to close six months late, insisted on as a right, was not an offer to perform this contract. It was an offer to perform a different one, on a timetable the buyer preferred. Measured against a deal in which timing was central, the breach was plainly serious.

So we were entitled to do what we did. We changed our minds and accepted the repudiation, cancelled the contract, and dealt with the company's assets as a seller who was now free of the deal. The arbitrator, a retired judge of the Supreme Court of Appeal, agreed with us. He held that the cancellation was lawful and dismissed the buyer's counterclaims with costs, including the cost of two counsel. The deal itself had been running since 2018, and it eventually closed under a later settlement. The principle, though, held where it mattered. A buyer who insists that you wait six months for him, and calls that insistence his right, has not agreed to your deal. He has told you, by his conduct, that he will not do it on the only terms that were ever on the table.

The lesson is this - do not be reassured by reassurance. Words are cheap, and the other side's words are not the evidence. Watch what it does, read that conduct as a reasonable person in your position would read it, and remember that in a rescue the clock never stops. A counterparty who fills the room with promises of good faith, while refusing to perform when the time comes, is not a mystery. He is sitting on the fence, and the law of repudiation exists so that you are not left sitting there with him.

A party is not judged by what it promises.

It is judged by whether its conduct tells you it will not perform.

Written by:

Wessel Badenhorst

August 2026

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