Termination for Convenience Flashcards
When did termination for convenience clauses historically first appear in contracts?
At the end of the American Civil War, where “circumstances had changed dramatically”, to allow the government to wind down military procurement and pay contractors for work already completed.
Why do government procurement often contain termination for convenience clauses?
Under the doctrine of ‘executive necessity’, to ensure government is able to act freely in the public interest, or where policy may change.
“…courts and lawyers may expect the agreements of business people to be clear and complete but unfortunately, in the market place, agreements (especially when prepared by lay persons) often fall short of what a lawyer might desire…”
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd [1991] NSWCA per Kirby P
Are termination for convenience clauses enforceable if it expressly excludes a ‘good faith’ overlay?
Most likely, if the right is clear (‘at the Principal’s sole discretion’) and the contractor is paid out for work completed (to avoid being construed penal or unconsciousable).
What is the consequence if good faith is implied into a termination for convenience clause?
Where a duty of good faith is implied it will not prevent a party from taking steps which are designed to protect its legitimate interests.
What should be considered when inserting a termination for convenience clause in the head contract?
The clause in the head contract would be expected
to be mirrored in subcontracts, to ensure that each contract down the line may be terminated if the head contract is terminated.
Why is a termination for convenience clauses a heavy risk for a contractor?
A contractor may rely on a contract by relinquishing any
opportunities for other work and by directing all of its resources to the performance of the contract.
How does a termination for convenience clause arguable invalidate a contract?
A clause allows a party to revoke a contract at will
and renders the performance of the agreement optional, and consideration illusory.
How can the doubt of illusory consideration be mitigated?
Ensuring the contractor is guaranteed something over and above compensation for services rendered ie ‘any reasonable costs incurred by the Contractor that are directly attributable to the termination’.
‘The respondent’s promise to pay that amount [$1] (‘in
the event of termination for convenience’) was critical to the formation of a contract between the parties for which there was consideration.’
Anderson Formrite Pty Ltd v Baulderstone Pty Ltd (No 7) [2010] FCA
Has the High Court settled whether Australian contract law should recognise an implied obligation of good faith?
No.
See Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA.
How can good faith be excluded by necessary implication?
Where a clause clearly gives a principal an absolute discretion to terminate, there can be no room to
imply limitations, such as a duty of good faith, to fetter that discretion.
