25 October 2019

10 ways to terminate a contract

Nobody enters into a new relationship assuming it will fail, but at the outset of a commercial relationship the parties should could consider what happens if something goes wrong. We look here at your potential options if you want to end a commercial relationship. The ways explored below are not an exhaustive list.

1. Termination clause – a contract may state conditions for termination. When the conditions are performed a party may terminate a contract.

2. Performance – this is where one or more parties have completed their contractual obligations and no further action is required. The contract will automatically terminate unless parties agree further obligations.

3. Expiry of time – this is where a contract states a specified fixed term. The contract will generally expire after the time period has ended unless the contract allows for automatic renewal.

4. Agreement – where the parties agree to change the contract and end it by mutual agreement.

5. Breach of contract – a party has failed to perform the terms of a contract (a serious breach not capable of being remedied); this may entitle the other party to terminate the contract.

6. Rescission – where a party can demonstrate that another party is liable for:

• Misrepresentation – where a party gives false or misleading information that convinces another party to enter into a contract
• Undue influence – where a party is induced to enter in to a contract other than by own free will or adequate attention to the consequences
• Duress – where a party is forced into entering a contract against own free will.

In these circumstances a party may be entitled to cancel the contract.

7. Force majeure – this is where events outside the control of the parties do not allow them to perform their obligations under the contract. For example, acts of God, other natural disasters or terrorist activity. It is good practice for parties to expressly state the type of events in the contract that will not make the defaulting party liable if they are prevented from performing their obligations.

8. Illegality – a dishonest or corrupt act that can render a contract unenforceable.

9. Insolvency – where a party becomes insolvent, this can trigger a termination clause under the contract or lead to a repudiatory breach. Be sure to read the small print!

10. Death or change of control – in the event of change of ownership of a business, merger, or death of a party this can bring a contract to an end.
Whether someone has terminated a contract with you or you are terminating a contract, consider the options above.

If you would like to discuss contract termination, our dispute resolution team will ensure you understand the issues you face and what risks are involved, and help you decide upon a strategy that will let you move forward. If we can, we’ll keep it out of court, but if it comes to that point, we’ll fight on your behalf to get the best possible outcome.

For further advice on litigation and dispute resolution matters, please visit our page here.

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About the Author
Richard Morgan, Partner, Head of Dispute Resolution, Defence, Security and the Forces Sector
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