The global pandemic caused by Covid-19 has meant that many contracts are no longer being honoured. What seemed to be a good deal 18 months ago may now look very different. This blog explores some possible means of escape from contractual obligations (please see the separate blog here that deals with force majeure, frustration and illegality which are not dealt with here).
There issues that parties are likely to be applying their minds to are as follows:
Read the Contract!
- Are there contractual termination rights? Are they engaged? This is strictly a contractual issue. Does the contract contain such a clause? Does it cover the current circumstances? Who can rely upon it – is it unilateral or bilateral? Is the breach fundamental? Is it remediable?
- What is the term (duration) of the contract? Is it approaching? Has it passed? Is there a notice period? If there is no notice period then generally, a contract can be terminated on reasonable notice.
- What is reasonable notice? There is no fixed rule but a court is likely to take into account:
- The length of the contract term and the type of contract.
- The degree of financial dependence of the terminated party on the contract.
- The time that would be required by the terminated party to replace the lost business represented by the contract.
- The commitments of the parties which exist at the date of the notice to terminate.
- The common intention of the parties at the time when they entered into the agreement.
- How do I give notice? Most formal contracts will contain a prescribed method by which notice should be given and when that notice will be deemed to have been served.
Other Points to be Aware of
- If in doubt take advice. Are you sure you have valid grounds to terminate? If you purport to terminate contracts without a valid right to do so, that wrongful termination may itself amount to a repudiation of the contract by you. This would entitle the other party to elect whether to accept your repudiation (and sue you for damages for wrongful termination) or affirm the contract and insist on continued performance.
- In some circumstances, it may be appropriate to give the other party a chance to put things right before you terminate, to give yourself an extra degree of protection from a claim for wrongful termination.
- If you do have grounds to terminate be careful not to affirm the contract by continuing with and thereby waive your right to end it.
If you are considering termination take advice on your position. Getting it wrong could be expensive.
This blog was written by Michael Stewart
DISCLAIMER: Please note that this post sets out the general position under the general law. It should not be acted upon in any specific circumstances without taking specific legal advice as to those circumstances. Also, it should not be relied upon, acted upon or treated as a substitute for specific advice relevant to particular circumstances. If you do require specific advice please contact us for assistance.