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10 POINTS to consider when ending a contract under English law 


In an economic downturn, this is more likely. The other party may have cash flow problems. There is a greater risk you will be paid very late or will not be paid at all. Performance of the contract is more likely to be problematic. Terminating a contract can be risky. There must be a justifiable reason for terminating - otherwise you could be in repudiatory breach of the contract and liable to pay the other side damages. 

 

Here are 10 POINTS you should consider before terminating any contract: 

 

  1. Check the terms of your contract carefully.  

  1. Make sure any breach is serious enough to justify terminating the contract. 

  1. Is there a repudiatory breach? Under English law, the "innocent" party has the right to terminate a contract if the "guilty" party commits a repudiatory breach of contract. The general rule is that the breaches must relate to the very heart of the contract and have substantially deprived a party of the main benefit of the contract. What amounts to a repudiatory breach of contract depends on each contract. 

  1. Watch your own conduct - Make sure you don't do anything that could be considered by the other party (and the court) as waiving the breach of contract. Failure to take action may be considered as a waiver of the right to terminate. 

  1. Check the mechanism for termination - Make sure you follow all procedural requirements correctly including any time limits. If the contract requires written notice, check whether the contract requires (a) which party must be given the notice and to whom (b) the information the notice must contain (c) where and how the notice is to be served. 

  2. If any termination procedure is not followed correctly the termination may be wrongful and may risk a claim of damages against you. 

  3. Plan for the consequences of termination.  The contract may require you to pay compensation even if you terminate it lawfully. Think, before you terminate, that you can source the goods or services elsewhere and within your time frame. Sometimes, renegotiation rather than termination may be a better option. Also, consider whether the contract allows you to withhold payment - if yes, the money withheld can be used to offset the costs of sourcing a new supplier. 

  4. Remember insolvency of the other party does not automatically give you the right to terminate - The contract must expressly say so. If the party is merely in financial difficulties, it may not be sufficient reason to terminate the contract. 

  1. Failure to be paid - You must have an express contractual right to suspend work or terminate the contract due to non-payment. In some circumstances, persistent non-payment can be a substantial breach of contract or a  repudiatory breach of contract. 

  1. Making "time of the essence" -  If the contract does not say so on the time by when certain obligations must be done, you must expressly make time of the essence so that you can then rely on a failure to perform to justify termination. Always check with your specialist lawyer on this point. 

  1. Reputational damage - You may need to consider public relations issues arising from a termination and plan appropriately.  

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