Terminating a Contract | Contractual Disputes
Terminating a contract can be a complex and sensitive process, but in certain circumstances, it may be necessary. Whether due to a breach of contract, a change in circumstances, or other valid reasons, understanding the legal grounds for contract termination and following the proper steps is crucial to avoid legal disputes.
Once the terms of a proposed trading relationship have been discussed, agreed and recorded in a formal contract, where it has been reduced to writing, the anticipation of the parties will be that such venture will proceed smoothly and amicably in accordance with their expressed agreement.
However, the reality is that, all too often, subsequent events frequently produce unanticipated circumstances, contractual obligations are not fulfilled and consideration may have to be given as to the future viability of the contract.
A party faced with a breach or potential breach of the contract by the other has a number of options. They may seek to affirm the contract, thereby giving rise to a claim for damages, cancel or rescind the contract or opt to terminate it.
In this article Stuart Southall of KANGS outlines the option of terminating a contract.
Considering Contract Termination
Deciding whether you have a right to terminate a contract and how to bring about that termination can be difficult. Incorrectly terminating a contract may result in serious unanticipated consequences and must be conducted correctly. Failure to do so may even result in the innocent party becoming liable for breaching a contract’s terms.
Once a contract has been terminated, the parties are released from their continuing obligations although accrued rights, such as the right to be paid for services already rendered under the contract, remain. Additionally, certain specific agreed terms will usually survive, such as confidentiality and intellectual property provisions and dispute resolution clauses.
Ways in Which a Contract May Be Legally Terminated
Following the correct procedure is vital to ensure that the required termination itself does not amount to a breach giving rise to a claim for damages. There are four ways to legally terminate a contract:
Termination of contract for breach
The breach of contract needs to be sufficiently serious to amount to a repudiatory breach i.e. one where the term breached was vital to the performance of the contract. Several smaller breaches can together amount to a repudiatory breach, even when, individually, they would not. What constitutes a repudiatory breach will be one to be determined by a court taking into account the contract as a whole and the facts of the case.
Termination of contract by performance
A contract will come to an end once all of its terms have been performed and obligations satisfied.
Termination of contract by agreement
If both parties decide the contract no longer serves their needs, for whatever reason, they may terminate it in accordance with any express term contained within the contract or a subsequent document whereby they release each other from their obligations.
Termination of contract by frustration or force majeure
If the purpose of the contract is no longer achievable due to unforeseen circumstances, it may be terminated on the grounds of frustration. Such a situation may be, for example, a natural disaster, a change in law or the unavailability of something. Contracts frequently provide a ’force majeure’ clause to cover terrorist activity, fire or an epidemic.
Contract Termination Clause
Many contracts include a termination clause that outlines specific circumstances under which the contract may be terminated as non-performance of described duties and failure to comply with specific timeframes.
Whether a party is terminating in accordance with contractual or common law rights, notice of termination will usually be required. The notice should be clear, concise, and indicate the grounds for termination and the effective date of termination.
The contract may specify the notice procedure to be followed but it should be sent through a manner whereby delivery is recorded such as certified mail or email with a receipt.
Remedies for Breach of Contract
In addition to termination of contract, remedies available to the innocent party include:
- an action for damages,
- obtaining an injunction,
- seeking a court order for specific performance.
The course of action to be followed will be governed by the nature and seriousness of the breach. It frequently arises that the innocent party simply wishes to terminate the contract and to be freed of ongoing responsibilities and distanced from any further relationship with the party responsible for failure of the contract.
How Can We Help You?
Terminating a contract is not a step to be taken lightly and without detailed consideration of the potential consequences. The commercial impact on a business must be calculated and assessed against alternative possibilities such as suspension of the contract and re-negotiation of its terms.
KANGS brings extensive experience gained from years of representing clients in all types of civil disputes, including those related to termination of contracts. Among the steps which may be taken when considering how to proceed are:
- reviewing the contract thoroughly to determine the requirement of any termination clauses and other specific clauses to be observed such as adoption of alternative dispute resolution requirements.
- negotiating an amicable exit from the existing contract and, especially if the breach is due to a change in unforeseen circumstances, substituting a revised contract to meet the ongoing requirements of both parties.
- considering other remedies such as seeking a Court Order for Specific Performance by the defaulting party of the failure leading to the breach of contract.
Our team will support you throughout the entirety of any Civil Dispute and Litigation, seeking to achieve the most satisfactory outcome available as quickly and economically as possible.
If we can be of assistance the team at KANGS will be delighted to hear from you, please do not hesitate to contact our team using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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