The Retailer Winter_2017/18

Nothing last forever – contract termination

MOYA cLiffORD Solicitor and Professional Support Lawyer HILL DICKINSON

“Retailers may seek to exit their

CONTRACT TERMINATION CAN BE A MINEFIELD AND A CLAIM FOR COMPENSATION CAN PROVE TO BE EXPENSIVE – MOYA CLIFFORD PROVIDES SOME TIPS FOR WHEN LOOKING AT TERMINATION ISSUES. Retailers may seek to exit their contracts for many different reasons – a better deal is available elsewhere, the market changes and a certain product line is not selling as well as it once did, a sponsorship arrangement is no longer appealing, there may be performance issues with a supplier that are inconvenient rather than a breach of contract. Contracts may contain provisions which mean they end after a fixed period of time and most contracts make provision for a right to terminate if certain circumstances arise and make provision for how the termination is to be put in place but even where there is no express right to terminate, the general law may allow termination for the other party’s breach or after service of reasonable notice. It is important to appreciate though that termination is a serious issue and that if a party gets it wrong, it may itself be in breach of contract and expose itself to a separate claim for compensation for wrongful termination. This area can be a minefield so here are some tips when looking at termination issues: 1. Forewarned is forearmed – when drafting your contracts, even pre-contract actively think about how you may want to terminate, for what reasons and whether termination will need to be immediate for example, if there is a key date by which delivery of goods is required, making “time of the essence” will assist in facilitating an immediate termination in the event of delays in supply; 2. Use it or lose it – when looking at terminating a contract for breach of a condition or at common law, be careful not to do anything that might give the impression that you wish to continue with the contract despite the breach. A party will be considered to have affirmed a contract if it has acted in a way that demonstrates an intention to continue with the contract despite the other party’s breach – don’t accept sub-standard goods as the right to terminate for breach can be lost by failing to reserve your rights; 3. Often seen, much understood – parties often include a clause in their contracts that allows for termination for “material breach” but do not go on to define what this is. In a recent case (Mid Essex Hospital Services NHS Trust v Compass Group UK & Ireland Ltd (trading as Medirest) [2013] EWCA Civ 200), guidance was given as to what this means – Jackson LJ stated “In my view this phrase connotes

a breach of contract which is more than trivial, but need not be repudiatory…I think that “material breach” means a breach which is substantial. The breach must be a serious matter, rather than a matter of little consequence.”. Something as inconsequential as a change of packaging could amount to a material breach if there was a specific retail requirement for packaging of a certain size; 4. Know your rights – be aware of whether you are seeking to terminate under an express contractual provision or whether you are relying on a “common law” right to terminate for a repudiatory breach. A party is permitted to terminate a contract under common law (i.e. a remedy in addition to any contractual remedy) where the breach goes to the root of the contract. What is the difference between repudiatory breach and material breach (point 3 above)? As a general rule, a material breach is something less serious than a repudiatory breach. 5. Importance of Notices – contracts often set out how the right to terminate is to be exercised – when the notice of termination is to be served, how it is to be served and what information it needs to contain. The courts have frequently upheld the importance of such clauses and held that where mandatory notice requirements have not been complied with that the notice is invalid. 6. Waiting game – it is not always necessary to have to wait for an actual breach of a contract before terminating, a party can commit an anticipatory breach where it demonstrates an intention not to perform its contractual obligations. If the anticipated breach can be shown to be repudiatory, then the innocent party may terminate the contract there and then without having to wait for the actual date for performance to pass. This can be useful to know where there are supply chain issues and cancelled deliveries. 7. Get it wrong and pay the price – before terminating any contract a party must be sure that the grounds for legitimate termination exist. To terminate in error may mean that the terminating party is in itself in breach of contract and liable to compensate the other party. 8. Mitigate your losses – when terminating for breach and seeking compensation from your opponent, reasonable steps should be taken to mitigate any losses, this is not always possible to do but it will be necessary to establish that at least attempts have been made to do so.

Approached with care, contract termination is something that can be a force for good in all organisations, the key is understanding your rights and to exercise those rights in the correct way to avoid problems.

MOYA CLIFFORD // +44 (0)161 817 7254 // moya.clifford@hilldickinson.com // hilldickinson.com

contracts for many different reasons – a better deal is available elsewhere, the market changes and a certain product line is not selling as well as it once did...”

24 | Winter 2017-2018 |

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retailer | Winter 2017-2018 | 25

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