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News / / How convenient?

Picture the situation: an employer is getting fed up with one of its contractors, there is a concern that they are taking too long and getting things wrong. Wrong enough to terminate for breach perhaps but the contract provides a right to terminate for convenience. Is that the easiest way forward for the employer?

Maybe.

We have all seen them . Lengthy contractual termination provisions and lengthy termination notices to match, all rounded off with the catch-all, “... . and if we are wrong about that, we hereby terminate the Contract for [employer’s] convenience.”

>  So, there is a contractual right to terminate for convenience. Can the employer terminate or not?

As recent English court decisions have shown (see, for example, Arnold v Britton [2015] UKSC 36), the enforceability of the right to terminate and the effect of such provisions very much depends on the actual wording of the clause. Generally, however, if the wording provides a clear and unambiguous right to terminate, then the employer can exercise that right to terminate, usually by giving notice and usually without giving a reason (TSG Building Services Plc v South Anglia Housing Ltd [2013] EWHC 1151 (TCC)).

>  OK. But what about “good faith”? Can the employer just get rid of a contractor if it wants to?

Generally, if your contract is governed by English law, yes. Unlike the USA and Australia, English law does not require that the employer exercise good faith when deciding to exercise an absolute, black or white, contractual right to terminate (Mid-Essex Hospital Services NHS Trust v Compass Group UK & Ireland Ltd [2013] EWCA Civ 200). Indeed, as recently confirmed in Monde Petroleum Sa v WesternZagros Ltd [2016] EWHC 1472 (Comm), there is no general doctrine of good faith in English law and English law will not imply a duty to act in good faith in terminating a contract where no express contractual duty to do so exists.

Even where the contract contains express, but general, good faith obligations, they will not usually apply to the contractual right to terminate without clear, express language.

>  But what if the employer is seeking to bring in a different contractor to finish the job/ finish the job itself? Is that permissible?

Not necessarily . In general, a contract for services or performance of work gives the contractor the right to be able to carry out the work. Exercising a right to terminate the work is not a breach of contract but in the absence of clear, express words permitting otherwise, going on to give the work to someone else deprives the contractor of that right and could be a breach of contract (Abbey Developments Ltd v PP Brickwork Ltd [2003] EWHC 1987 (TCC)). Again, it depends on the actual wording of your contract.

Even if there is a contractual right to give the work to someone else there is a risk that such right is not enforceable if the contract can be brought to an end on a whim . The employer may be on safer ground if the contract provides compensation (perhaps liquidated damages) in relation to the unperformed portion of the work.

The rights of a party to terminate a contract for convenience will be explored in more detail at some of our upcoming Smart Contracting Seminars, dates outlined below:

Houston: 02 November 2016

Kuala Lumpur: 17 November 2016

Dubai: 22 November 2016

Aberdeen: 23 November 2016

Ben Moon

Ben Moon Legal Director

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