International Construction Law Review
TERMINATION FOR CONVENIENCE: RECOVERING THE EXPECTANCY
Franco Mastrandrea
LLB (Hons), MSc, PhD, FRICS, FCIArb, Barrister Senior Vice President and Head of Expert Services, International. Managing Director, Europe. Hill International
“Termination for convenience” typically allows a party to a construction contract to terminate further performance under the contract without being required to show cause.
Whilst a common outcome is that the party who so terminates does not suffer the usual financial consequences of breach of contract, such as liability to compensate for the balance of the other party’s expectancy1, there are notable exceptions to this rule. Thus, in Germany, although section 649 of the Civil Code provides that the customer may terminate the contract at any time up to completion of the work, it goes on to provide2:
“If the customer terminates the contract, then the contractor is entitled to demand the agreed remuneration; however, he must allow set-off of the expenses he saves as a result of cancelling the contract or acquires or wilfully fails to acquire from other use of his labour. There is a presumption that the contractor is accordingly entitled to 5 per cent of the remuneration accounted for by the part of the work not yet provided”.
ORIGIN
The concept of termination for convenience can most clearly be traced to the Federal jurisdiction in the US.
The cornerstone authority is United States v Corliss Steam Engineering Co 3
.
1 For the classic statement of the expectancy (or expectation interest), albeit not expressed in those terms, see the judgment of Baron Parke in Robinson v Harman [1848] EngR 135; [1843-60] All ER 383; (1848) 1 Exch 850:
“Where a party sustains a loss by reason of a breach of contract he is, so far as money can do it, to proceed in the same situation, with respect to damages, as if the contract had been performed”.
2 www.gesetze-im-internet.de/englisch_bgb/englisch_bgb.htm.
See also:
• Article 7:764 of the Dutch Civil Code: “
1. The principal may at any time terminate the construction agreement, either entirely or partially. 2. In the event of such a termination the principal shall have to pay the price for the entire work and construction, reduced by the costs and expenses which the constructor has saved as a result of the termination”: www.dutchcivillaw.com/legislation/dcctitle771212.htm
• Article 377 of the Swiss Code of Obligations:
“The customer may withdraw from the contract at any time before the work is completed provided he pays for work already done and indemnifies the contractor in full”: http://www.admin.ch/ch/e/rs/220/a377.html
3 91 US 321 (1876).
Pt 3] Termination for convenience: recovering the expectancy
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