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Can you terminate a contract if there has been a breach of a term or condition?

June 9, 2017
Business Litigation

A breach of contract could give the innocent party the right to seek damages, but a serious breach could potentially also give the innocent party the right to terminate the contract. This is called a repudiation or a repudiatory breach.

In order to assess whether there has been a breach of contract, you will first need to look at the terms and conditions of your contract.  

The following could be a repudiatory breach:

  1. A breach of a condition. An example of a condition is where a contract specifies that “time is of the essence”, and one party fails to meet that obligation;
  2. A fundamental breach of an intermediate term. This means that if a breach deprives the innocent party of the whole of the benefit of the contract, then it will be a serious breach of the intermediate term;
  3. A party refuses to perform its obligations under the contract. An example of this is where a seller out rightly refuses to deliver the goods, even though delivery is part of the contract;
  4. A party makes it impossible or illegal for the other to perform the contract. An example of this is bribery.

A repudiatory breach does not automatically end the contract. The innocent party must choose whether it terminates the contract or not. 

Once there has been a repudiatory breach, the wrongdoer can take steps to put that wrongdoing right; however, that does not necessarily mean the contract cannot be terminated. The innocent party will still have the right to terminate the contract. Nevertheless, the wrongdoer can attempt to negotiate with the innocent party to see if the contract can be affirmed. 

If the parties cannot agree and the matter goes to court, for example, to justify termination and seek damages, the courts will look at the whether the breach was a repudiatory breach at the time of termination, and not at the time of the breach itself. Any remedial action taken by the wrongdoer, before the innocent party terminates the contract, will therefore be taken into account. It is therefore crucial to ensure that you can validly terminate the contract, and ensure that, if you do, there will be no penalties or damages which the other party could claim against you.   

The effect of Brexit on contracts

The effect of Brexit on commercial contracts is currently unclear. We do know, however, that the withdrawal of the UK from the EU will take years to complete and it could have a disruptive effect on a commercial contract in the future. For example, there may be an increase on the price of goods which might make it impossible for one party to make a profit under the agreed prices in the original contract. Whether that effect gives rise to terminate the contract will depend on each individual contract and the terms of those contracts.   

stevensdrake can assess whether a breach is repudiatory or not and, if it is enough to validly terminate the contract, whether termination is the right course of action for you. We can help you give notice of termination, if that is what you choose to do and claim any potential damages. 

If you would like more information, or you are a party to a contract which has been breached (whether you are the innocent party or the wrongdoer), we can look at that contract and advise you as to your options and next steps. For more information, please contact us

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