SUMMARY OF PART ONE How do I terminate a contract? Termination - - PowerPoint PPT Presentation

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BREACH OF CONTRACT: TERMINATION AND OTHER OPTIONS

10 December 2013 - LEE SHIH

SKRINE

ADVOCATES & SOLICITORS

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SUMMARY OF PART ONE

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• How do I terminate a contract?
• Termination clauses.
• Common law right to terminate.
• Waiving the ‘No Waiver’ clause.
• Contract excluding the common law right?

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TERMINOLOGY

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• Terminate – contract

brought to an end

• Rescission –

restrospectively undoing a contract

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HOW DO I TERMINATE A CONTRACT?

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TERMINATION CLAUSES

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TERMINATE WITHOUT CAUSE

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“A may terminate the Contract by providing 15 days’ written notice to B.”

• Unilateral termination allowed. Courts will hold parties to the
• bargain. Parties had addressed their minds on how their

relationship could be brought to an end.

• Wong Pa Hock [2002] CLJ 267 (HC) and Chan Whye & Sons

Contractor (suing as a firm) v Sarawak Shell Bhd [2003] 5 MLJ 68 (HC)

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TERMINATION / DEFAULT SPELT OUT

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TERMINATION / DEFAULT SPELT OUT

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• Default arising from: bankruptcy / insolvency / receivership /

entering into a scheme of arrangement. “has become bankrupt, or insolvent, or made an assignment for the benefit of or enter into any composition or other similar arrangement with its creditors, or having filed a petition or having had a petition filed against it under any bankruptcy corporate re-organisation or other law for the relief of debtors

• r having had commenced against it dissolution or winding-up

proceedings.”

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TERMINATION / DEFAULT SPELT OUT

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“Material breach of the agreement”

• It is a breach that has a serious effect on the benefit that the

innocent party would have obtained from the contract. (NB: to contrast later with a “repudiatory breach” which is a higher standard).

• See generally, National Power [1998] All ER (D) 231, Dalkia

Utilities [2006] 1 Lloyd’s Rep 599 and Crosstown Music [2009] All ER (D) 269.

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COMMON LAW RIGHT TO TERMINATE

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COMMON LAW RIGHT TO TERMINATE

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• There must be a repudiatory breach:
• 1. A breach of a condition
• 2. Sufficiently serious breach of an intermediate

term

• 3. Refusal to perform / Renunciation

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COMMON LAW RIGHT TO TERMINATE

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(1) Breach of a condition allows for termination

• The term must qualify as a condition i.e. a vital or

fundamental term. E.g. in a contract for sale of land, the

• bligation to pay the purchase price or that the vendor has

good title to the property.

• Mere labelling of a ‘condition’ is not sufficient. Depends on

the nature of the contract, the common intention of the parties.

• Contrast with warranties: breach of a warranty does not allow

for termination but only to sue for damages.

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COMMON LAW RIGHT TO TERMINATE

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(2) Serious breach of intermediate term

• Intermediate term: falls somewhere between a condition and

a warranty.

• Essentially, breach of an intermediate term must “go to the

root of the contract” or deprive the innocent party of “substantially the whole benefit” of the contract”.

• E.g. “shipment to be made in good condition” – an

intermediate term. Breach of such a term must be so serious as to go to the root of the contract.

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COMMON LAW RIGHT TO TERMINATE

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(3) Refusal to Perform / Renunciation

• Where one party declares an unequivocal intention, by words
• r conduct, to abandon further performance of the contract,
• r to not perform an essential aspect of the contract

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MUST ACCEPT THE REPUDIATION

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• Where there is such a repudiatory breach, termination is not
• automatic. Innocent party must elect to either:
• 1. Accept the repudiatory breach and terminate the contract;
• r
• 2. Affirm the contract and press the guilty party in breach to

perform.

• No particular period in which the election must be made. But

must decide or lose the right to election through inconsistent conduct.

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Case Study: Jumping the Gun

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Case Study: Jumping the Gun

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Facts

• 1. Seller and Purchaser entered into a supply agreement for

shipment of goods by a set shipment date.

• 2. There was a delay in this shipment and parties continued to

negotiate for other potential shipment dates for the next one month.

• 3. [Issue 1: Unaccepted repudiation? Affirmation?]
• 4. Purchaser’s solicitors issued a letter to the Seller purporting to

terminate due to Seller’s breach and Purchaser would no longer assume any obligations under the supply agreement.

• 5. [Issue 2: Seller had reasonable time to perform?]
• 6. [Issue 3: Who was now in breach?]

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Case Study: Jumping the Gun

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Our Response

Our client received your letter alleging that inter alia the Contract was now terminated and that your client’s position was that it “will not assume any obligation and responsibilities under the Contract.” It is clear that your client, the Purchaser, has renounced the Contract, despite the fact that parties were still in the process of discussing and agreeing on a delivery of the goods under the

• Contract. This is a repudiatory breach on the part of your client

and our client accepts the repudiation. Therefore, our client hereby treats the Contract as terminated and reserves all its rights in law.

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Waiving the ‘No Waiver’ Clause

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“No waiver of any provision of this Agreement shall be effective unless it is in writing and signed by each Party that is waiving rights”

• Tele2 International Card Company [2009] EWCA Civ 9 (CA):

carried on with the agreement for nearly a year without protest, abandoned its right to terminate.

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Contract Exclude Common Law Right?

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Contract Exclude Common Law Right?

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• Generally, a contract would not exclude the (valuable) common

law right to terminate [Stocznia [2009] EWCA Civ 75 (CA)] But possible with sufficiently clear language e.g. that the remedies specified in the contract displace any rights or remedies in law.

• Practical issue: If contractual right to terminate exists in parallel

with common law right to accept a repudiation, then must be careful when issuing notice to terminate / notice accepting repudiation.

• See Stocznia (ibid) and Dalkia Utilities.

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END OF PART ONE

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LS@skrine.com www.leeshih.com