HOW TO TERMINATE A COMMERCIAL CONTRACT: A LITIGATOR’S PERSPECTIVE
It is a fact of life that circumstances change, sometimes when the virtual ink is still wet on a contract. Parties fail to perform their obligations, new opportunities arise that make existing contracts unprofitable and sometimes a global pandemic or invasion intervenes to change the economic climate. When something changes, the question for businesses is whether they and their counterparties are bound to continue to perform their obligations until the contract comes to an end or whether it is possible to terminate early, claim damages for any breaches of contract and move on to pastures new.
This article highlights key practical considerations for businesses from a litigator’s perspective.
Summary
Terminating a contract is a serious step. Before terminating it is vital for businesses to take a step back and ensure they get it right. Even if it seems clear that the other party has breached its contractual obligations, there are a number of interconnected issues to consider before terminating. Getting it right will maximise the innocent party’s commercial and legal leverage and give the best chance of a good outcome. Getting it wrong can mean losing the right to terminate and even handing the party in breach the right to terminate the contract and sue for damages for wrongful termination.
Grounds for termination
There are broadly two avenues for terminating a contract. The first is by exercising a right to terminate provided for in the contract. The second is by terminating for a repudiatory (i.e., fundamental) breach of contract at common law.
Jan-Mar 2023 issue
Farrer & Co