A Guide to Contract Termination
05 Sep 2019
A. WHAT AM I READING?
1. The information in this paper is intended as a guide to identifying common issues that arise and principles of law that may apply when considering termination of a contract. The focus of the paper is on termination of construction contracts.
B. WHAT DOES TERMINATION OF A CONTRACT MEAN?
2. Termination of a contract is used to describe the process whereby a contract is ended before the parties’ contractual obligations are fully performed. Upon termination the contract is discharged along with the primary obligations for performance and these are replaced by secondary obligations to pay damages. 1
C. IDENTIFY THE TERMS OF THE CONTRACT
3. The starting point in an analysis of contract termination rights is to identify the terms of the contract. This requires a consideration of the express terms of the contract and any implied terms. The impact of any variations or amendments to the contract should also be considered.
- 4. The following steps assist in identifying the express terms of a contract: a. identify and list the documents that potentially comprise the written terms of the contract.
- b. consider whether each of the documents contain terms that have been incorporated into the contract?
- c. consider whether the terms been incorporated into the contract in whole or in part?
- d. consider whether any of the material terms are ambiguous or inconsistent?
5. Query whether there are there any implied terms? Examples of implied terms in a construction contract include, a duty to exercise reasonable skill and care, and a duty to provide accurate design information.
6. Has the contract been amended or varied?
D. IS THE INNOCENT PARTY ENTITLED TO TERMINATE THE CONTRACT?
Grounds for termination at common law
- 7. There are two principal grounds for termination at common law, namely: a. termination for repudiation; and
- b. termination for breach.
Termination for repudiation
8. The test of whether conduct is repudiatory or not is often stated by asking is there evidence of the wrongdoer’s unwillingness or inability to render substantial performance of the contract?
9. Whether conduct amounts to repudiation is a question of fact to be determined objectively. The parties’ subjective intention is not relevant.