Termination for Convenience Clauses in Building Construction and Infrastructure Contracts

Topics: Contract, Contractual term, Sale of Goods Act 1979 Pages: 23 (8934 words) Published: August 21, 2011
1. Infrastructure, building and construction contracts often contain so called “termination for convenience” provisions, operating independently of breach, default or frustration. Termination of a contract has been considered as the legal consequence of certain kinds of breach, repudiation or frustration. Frustration is automatic. Breach and repudiation arise where default has occurred. 2. Provisions for termination at the convenience of, or at the will of the contracting parties, or any one or more of them, have become known as “termination for convenience provisions” (referred to in this paper as “TFC”) or “termination at will” provisions. 3. TFC can be invoked in circumstances agreed by the contracting parties (for example, at the will of all or any of the parties; in the absolute discretion of all or any of the parties; or on the occurrence of a specified event or specified events at the behest of all or any of the parties and on notice), as can their contractual consequences (for example, payment or compensation, with or without formulae for its calculation, or no compensation at all). 4. TFC in a contract would, on one view, appear antipathetic to the formation of contractual relations. TFC have given rise to debate and will continue to do so in respect of their application, construction and consequence. If a contract is defined as no more than a legally binding promise or agreement, TFC arguably occupies the whole area of possible obligation, leaving no room for the existence of a contract at all. Further, if the essence of contract, regarded as a class of obligations, is a voluntary assumption of a legally enforceable duty, where there are identifiable parties, certain terms and consideration (unless by deed), TFC may be seen to attack the fundamental elements of a binding contract. Questions of validity for want of mutuality may arise at one end of the spectrum of possible consequences of TFC in contracts (but an argument that TFC means no contract exists because of an absence of mutuality would likely not succeed). At the other end of the spectrum is the proposition that the provisions mean what they say by reference to the precise words used no more and no less. In between are questions of whether, for example, terms should be implied into a contract either by law, because of the type of contract being considered, or ad hoc, to give the contract legal efficacy; whether TFC can be breached by reason of an absence of good faith implied into the contract; or whether, if a term of good faith is implied, that implied term can itself be breached. 5. TFC in contracts appear harsh. More importantly, their terms would suggest that a contract can be ended at any time, even if there has been significant performance, in the absence of breach or default by the party against whom the provisions are invoked. If the provisions do not provide for compensation on termination, the rights of the parties pre-termination and post-termination are left to the application of principle. 6. TFC have given rise to some, but surprisingly, perhaps, little discussion. The purposes of this paper (with particular, but not exclusive, reference to infrastructure, building and construction contracts) are to consider some issues in respect of TFC, including whether: i)the provisions in contracts give an unfettered right to terminate where the plain terms of the would permit it; ii) terms, for example, of good faith, are implied into contracts containing TFC and, if so, their application to such provisions; iii)any requirement for compensation follows on the provisions being invoked where the provisions fail to so provide. With emphasis on:

a. first, the history and development of TFC. -some history of the development of TFC gives indications of the consequences of TFC in government and non-government contracts; b. second, TFC in the broad context of principles of construction and interpretation of contracts; c. third,...
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