Part 3: Contract Termination

Welcome to Part 3 on how to end a contract early. This article discusses how a breach of a contractual term can end the agreement and how contract frustration can end the agreement. This article includes practical examples of situations where a contract might come to an end earlier than planned. This will help you understand your legal position if you find yourself in a contractual dispute.

Can you discharge (end) a contract before a breach actually occurs?

Discharging a contract because of a breach can occur following (i) an actual breach or (ii) an anticipated breach. If a contract is discharged because of an actual breach, or a breach that may occur in the future, this means that either party has expressly or impliedly communicated its intention not to perform their obligations under the contract.

What is an actual breach?

An actual breach occurs when one of the parties does not meet their obligations in the specified timeframe under the contract, or breaches an essential term of the contract.

The contract will usually specify which terms are essential and which are not, and whether a breach of an essential term will entitle the non-breaching party to terminate and claim damages.

It will not always be easy to determine which are essential terms and which are not. We recommend that you obtain legal assistance if you consider that the other side, or your own business, may have breached a term in the contract.

What is an anticipatory breach?

An anticipatory breach occurs when one party indicates through their conduct that they will not be able and/or willing to perform their current and/or future obligations under the contract.

When this occurs, the innocent party may be entitled to seek damages and terminate the contract, even if the timeline for performance of the contract has not yet lapsed.

Discharge by frustration

Frustration is a relatively complex area of law. In simple terms, it refers to the situation where the obligations in a contract cannot be performed, because of unanticipated circumstances.  Frustration can release the contracting parties from their contractual obligations owed to one another.

In Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, Lord Radcliffe, in defining frustration in the law of contracts, explained that:

“…frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract…it was not this that I promised to do.”

When has frustration occurred?

There are several key conditions required to prove frustration. These include the following:

• Neither party can be the cause of the contract becoming frustrated;
• The frustrating event cannot have been foreseeable by either party, i.e. they could not have seen it coming; and
• The party seeking to rely on the doctrine cannot be the cause of the event that frustrates the contract. The party that causes the frustration of the contract is not then entitled to misuse the doctrine to their own benefit.

Conclusion

According to the common law, any contract that becomes frustrated ceases to operate, but any liabilities that existed before the contract became frustrated might still apply and be enforceable. The termination of the contract will only apply to the extent of any future obligations. LegalVision has a team of great contracts lawyers. Please call our office on 1300 544 755. We will happily provide you with a fixed-fee quote and an obligation-free consultation.