Conctract Remedies

Once More Unto The Breach

It's happened: the other party is in serious breach of

contract but the exact situation is not expressly described in

the contract terms. You might be entitled to terminate the

contract, but you'd probably rather just receive what you

contracted for, in which case termination can look more like a

foot wound waiting to happen than a solution to your woes.

Discussion and negotiation may do the trick, or the contract

itself may provide some mechanism for resolving the dispute,

but in truth these things are seldom resolved informally. At

times like this it can feel like its paws-in-the-air time, with

cries of "what to do?; what to do?" all round.

Fortunately there are a number of other avenues which may be

open to you.

Termination

Once you've decided that the contractual relationship is

totally unsatisfactory you'll want to bring it to a close

promptly and perhaps enter into a new contract with another

party. But before attempting to terminate you must consider

whether you are entitled to do so. Not all breaches allow for

termination; it will depend on what the contract actually says

and the nature of the breach. A breach that goes to the heart

of your contract, with a serious effect on the benefit you

would otherwise get from it, should give rise to a right to

terminate. But if the breach is not so 'material' you

may only be entitled to claim for damages. Whether or not the

breach is material will be a question of fact and degree in

each case.

If express termination provisions set out the grounds on

which either party can call a halt to the relationship, does

that mean you could simply include a clause that allows any

breach, however minor, to trigger termination? Generally

speaking, the answer is no. Terms like that, particularly if

they are included in a long-term contract and/or one under

which one of the parties has invested substantially to meet its

obligations, cannot be enforced if to do so would flout common

business sense. For example, if the breach is so trivial as to

have no material impact, you cannot terminate simply to escape

'by the back door'.

An exception to this general rule does exist in the context

of supply contracts and delivery times. If a contract states

clearly that for all deliveries "time is of the

essence" then any failure to deliver on time, however

minor, may allow for termination. It is best to consider at the

drafting stage which obligations should have no flexibility in

timing, then you can word the contract accordingly.

That said, most contracts do contain some express

termination provisions, common examples of which include the

following:

Termination for a material breach.

Commercial contracts commonly contain a provision entitling one

party to terminate when the other has 'materially'

breached its obligations. Usually the party in breach has a

limited time in which to remedy the situation (assuming that

this is possible), but if the breach remains unresolved the

contract can then be terminated with immediate effect. Check

your contract; "material breach" may be

expressly defined as the breach of a particular clause or

clauses. This type of provision, if clear and unambiguous, may

spare you a trip to court. Typically, however,

"material breach" will be left undefined (to

allow flexibility) and will need to be interpreted in the light

of all the circumstances. Consider what the other party is

expected to deliver under the contract. Are they delivering it

at all, or are they...