Can one terminate a contract when one is not sure what the contract terms are including the term on termination?

Can one terminate a contract when one is not sure what the contract terms are including the term on termination?

Can one terminate a contract easily and quickly? This question is asked time and time again as it is often the case that two parties will simply enter in to a verbal arrangement with nothing more than a few emails here and there perhaps covering ‘commercials’ with very little (if any) agreement in respect of the ‘legals’ including e.g. how much notice must be served to exit/ terminate the contract (if any). The main aim may be to get the work in and the job done!

Purely for illustrative purposes, an example is where a client business agrees in principle that it will enter a 12 month project for e.g. the delivery of SEO Services at a monthly fee of £X. It then materialises that just six months in, the paying client is no longer happy with the services being provided and refuses to pay any more monthly payments at which point the SEO service provider may turn round and state that there is no possibility of getting out of the ’12 month fixed term’ contract and that the client business is liable for the remainder of the term. Of course, in the absence of any written documentation stating that the agreement was for a fixed term, it ends up being a ‘their word against ours’ scenario.

It is advisable that not only should there be written documentation in respect of this matter so that parties are clear on their respective obligations and liabilities, a supplier should ensure that this information is indeed brought to the attention of the client prior to commencing the services and agreed upon in writing. However, the courts will expect a business client to be equally as savvy and inquisitive  enough to request this info itself, so it is not just up to the supplier (as would be more the case in a business-to-consumer situation).

In the example above, although there may be no terms and conditions as such in existence, nevertheless, the courts would tend to look at the behaviour of the parties and are quite reluctant to find that there is no contract where the parties have in fact been operating on the basis that there is one, particularly where the characteristics of a contract have been met (for example, services have been provided and paid for).  Unfortunately no matter is going to be necessarily clear cut and will depend largely on the facts and it is not something that can be answered in the abstract or as a matter of principle.

If it could be determined that there is essentially a contract in place by virtue of the actions of the parties and any existing correspondence (even by way of emails) pointing to the basis upon which the parties agreed to contract, such factors will be key. A supplier’s terms and conditions may in fact be merely referenced on an invoice by way of a URL. If this is subsequently discovered, the notice period for termination may be indicated therein and shall in most cases be valid. However, if the position if not so client-friendly, it may then be a case of asking the supplier to prove that such standard terms have not changed since the services first commenced!

Can one terminate on ‘reasonable notice’?

If a party to a contract is not sure what the terms of that contract are, it could be extremely risky to purport to terminate the contract on reasonable notice, as (if evidence subsequently emerges about what the contract terms are) a court may take the view that such termination is inconsistent with the contract terms and therefore constitutes a repudiation of the contract i.e. a repudiatory breach, entitling the other party to accept the repudiation and sue for damages.

Although there is common law to the effect that, where a contract is ‘silent’ on term or termination rights, it can sometimes still be terminated on “reasonable notice” on the part of one or both parties. The law in this area is murky and what the courts consider “reasonable” very much depends on the individual circumstances of the case. Reasonable notice will be determined according to the ordinary principles which apply to the implication of terms into a contract and with regard to the facts in existence at the time the notice was given, as opposed to at the time the contract was entered into. Although there are no general guidelines on what constitutes “reasonable notice”, the factors a court might consider include:

  1. The length of the contract term and the type of contract;
  2. The degree of financial dependence of the terminated party on the contract.
  3. The time that would be required by the terminated party to replace the lost business represented by the contract.
  4. The commitments of the parties which exist at the date of the notice to terminate.
  5. The common intention of the parties at the time when they entered into the agreement.

In our example, where no terms exist or emerge to deal with this, it may be best to negotiate with the supplier an early exit on the grounds that this provision was never agreed upon. However, if it was the case that standard supplier terms did emerge, the client might decide either to go with the supplier’s view of things and comply with the stated notice provision, or negotiate with the supplier for an earlier exit (accepting (or not) the commercial cost of doing so).

One thing is for sure, this highlights that it is best to have written terms agreed from the outset to govern the entire transaction, not just the termination provisions. Terminating without being sure of what the contractual terms actually are is a risky strategy and one that ought to be avoided especially where the supplier may have greater bargaining power.

If you would like any contract created or reviewed, do get in touch with us to discuss your requirements so you can avoid the frustration of the non-existent terms dilemma!

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By | 2017-12-01T16:11:38+00:00 December 1st, 2017|News|0 Comments