Drafting & Relying Upon Effective Termination Clauses

Presented by Geoff Bartels. B.Com, LLB, MBA, Acc Spec Business Law.

Transcript

1. DRAFTING & RELYING UPON EFFECTIVE TERMINATION CLAUSES Geoffrey Bartels B.Com, LLB, MBA, Acc Spec Business Law © Feb 2020
2. TAKE AWAY  Drafting Effective Termination Clauses  Circumstances of termination  Termination versus rescission  Reducing Risk in terminating a contract including limitation of litigation Risk  Avoiding mistakes in exercising termination rights 2
3. • encyclopaedia of legal draughtsmanship exhibits 372 separate examples • the intention of the parties is to reach completion • how draftsmanship can assist the parties bring the contract successful conclusion • contract working document allows the parties to regulate commercial dealings to mutual benefit 3
4. MANY OTHER STAKEHOLDERS * employees on both sides * parts manufacturers, * carters * third party customers • Shareholders • PLEASE CONTINUE THE LIST 4
5. THE WHAT IF’S OF DRAFTING critical issues that will lead a party to want to terminate what are the post commencement deal killers Instructions on the COMMERCIAL consequences of termination 5
6. What ifs/2 alternative remedies to termination benefits from a contractual right to terminate rather than common law termination rights. 6
7. HOW DO WE TERMINATE A CONTRACT  By successful completion  By Agreement  In dispute  Unilaterally – for convenience 7
8. FOUNDATION OF THE RIGHT OF TERMINATION  Under common law  by a contractual right  by a statutory right. 8
9. DISTINGUISHING TERMINATION FROM RESCISSION * avoidance of a contract retrospectively * contract must be void or voidable * events beyond the control of parties * performance has become impossible 9
10. TERMINATION Right of party to bring a contract to end during performance because of breach  Of a fundamental term  of an intermediate term in such a way as to fundamentally effect delivery of the contract  renunciation – i.e. the refusal of a party to perform its obligation(s) under the contract. 10
11. A CONTRACT IS TERMINATED • ongoing obligations under the contract are discontinued FOR BOTH PARTIES • replaced by secondary obligations to pay damages BY DEFAULTER • often referred to as - REPUDIATORY BREACH • ??? anticipatory breach or renunciation 11
12. BREACH OF A CONDITION A FUNDAMENTAL TERM That goes to the heart of the contract Essential to delivery of the Contract 12
13. BREACH OF AN INTERMEDIATE TERM neither a Condition nor a Warranty intermediate or an innominate term. rectification of the breach IF SERIOUS ENOUGH “frustrate the commercial purpose”, “go to the root of the contract” “substantially deprive of benefit of contract” 13
14. RENUNCIATION Refusal To Carry Out Obligations Under The Contract evince an intention no longer to be bound by its contractual obligations OR only to complete the contract in a manner substantially inconsistent with the contract. 14
15. MINOR BREACHES OF A CONDITION court view breach is minor parties could not have intended minor breach to found the right to terminate 15
16. What is in the best commercial interests of the parties Not necessary to enforce every breach of condition What is commercially expedient? Acknowledge the breach and reserve its rights WARNING WILL ROBINSON not by word or conduct to waive or condone the breach 16
17. WARRANTY collateral to the main purpose of contract breach gives rise to claim for damages not to treat the contract as repudiated 17
18. TERMINATION FOR CONVENIENCE must be clear and unequivocal provide that the Contractor is to be compensated for its losses, including loss of profit and overheads contribution on the balance of the work. 18
19. If they do not then they risk being treated as unenforceable as unconscionable.” Abbey Developments Ltd. –v- PP Brickwork [2003] EWHC (Technology) 1987 simply to replace the contractor with another ….to be a repudiation Claim for damages (Carr v JA Berriman Pty. Ltd. (1953) 89 CLR 327) 19
20. DRAFTING TERMINATION CLAUSES • preserving the relationship between the parties • actually performance critical issues • requirements for fairness and notice • allow for rectification of default in a reasonable time. • Courts have been loathe to uphold gratuitous terminations 20
21. TERMINATING THE CONTRACT A party may not terminate a contract in part. Except where contractual provision e.g. multiple product line contract or severable stages contract 21
22. THE ELECTION aggrieved party has an election Affirm the contract OR Terminate 22
23. Affirm the contract contract is continuing seek damages and/or the rectification of the breach in the commercial interest breach cannot be relied upon again claim for damages arising from the breach remains 23
24. Terminate accept the repudiation and claim damages Contract may provide how that is done test that there is a repudiatory breach 24
25. MITIGATION 25
26. COMMON LAW RIGHT OR CONTRACTUAL RIGHT? a matter of strategy contractual breach and a common law breach simultaneously the value of the remedy 26
27. LIQUIDATED DAMAGES a genuine pre-estimate of the losses likely to be incurred by the non-defaulting party 27
28. THE NOTICE common law and contractual rights If you choose one basis only query estoppel? Contract procedure followed strictly Invalid Notice 28
29. Early Termination implies a dispute Dispute provisions to be followed prior to termination 29
30. CASE STUDY NO 1 30
31. CASE STUDY NO. 2 31
32. ESSENTIAL ELEMENTS OF THE NOTICE 1. Properly Identify the Parties as set out in the Contract 2. A comprehensive and defensible recitation of the facts of the default or defaults 3. A reasonable time for the defaulting party to remedy the default 4. Compliance with any contractual requirements as to form and substance (if any) 5. Prior compliance with any dispute regime 6. Maintenance or reservation of any common law rights 7. Compliance with any Time Limitation for the issue of the actual Notice of Determination of Contract. 8. Proper service in accordance with the terms of the contract (if any) or at general law. 32
33. EFFECT ON THE CONTRACT Discharge both parties from any continuing obligations Subject to competing costs of demobilisation Depending who is at fault 33
34. DAMAGES Principal’s damages when at large include any losses incurred as a result of the breach. Contract is silent as to damages then the damages will be at large 34
35. Presented by Geoff Bartels – Bartels Business Lawyers. Formed in 1982 as Geoff Bartels, Solicitors, Bartels Business Lawyers is a firm specialising in corporate and business law, providing strong and practical advice to business ventures and business people from start-ups to businesses with $100,000,000 turn-over. 35