Termination for convenience: when and is it free?

• Published date: 25 October 2021
• Law Firm: Corrs Chambers Westgarth
• Author: Ms Jodie Burger and Lydia Cowan-Dillon

Termination for convenience clauses have drawn recent media attention given the Commonwealth's recent decision to terminate the Future Submarine Program contract with the Naval Group.

As the name suggests, exercising a termination for convenience clause does not require the terminating party to prove any breach of obligation by the terminated party.

These clauses are common in contracts, especially in large procurement projects involving governments.

Despite the common nature of such clauses, there is limited guidance as to whether the terminated party must be compensated and the amount of compensation (if any) on a termination for convenience is also often unclear.

A poorly drafted termination for convenience clause has the potential to be unenforceable.

We take a look at the most recent commentary and judicial considerations and set out some matters that are relevant to the negotiation of a termination for convenience clauses.

Should the other party be compensated where a right to terminate for convenience has been exercised?

While parties are generally free to strike whatever bargain they choose, there are some limitations on the enforceability of contracts in circumstances where a contract contains a right to terminate for convenience.

Unfair contract terms

Particular caution...