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Contract Termination – How to Avoid Litigation

Terminating a contract

A contract is a legally binding agreement between two or more parties which sets out rights and obligations of the parties and the consideration provided by one party in exchange of the promise provided by the other.  

While most parties enter contracts with the best intentions, sometimes they just don’t work out. Contributing factors could be as simple as one party being not able to or refusing to carry out their obligations. Other reasons may be more complex, resulting from a breach of a relevant clause.  

Terminating the Right Way 

If you wish to terminate a contract, it is really important you do it correctly and if the contract provides for it, in accordance with the terms of your contract. If you fail to do so, the consequences can result in dispute or litigation with the other party which can be costly.  

Some examples of circumstances which may lead to a contract being include: 

  • A substantial breach of the contract; 
  • A trigger of a contractual termination clause; 
  • Misrepresentation;  
  • By mutual agreement; or 
  • Frustration.  

Commercial contracts often contain express termination clauses which allow for termination in specific circumstances. However, it is important to always consult with a solicitor and have them review the contract before you terminate the contract. Termination rights can often be complicated and operate in conjunction with other applicable laws, and not all breaches of a contract give a party a right to terminate.  

If you terminate a contract unlawfully, the other party may allege that you are repudiating the contract which, if founded, it would entitle them to either affirm the contract or elect to terminate the contract and sue you for damages resulting from the repudiation. 

Repudiation of a Contract  

Repudiation of a contract arises when a party cannot or will not carry out their obligations under the contract. It is a renunciation of their obligations under the contract and is considered a serious matter.  

It is important to know that a repudiation does not end a contract, it simply allows the innocent party to elect how they wish to proceed by either: 

  1. continuing with the contract (affirming the contract); or 
  1. accepting the repudiation and electing to terminate the contract.  

If you find yourself in a situation where the other party may be repudiating the contract, it is best to speak with a solicitor and obtain legal advice specific to your situation. If you incorrectly allege repudiation of the contract and terminate the contract as a result where there was no basis for doing so, the other party may allege that you are instead are repudiating the contract.   

Next Steps

Contract termination is a complicated legal issue to navigate, and it’s one that could cost you greatly if you get it wrong! Whether you want to terminate a contract or believe the other party is unlawfully terminating a contract – get in touch with one of our litigation lawyers today. Klein Legal are litigation and dispute experts and can assist you in avoiding a potential dispute by getting the right advice.   

This is general information only and does not constitute legal advice.  

If you or someone you know would like more information or require advice about anything raised in this article, please contact us on (07) 5458 6855 or email mklein@kleinlegal.com.au