SUMMARY OF PART ONE How do I terminate a contract? Termination - PowerPoint PPT Presentation

S KRINE ADVOCATES & SOLICITORS BREACH OF CONTRACT: TERMINATION AND OTHER OPTIONS 10 December 2013 - LEE SHIH 1

SUMMARY OF PART ONE • How do I terminate a contract? • Termination clauses. • Common law right to terminate. • Waiving the ‘No Waiver’ clause. • Contract excluding the common law right? Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 2

TERMINOLOGY • Terminate – contract brought to an end • Rescission – restrospectively undoing a contract Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 3

HOW DO I TERMINATE A CONTRACT? Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 4

TERMINATION CLAUSES Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 5

TERMINATE WITHOUT CAUSE “ A may terminate the Contract by providing 15 days’ written notice to B .” • Unilateral termination allowed. Courts will hold parties to the bargain. Parties had addressed their minds on how their relationship could be brought to an end. • Wong Pa Hock [2002] CLJ 267 (HC) and Chan Whye & Sons Contractor (suing as a firm) v Sarawak Shell Bhd [2003] 5 MLJ 68 (HC) Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 6

TERMINATION / DEFAULT SPELT OUT Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 7

TERMINATION / DEFAULT SPELT OUT • Default arising from: bankruptcy / insolvency / receivership / entering into a scheme of arrangement. “has become bankrupt, or insolvent, or made an assignment for the benefit of or enter into any composition or other similar arrangement with its creditors, or having filed a petition or having had a petition filed against it under any bankruptcy corporate re-organisation or other law for the relief of debtors or having had commenced against it dissolution or winding-up proceedings.” Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 8

TERMINATION / DEFAULT SPELT OUT “ Material breach of the agreement” • It is a breach that has a serious effect on the benefit that the innocent party would have obtained from the contract. (NB: to contrast later with a “repudiatory breach” which is a higher standard). • See generally, National Power [1998] All ER (D) 231, Dalkia Utilities [2006] 1 Lloyd’s Rep 599 and Crosstown Music [2009] All ER (D) 269. Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 9

COMMON LAW RIGHT TO TERMINATE Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 10

COMMON LAW RIGHT TO TERMINATE • There must be a repudiatory breach: 1. A breach of a condition 2. Sufficiently serious breach of an intermediate term 3. Refusal to perform / Renunciation Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 11

COMMON LAW RIGHT TO TERMINATE (1) Breach of a condition allows for termination • The term must qualify as a condition i.e. a vital or fundamental term. E.g. in a contract for sale of land, the obligation to pay the purchase price or that the vendor has good title to the property. • Mere labelling of a ‘condition’ is not sufficient. Depends on the nature of the contract, the common intention of the parties. • Contrast with warranties: breach of a warranty does not allow for termination but only to sue for damages. Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 12

COMMON LAW RIGHT TO TERMINATE (2) Serious breach of intermediate term • Intermediate term: falls somewhere between a condition and a warranty. • Essentially, breach of an intermediate term must “go to the root of the contract” or deprive the innocent party of “substantially the whole benefit” of the contract”. • E.g. “shipment to be made in good condition” – an intermediate term. Breach of such a term must be so serious as to go to the root of the contract. Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 13

COMMON LAW RIGHT TO TERMINATE (3) Refusal to Perform / Renunciation • Where one party declares an unequivocal intention, by words or conduct, to abandon further performance of the contract, or to not perform an essential aspect of the contract Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 14

MUST ACCEPT THE REPUDIATION • Where there is such a repudiatory breach, termination is not automatic. Innocent party must elect to either: 1. Accept the repudiatory breach and terminate the contract; or 2. Affirm the contract and press the guilty party in breach to perform. • No particular period in which the election must be made. But must decide or lose the right to election through inconsistent conduct. Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 15

Case Study: Jumping the Gun Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 16

Case Study: Jumping the Gun Facts 1. Seller and Purchaser entered into a supply agreement for shipment of goods by a set shipment date. 2. There was a delay in this shipment and parties continued to negotiate for other potential shipment dates for the next one month. 3. [Issue 1: Unaccepted repudiation? Affirmation?] 4. Purchaser’s solicitors issued a letter to the Seller purporting to terminate due to Seller’s breach and Purchaser would no longer assume any obligations under the supply agreement. 5. [Issue 2: Seller had reasonable time to perform?] 6. [Issue 3: Who was now in breach?] Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 17

Case Study: Jumping the Gun Our Response Our client received your letter alleging that inter alia the Contract was now terminated and that your client’s position was that it “will not assume any obligation and responsibilities under the Contract.” It is clear that your client, the Purchaser, has renounced the Contract, despite the fact that parties were still in the process of discussing and agreeing on a delivery of the goods under the Contract. This is a repudiatory breach on the part of your client and our client accepts the repudiation. Therefore, our client hereby treats the Contract as terminated and reserves all its rights in law. Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 18

Waiving the ‘No Waiver’ Clause “No waiver of any provision of this Agreement shall be effective unless it is in writing and signed by each Party that is waiving rights” • Tele2 International Card Company [2009] EWCA Civ 9 (CA): carried on with the agreement for nearly a year without protest, abandoned its right to terminate. Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 19

Contract Exclude Common Law Right? Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 20

Contract Exclude Common Law Right? • Generally , a contract would not exclude the (valuable) common law right to terminate [ Stocznia [2009] EWCA Civ 75 (CA)] But possible with sufficiently clear language e.g. that the remedies specified in the contract displace any rights or remedies in law. • Practical issue: If contractual right to terminate exists in parallel with common law right to accept a repudiation, then must be careful when issuing notice to terminate / notice accepting repudiation. • See Stocznia (ibid) and Dalkia Utilities . Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 21

END OF PART ONE LS@skrine.com www.leeshih.com Malaysian Law Firm of the Year 2008, 2009, 2010, 2011 & 2013, Who’s Who Legal Awards 22