Is termination the only option?

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  Where a contract is rescinded the parties are put back in the position they would have been has the contract never been entered into.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.

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