October 2010 paper for the Key Clauses Contracts Seminar, Legalwise Seminars

Introduction

An innocent party’s right to terminate a contract arises from a particular type of breach of contract by a defaulter. The factual matrix of the breach and the nature of the term breached in each case inform the innocent as to whether the right has arisen. In this paper I have used the term “the innocent” to describe the party who is seeking to terminate and the word “the defaulter” to describe the other party to the contract.

However, it is not uncommon for the defaulter to be able to point to other breaches by the “innocent”.

Common law rights to terminate arise in one or more of the following three ways:

  • Any breach of a condition (or essential term) of the contract;
  • A serious breach of an intermediate term of the contract; or
  • Conduct that shows the defaulter is unable or unwilling to comply with the contract.

Contractual rights to terminate are of two main types:

• Termination of the contract in total; or
• Termination of the engagement of a contractor,
in both cases arising from actual conduct, as described in either the contract’s termination clause or a term
arising under statute.

Frequently, the common law right to terminate is the most important consideration.

The Termination of Contracts for Breach