Contract termination: terminating under the contract vs terminating at common law

by White & Case LLP
Contact

White & Case LLP

Contract terminations are often loaded with legal risk, and therefore parties often rely upon as many grounds as possible to justify a termination. A recent English case highlights the risks associated with terminating solely on the basis of a common law right, where a contractual right to terminate may also exist.

Background

In Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd [2017] EWHC 1763 (TCC) MMT, a specialist engineering piping manufacturer was employed by ICI by way of an amended NEC3 contract (the "Contract"). MMT was to provide piping works associated with the construction of a new paint manufacturing facility for ICI in Northumberland (the "Project").

ICI sent MMT a termination notice in February 2015, accepting what it said was a repudiation of the Contract by MMT, and ordering MMT to leave the site. MMT responded by disputing the factual and legal basis upon which ICI’s purported termination had been based, and alleged repudiation by ICI itself.

Mr Justice Fraser described this situation as "a classic "who repudiated the contract?" scenario", and noted an added layer of complexity as ICI also relied on what it said was a valid contractual termination.

The Decision

  • The court decided that none of the breaches relied upon by ICI were, in fact, repudiatory breaches of the Contract. The contemporaneous evidence supported MMT's case that ICI had no proper grounds for making an allegation of repudiatory breach and that ICI was simply trying to use repudiation as a device designed to remove MMT from the Project.
  • ICI sought to characterise its termination letter as being primarily a contractual termination, seeking to avoid being found in repudiatory breach itself. The court held that the termination letter could not be construed as the exercise of a contractual right to terminate and was not drafted as such.
  • Therefore, having found that MMT had not committed any breaches of the Contract which could be considered repudiatory and that ICI had not terminated under the terms of the Contract, the court held that the sending of the termination letter ordering MMT to leave site was itself a repudiation of the Contract. As a result, ICI was liable to MMT for damages arising from that breach.

Comment

On any construction project of any size, the employer (or indeed the contractor) may wish to bring the relationship with the other party to an end due to any variety of reasons including: (i) financial, (ii) a breakdown in the relationship between the parties or (iii) a genuine disagreement as to the quality of works being performed.

If rights to terminate exist under both the contract and at common law, they can be exercised (including potentially one in the alternative to the other), but this usually requires that the contractual right to terminate should be relied upon as the primary basis for termination, with common law rights as the alternative. For example, a party seeking to terminate using the contractual termination provisions who issues what is found later to be a defective termination notice may allege that one or more of the breaches relied upon was a repudiatory breach, such that the contractual notice requirements need not be followed. In other words, a common law right to terminate may be used as a fallback in case a contractual termination fails.

In this case, ICI’s attempt to reframe the purported termination as contractual in nature was not a sustainable argument, particularly when considering the practical implications such an interpretation would have. The party purporting to terminate could simply allege a repudiatory breach and avoid all notice and form requirements under the contract and then say it was, in fact, a contractual termination should its grounds of repudiatory breach fail.

ICI had a contractual right to terminate the contract for convenience, but by seeking to avoid the financial repercussions this would have, and seeking to rely on an allegation of repudiatory breach that was unfounded, ICI found itself in repudiatory breach. This case highlights the tension between rights to terminate under a contract and rights to terminate at common law, and above all the importance of getting termination right.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© White & Case LLP | Attorney Advertising

Written by:

White & Case LLP
Contact
more
less

White & Case LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.