Terminate With Care

//Terminate With Care

Terminate With Care

Tearing up contractThe case of MPP GmbH and Antal International Network Limited, reported in the legal press by Matthew Dando of Reynolds Porter Chamberlain LLP, highlights the dangers of premature contract termination.

In summary, this case was brought when Antal alleged material breach of contract after an MPP employee acted in a way that had serious potential to bring Antal’s reputation into disrepute. The contract clause that Antal relied upon in its termination notice was clause 16.2(l) which provided that MMP must not:  

at any time, do anything to affect adversely

[Antal’s] name, Trade Marks or other Intellectual Property.”

MPP claimed that Antal’s termination notice itself was in breach of contract, and was suing for damages resulting from the loss of value to MPP’s business if the Antal contract was terminated.

In legal terms, this is called “repudiatory breach”, and means that the party attempting to terminate for the other’s breach has acted in a way that makes it in breach of contract. It could occur if the original termination claim is on dodgy ground, or if the terminating party fails to issue the termination notice properly.

The net result is that the party seeking to terminate is, itself, in breach of contract – meaning that rather than seeking damages from the other party, they end up having to defend a claim for damages themselves!

It is surprisingly easy to find yourself in a repudiatory breach situation. In this particular case, the Courts decided that although MPP’s actions had the potential to adversely affect Antal’s name, they had not actually done so in practice. Therefore, in the absence of any actual damage, the Court held that Antal was premature in issuing its notice of termination.

So what does this mean in practice? It means that Antal terminated the contract when they had no valid reason to. So MPP was entitled to claim for damages as a result of the wrongful termination.

The details of this particular case meant that MPP didn’t actually receive any damages from Antal, as neither party had behaved particularly well. But the lesson is a clear one – before you issue a termination notice, take care to state your reasons for the termination clearly and accurately. It may be that you have perfectly good grounds to terminate in accordance with the contract, but if you use the wrong terms in your letter, you could find yourself in Antal’s shoes, defending a claim for repudiatory breach.

Antal could have put themselves in a better position with subtly different drafting of the clause they were seeking to rely on. If they had said that MPP should not “do anything reasonably likely to adversely affect Antal’s name”, this case could have ended differently.

If you do find yourself in a situation where you need to terminate a contract, follow these steps to keep yourself out of trouble:

  1. Take legal advice to ensure that the other party’s conduct genuinely amounts to a material breach of the contract, or otherwise entitles you to terminate;
  2. Ensure that you are not in a position where the other party’s breach has arisen from your own failure to perform (i.e. check that you are not in a “glass house” before starting to “throw stones”!);
  3. Draft the termination letter clearly, with reference to the provision giving rise to the right to terminate, and setting out the basis on which you think the other party has breached; and
  4. Follow the notice provisions in the contract to the letter, making sure the termination notice complies fully with the requirements of the contract before you sent it, and in the way that you send it. This means making sure the notice is sent to the correct people, in the correct manner, and generally leaving no loopholes open!

It’s particularly important to seek an impartial third party perspective on matters like this, as you may find that your own perspective is somewhat distorted. If the other party has “done you wrong”, it may be very clear to you that they have not behaved as they should have. And yet, when it comes to the detail of the contract, they may not actually be in breach at all – or they may have a right to attempt to put right the breach, before the option for you to terminate arises. Let us help you, contact me for a no obligation chat.

So looking before you leap is, as always, a useful maxim to follow – particularly when embarking on potentially litigious communications!

tiffany kemp devant

 

 

 

 

 

Tiffany Kemp
Founder and Managing Director, Devant

2017-02-19T13:49:46+00:00

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