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When can a commercial contract be terminated?

Understanding when a commercial agreement can be broken is important for businesses

Every commercial contract a business enters into will contain options to terminate the agreement under certain conditions. While these will often be written into a contract by your lawyer, it is still important to ensure you understand how this document might be terminated.

Under Common Law, there are a number of times when a contract can be cancelled, most commonly if an essential part of the contract was breached. This refers to the portions of a contract that are deemed to represent a promise that was central to the signing of the contract.

In some circumstances, contracts can also be terminated if they violate a non-essential part of a contract. Although failing to meet these aspects of a contract does not usually justify terminating the document altogether, it can still occur if the wronged party lost a considerable amount of money as a result of this action.

Although relatively uncommon, some contracts will contain a provision for one party to terminate a contract unilaterally. While this is a possibility, in order to protect the other party, the use of this provision is limited under statute. In some cases, this provision may also constitute an unfair contract term

In cases where a contract is terminated because of the failure of one party to meet their obligations, the party that has been wronged will also be able to seek to recover damages as a result of these unfulfilled aspects of a contract.

However it is important to note that the consequences of terminating a contract without a proper cause, or incorrectly, can have catastrophic consequences. Such actions may give rise to a right on the part of the non-terminating party to terminate the contract and sue the terminating party for damages, or to seek an order from the Supreme Court requiring the terminating party to complete the contract.

Such order may well be accompanied by further orders requiring the terminating party to pay the other parties costs. It is vitally important to discuss the contract with a commercial lawyer before taking any action to terminate a contract.

If you want to understand your rights and obligations under a contract, it is important to get in contact with a commercial lawyer. They will be able to advise on the correct approach to challenging the terms of a contract, as well as assist with the drafting of any new commercial agreements.