From time to time most organisations seek to end contracts before they are due to expire. Termination is the common method and at law there are four ways to terminate a contract:
- Where a contract gives you an express right;
- Where there is a breach of an essential term;
- Where there is a sufficiently serious breach of a non-essential term; and
- Where there has been a repudiation or renunciation of the contract by the other party.
But there is another way to end a contract – through rescission. Where a contract is rescinded the parties are put back in the position they would have been has the contract never been entered into. Rescission is not easy; you either need an express right in the contract or be able to show that the contract is void or voidable. A contract may be void or voidable where it was entered into as a result of misrepresentation or mistake or where a contract is contrary to public policy. These can often be difficult and expensive to prove.
Although there are a number of options available for ending a contract, good contract drafting from the outset is a must to ensure there are ways out without incurring significant liability, while also balancing the need for certainty and security.