21st November 2022
In today’s uncertain market, many businesses are reconsidering deals which have become commercially unfavourable – perhaps due to supply chain disruption, the rising costs of materials, outdated appraisals and other factors. In this article, Louise Norbury Robinson and Kathryn Vickers, highlight key commercial and legal issues and risks that businesses should consider when approaching contract termination.
Assuming that grounds for termination have arisen (as to which, see below under ‘Legal considerations on terminating contracts), there are a number of key commercial/practical considerations when it comes to contract termination, such as:
Specialist strategic advice will enable businesses to settle upon the best course of action.
Alongside commercial considerations, it is essential to ensure, when it comes to contract termination, that there is a legal basis for termination. The contract in question, and all relevant circumstances, should be carefully considered to make sure termination is executed validly, and to avoid or minimise the risk of that consequential counterclaims from the terminated party. In particular:
Bearing in mind the extensive commercial and legal considerations, not to mention the traps for the unwary, which should be taken into account when terminating contracts, urgent specialist legal advice should be sought immediately the prospect of termination is mooted.
Once a termination strategy has been settled upon, all colleagues/teams/departments throughout the business who may deal with the counterparty in question should be informed and advised as to the position.
Measures should be taken to deal with the commercial and legal effects of contract termination. For example, alternative arrangements should be put into place to minimise disruption to ongoing projects/operations. Arrangements should be made to ensure compliance with any provisions or obligations which survive termination (concerning confidential information, or the possession or use of the counterparty’s intellectual property, for example).
Specialist solicitors should then prepare and issue any necessary notices on the business’ behalf, to minimise any risk of invalid drafting or service.
Clear records and a paper trail should be kept to evidence the fact and circumstances of any breach or other event giving rise to the right to terminate. Records and evidence of the financial and commercial effect of any breach or termination event should also be maintained, in case the contract termination is challenged and needs to be explained in any subsequent dispute or litigation.
Solicitors should handle all communications – internal and well as external – concerning the decision to terminate and the termination itself. Again, this is in anticipation of a challenge to any aspect of the termination, and should help to preserve legal privilege in all relevant documents and communications.
Ensuring that you have obtained the best possible guidance before deciding and proceeding to terminate any commercial contract will help to ensure the best result for your business. Our Commercial Dispute Resolution specialists are experienced and expert in navigating contractual termination queries and dealing with the drafting and serving of notices.
In the same vein, if and when your business finds itself on the receiving end of any contract termination notice or action, we can critically assess validity. If necessary, we can provide commercially-focused strategic advice so as to ensure minimal disruption and losses to your business.
So, if your business needs advice, assistance or training in relation to contract termination, or if you have any queries or concerns in connection to any commercial contracts more generally, please contact Louise Norbury Robinson or Kathryn Vickers, who will be very happy to help.
 See Walker Morris’ recent briefing on ensuring effective dispute resolution
 Even worse, affirmation often leads to the counterparty then alleging repudiatory (i.e. serious/devastating) breach of contract on the part of the business which sought to terminate. Repudiation can leave a business open to recission of the contract, plus a claim for damages relating to what the injured party would have made if the contract had remained in effect
 See Walker Morris’ earlier briefings on force majeure and frustration
 A very recent example of this occurred in the case of DD Classics Ltd v Chen  EWHC 1404 (Comm)
 See Walker Morris’ briefing for advice as to the ‘who, when and how’ of service of legal notices (including termination notices)