Lloyd's Maritime and Commercial Law Quarterly
The termination paradox
Edwin Peel*
This article assesses some of the issues arising as a result of overlapping rights to terminate for breach of contract granted by the general law and by the terms of the contract; in particular, the extent to which the exercise of any right granted by the terms of the contract may be prejudicial to any later attempt to exercise the right granted under the general law. An analysis of the general principles involved and of the leading cases is followed by a summary and critical analysis of the present position, and by consideration of a number of possible solutions to the problems created.
I. INTRODUCTION
Over the years practitioners in litigation have become used to a particular dilemma, namely whether a breach of contract by the defendant justifies the exercise of the remedy of termination by the claimant. The dilemma arises because, if the remedy is exercised, but it is later successfully challenged, the claimant’s own wrongful failure to perform1 will amount to a breach. The dilemma therefore is over whether to terminate. More recently, a further dilemma appears to have arisen, or been given prominence,2 by a number of decisions; namely how to terminate. It arises because termination may be invoked either on the basis of the general law for a “repudiatory breach” or pursuant to an express contractual power. Some decisions appear to have established that, if it is the contractual power that is invoked, it may not be possible at a later stage to argue for termination on the basis of repudiatory breach in order to obtain the additional benefits which may flow therefrom. The explanation appears to be derived from the law relating to affirmation. In enforcing the contractual power to terminate (at least in some circumstances), the contract is affirmed, albeit by way of its termination, and it is too late to accept the repudiatory breach. This is the paradox referred to in the title to this paper, which seeks to analyse the
* Keble College, Oxford. I am grateful to my colleagues Adrian Briggs and Adam Rushworth, who were not called upon to comment on a draft of this article, but have discussed with me many of the points it seeks to address, and to the reviewer for his or her insightful comments, which were alert to all of the contentious issues contained herein. Any errors and provocations are my responsibility alone.
1. If no performance was yet due from the terminating party, it may be possible for him to assert his mistaken belief that he was entitled to terminate without conferring on the other party a right to terminate as a result: Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277, discussed in E Peel (ed.), Treitel: The Law of Contract (hereafter “Treitel”), [18.035].
2. It is not an entirely new problem, as seen in the discussion of United Dominions Trust (Commercial) Ltd v Ennis [1968] 1 QB 54, post, Part III(1).
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