JICLT Journal of International Commercial Law and Technology Vol. 7, Issue 3 (2012) Termination for Convenience Clauses and Good Faith Associate Professor Anthony Gray Deputy Head, University of Southern Queensland Springfield Campus, Australia
[email protected] Abstract . This article considers the legal validity of so-called termination for convenience clauses, which allow at least one party to the contract to terminate the contract without cause. Such rights are in contrast to more traditional approaches to contractual termination, which distinguished between breaches of condition and breaches of warranty, allowing termination only for the former. Specifically, it will be asked whether such termination for convenience clauses are consistent with requirements of good faith in contracting, the existence of which is itself contentious. As a result, it will be necessary to consider the current state of the law in Australia and elsewhere in relation to the extent to which good faith is and should be a feature of contracting. © 2012 Anthony Gray. Published by JICLT. All rights reserved. 1. Introduction Clauses allowing at least one party to the contract1 to terminate the contract without cause are an increasing feature of contracting in Australia. An example of such a clause for discussion purposes appears in the standard form contract of a major Australian construction company. It states that The contractor may terminate the agreement at any time in its absolute discretion by written notice to the supplier in which case, and provided there have been no defaults by the supplier, the supplier will be entitled to the following amounts as reasonably determined by the contractor: The value of all good supplied in accordance with the agreement, to the date of termination (less any amounts already paid to the supplier in respect of that supply; and All reasonable direct costs incurred by the supplier as a result of termination (subject to an obligation on the supplier to mitigate such costs).