Lately, we have been receiving more and more requests from our clients to prepare a notice of termination of a contract for breach under English law, due to the counterparty’s violation of the contract.
They send us correspondence with the counterparty for examination, including claims requesting the counterparty to rectify the breaches of contractual obligations. When we delve into the essence of the dispute, we often find the following situation: the client asks the counterparty to rectify the breach of the contract within a certain period and threatens to terminate the contract in case of non-compliance with the requirement. Then, time passes, the counterparty tearfully promises to fix everything, and later on, the client’s heart softens, and the contract continues to be executed until a certain time when the counterparty angers the client with a new breach.
Once a party is in repudiatory breach, the innocent party has a choice: accept the breach and treat the contract as discharged or affirm the contract and press the party in breach to perform].
White and Carter (Councils) Ltd v McGregor [1962] AC 413.
Reminder that in English law there is nothing worse than a notice of termination of a contract that is based on an incorrect reason. In this case, the party sending such a notice will be considered to have materially breached the terms of the contract, that is, in repudiatory breach. This is a direct basis for the counterparty to claim damages and terminate the contract themselves. Epic fail, in short.
If the necessary grounds for termination cannot be proved, the termination could be a wrongful repudiation of the contract, giving the other party the right to accept the repudiation, end the contract and claim damages.
In English law, it is also impossible to revoke a termination notice, and a new agreement will need to be concluded. To avoid such an extremely unpleasant situation, please do not forget to add a disclaimer to your correspondence with the counterparty, especially if the correspondence concerns the counterparty’s failure to fulfill contractual obligations.
For the avoidance of doubt, at this stage, we do not affirm or terminate the Contract or waive any rights. We reserve all our rights and remedies in relation to any breach under the Contract.
We know that letters with technical claims are usually prepared by technical specialists and sometimes sent without prior approval from the legal department. This cannot be done, as the cost may be too high. Are the beneficiaries ready to pay it…?
Elena Stuart
Partner, Industrial Construction Practice