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Contractual termination – how to prepare for judgment day

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I went to an excellent talk by Michael Fealy QC to the London Solicitors Association about termination. The main thing I took away was his deceptively simple route map to approaching this thorny subject. 

The challenge is that when faced with a breach of contract you will want to think about whether you can terminate both under your general common law rights as well as under any express provisions in the contract. Being able to show that the common law right to terminate is available will entitle you to claim forward-looking so-called “loss of bargain” damages (ie what you’d have got if the contract continued).

The objective is clear but achieving it is more tricky than it ought to be.

Here then is his suggested route map:

  1. Does your contract say what happens when a contract is terminated (eg by providing a detailed wind-down period)? If so, then terminating under an express provision may well be inconsistent with terminating under the common law (since the common law effect of termination is immediate) and you will need to decide which right you want to rely on. You are not allow to rely on both. 
  2. If not, and there is no inconsistency between the consequences of termination at common law and termination under the express right under the contract, then you are entitled to rely on both the common law termination right and the express contractual termination right.  
  3. The suggested approach is for you, as innocent party, in your notice is first and primarily to accept the repudiatory breach that the guilty party has committed and, in the alternative, cite the express provision in the contract that you are relying on to terminate. 

You need expressly to “accept” the repudiation because, when faced with a repudiatory breach at common law, you have to elect whether to affirm the contract (so it stays alive and then claim damages for the loss caused by the breach to date) or accept the repudiation (bringing the contract to an end and claim loss of bargain damages).

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