It could be a contract your travel agency has with a supplier for office equipment or goods and materials. Whatever it is for, you find yourself seemingly bound for another few years to comply with the provisions of a contract that is costing you dearly.
In this difficult financial climate, you may be anxious to terminate this contract earlier and find a new and cheaper supplier. Is there is way out of this agreement that will not result in a claim against you for damages for breach of contract?
Check the small print
Before you do anything rash, check the wording of the contract carefully. It may be that the contract sets out a list of ‘triggers’ that entitle either side to terminate the contract. A standard termination clause will usually give the right to terminate if the other party is at risk of becoming insolvent.
Another trigger for termination could be where there is a change in ownership of the other party to your contract or where prices for the goods being supplied have soared beyond a certain level. Do any of those potential exit routes apply to your agreement?
Give reasonable notice
If you are going to serve notice, check the wording of your agreement to see if you must give a minimum period of notice. It is also important to note whether there are any formalities for giving notice.
The contract may stipulate that notice must be given in writing, contain specific information and be served on a particular address. Make sure you comply with these formalities to the letter or the other side to your agreement will claim that you are the one in breach by failing to give proper notice.
If your contract does not give a specific notice period, then consider giving ‘reasonable’ notice. What is considered ‘reasonable’ will vary widely depending on the particular circumstances of the agreement. What would be the normal notice period for this type of contract?
Is there a ‘material’ breach?
If none of these ‘triggers’ for termination apply, can you raise a good case that the other side in the contract has behaved in such a way that you are entitled to walk away from the contract without notice?
It would be impossible for a written agreement to cover every possible scenario that entitles either party to terminate the contract with immediate effect. Typically this termination term will be drafted to say that either side can terminate for a ‘material’ breach. It may be that your contract helpfully gives a non-exhaustive list of what constitutes a material breach.
If not – which is more likely to be the case – it is a judgement call, and it can be a tricky one to decide.
Broadly speaking, the word ‘material’ means something that is clearly not trivial but is so serious that it goes to the very root or heart of the contract. A good example of material breach is where one side fails to meet the payment obligations of the contract or they persistently delay in making payment and this causes you extreme hardship.
If you consider that there is a strong argument that the other side is in material breach, check the timing of the material breach. If it happened in the past and you have not raised it up to now – and are only resurrecting it now as an excuse to exit the contract – it is likely the other side will argue that even if they admit they did breach the contract, you have effectively ‘waived’ this breach by ignoring it and letting the contract carry on as normal.
Also check that the contract does not allow for the possibility that this material breach can be cured so that you are not entitled to walk away without giving the other side a chance to put things right, if this is possible.
Claiming that the other side is in ‘material’ breach is a risky business. The danger is that they will argue that your attempt to repudiate or walk away from the agreement is itself a breach and that they are therefore entitled to claim against you for damages.
Tread carefully
In summary, the message is that it is possible to exit a contract earlier than the agreed period but it is a route that can be tricky to navigate.
Tread carefully, and ensure before you inform the other side that as far as you are concerned the contract is at an end, that you have read the details of the contract, and you understand the termination provisions you have signed up to, and the likely consequences if you ignore them.
Useful links
hmcourts-service.gov.uk – The official website for the courts service is a useful source of information if you find that you are facing the wrong end of a claim for breach of contract.
Helen Conway is a commercial litigation solicitor in the London office of Dundas and Wilson. Before qualifying as a solicitor, Helen worked as a journalist in the travel industry, and was a reporter with Travel Weekly.