Unfortunately, like most legal matters, there are numerous things to consider. However, to give you a basic idea, you firstly need to consider whether the contract was actually breached. Contracts are for the most part written down, but they can develop over time according to the surrounding circumstances.
Material breach of contract
For you to terminate the contract and avoid being in breach of it yourself, it must be shown that the breach was in fact a “material breach,” a term which cannot be defined by the seemingly plain English used. The key factor for determining a material breach is a breach which goes to the essence or heart of the contract. In some cases, this is fairly clear, in others not so.
Make sure you have clear evidence before terminating the contract
You should also gather all the relevant evidence, which, if possible, should include hard evidence of the material breach. Things that are properly written down, documented and organised will undoubtedly help.
If a job is half done and you terminate the contract, what next?
You might also want to consider the non-legal consequences of termination. If you terminate the contract, will you easily and quickly be able to replace the contracted workers and get the same results? Do your investors and shareholders have a long lasting relationship with the supplier such that you may damage investor relations? Before hastily jumping in, it might pay to fully consider your options and weigh up the best decision.
Have you already paid over money?
Ideally, you will have thought about this issue before starting the contract – the best protection is generally to hold back as much money as you can until then other party has fully performed. However, this is not always possible. If you have paid over most or even all of the contract sum, you may have legal grounds to terminate the contract but will you get your money back? Having a strong legal claim is one thing but enforcing that right is a different matter. If the other party doesn’t have the funds to pay or perhaps is a Limited Company where the owners don’t care if it’s shut down, terminating the contract may not result in any financial redress for you. This factor should be carefully considered.
Right, the contract has been breached. What about notice?
You might have already established your right to terminate the contract. However, you right to do so is subject to notice requirements either contained in the contract (as is usually the case) or the requirements set down by the law. If you fail to consider the notice requirements that have been agreed upon, you might have to delay the effective date of termination or might lose your right to terminate altogether. You clearly need to get this part right.
Haven't found what you need yet?
Why not search the whole site?