What should I consider when terminating a contract?
Unfortunately, like most legal matters, there are numerous things to consider. However, to give you a basic idea, you firstly need to consider whether the contract was actually breached. Contracts are for the most part written down, but they can alter over time according to the surrounding circumstances and each parties conduct.
For you to terminate the contract and avoid being in breach of it yourself, you will need to be on solid legal ground and in a position to show that there has been a “fundamental breach,” a term which cannot be defined by the seemingly plain English used.
You should also consider gathering all the relevant evidence, which, if possible, should include hard evidence of the fundamental breach. Things that are properly written down, documented and organised will undoubtedly help.
If you terminate the contract without good reason
It is possible that you will have to pay a sum of money to the supplier upon termination of the contract and this sum may be determined by the contract itself or by the type of breach of contract.
You might also want to consider the non-legal consequences of termination. If you terminate the contract, will you easily and quickly be able to replace the contracted workers and get the same results? Do your investors and shareholders have a long lasting relationship with the supplier such that you may damage investor relations? Before hastily jumping in, it might pay to fully consider your options and weigh up the best decision.
What’s a fundamental breach?
There is a fundamental breach of a contract where the breach goes to the very core and essence of the contract. For example, if you contracted someone to build you a house and they didn’t, that would quite clearly go to the core and essence of the contract.
On the other hand, if the contractor used fittings in some part of the house that are not the same as those agreed on in the contract, this breach might only be treated as a breach of a particular term, rather than a fundamental breach of the contract. The type of breach and it’s legal consequences is not always easily determined by the layperson and you should seek legal advice to determine exactly where you stand, because there are different rights associated with different types of breach of contract.
The contract has been breached. What about notice?
You might have already established your right to terminate the contract. However, you right to do so is subject to notice requirements either contained in the contract (as is usually the case) or the requirements set down by the law. If you fail to consider the notice requirements that have been agreed upon, you might have to delay the effective date of termination or might lose your right to terminate altogether. You clearly need to get this part right.