Termination for Convenience - An Unfettered Right. Discuss.

In addition to a party's right to bring a contract to an end at common law, most engineering and construction contracts contain provisions allowing the parties to terminate a contract should certain circumstances arise, for example, serious or repeated default or insolvency. Such termination provisions will usually require notice to be given before the termination can take effect and will often allow the "defaulting" party an opportunity to correct the problem and, thereby, avoid the termination.

It is increasingly the case that engineering and construction contracts will also provide the owner and, sometimes, the contractor, with the ability to terminate the contract "for convenience" or "at will". More often than not, such a provision will permit termination without having to specify a reason.

Whilst such provisions might be envisaged to provide an owner with an escape route should funds run out or where drastic design changes are required, they may also allow it to terminate the contract and retender the works simply to get a cheaper or better deal, or to avoid the difficulties often associated with terminating for default.

What do these "for convenience"/"at will" provisions look like and how will the courts generally construe them?

In his April 2002 paper for the Society for Construction Law, Termination for Convenience, John Tackaberry QC provided this example of a termination for convenience clause:

"In addition to such other rights to terminate the Contract, or the employment of the Contractor under the Contract, whether under the Contract or at law, as the Owner may have, the Owner has the right, at any time whatsoever after the signing of the contract, to terminate this Contract or the said employment or any part thereof for convenience. The exercise of this right shall be at the Owner's absolute discretion. Accordingly, the exercise of this right shall not be subject to challenge in any tribunal on the ground of insufficiency of reason for termination.

This right shall be exercised by notice in writing, expressly citing this clause and stating whether the whole or part of the Contract, or the whole or part of the Contractor's employment, as the case may be, is being terminated; and if part, identifying that part with reasonable precision. The said notice is to be delivered by hand to the Contractor's head office and a receipt obtained. The notice shall have immediate effect upon delivery as aforesaid.

Immediately after receipt of...