Termination for Convenience Clauses Presenter: Luke Thomas

Example “The Principal may at the Principal’s discretion terminate the contract at any time by giving the contractor x days notice of it’s intentions to terminate the contract, whether or not the contractor is in default of it’s obligations of the contract.”

Background – TFC’s Historically came about through the necessity of Government to change policy Now used commonly by both Government and Private Industry.

Presentation Topics Legitimacy. Can these clauses actually be used? Is compensation required ? Is there an obligation to act in “good faith” ? Counter Argument – Executive Necessity?

Obligations Implied in common law that you cant repudiate a contract unless a “fundamental” breach has occurred Nothing implied through statutory provisions Express clause to allow termination at call

Is compensation required ? Not settled area of law Recommendation is to provide compensation to the contractor. Contracts require Rights & Obligations. If there is not both, the contract does not exist. MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) 1975 Risk of contract being treated as unenforceable. Potential to sue for unjust enrichment.

Obligation to act in “Good Faith” ? Meaning i) an obligation on the parties to cooperate in achieving the contractual objectives (loyalty to the promise itself) ii) compliance with honest standards of conduct; and iii) compliance with standards of conduct which are reasonable having regard to the interests of the parties Justice Mason in Renard Constructions Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234.

Good Faith Starting Point – What does the contract say? Biggest question is whether “Good faith” is implied Short answer “No”. Longer answer “Possibly” Body of case law to suggest how we should conduct our business

Theiss Contractors v Placer(Granny Smith) (2000) 16 BCL 130. Theiss had contract to provide Placer with construction services at mining operation TFC Clause in place. Also in contract “the successful operation of the contract requires that Theiss and Placer act in good faith in all matters relating to both carrying out of the works, derivation of rates and interpretation of the document” Placer terminated the contract after a number of years to get better rates elsewhere in the market. Court determined that good faith did not extend to use of the TFC. Distinction between operation and termination of contract. Case suggests implied terms are only in such a way to promote contractual objectives.

Garry Rogers Motors v Subaru (Australia) [1999] FCA 903 Garry Rogers enters into contract to become authorized Subaru dealer. The two parties came into dispute as Garry Rogers Showroom was not in compliance with six star program. Garry Roger made requests for leniency. Subaru decided to terminate the contract. Garry Rogers then made subsequent requests that they could meet the requirements and they should withdraw the termination. Court found that there was an implied term to act in good faith in this contract. Court found it was not unconscionable to terminate the contract as it would be reasonable to lose confidence in commercial dealings. Implied duty of good faith does not inhibit the right to look after your own commercial interests.

Hungry Jacks v Burger King (1999) 30 ACSR Hungry Jack’s entered into agreement to be sole franchisee for Burger King in Australia. After some time Burger King wanted to open there own stores and the parties agree upon a contract. Burger King subsequently issued a notice to terminate the contract for the reason that Hungry Jack’s failed to open the number of stores required in the contract. Court determined that there was an obligation of fair dealing in the contract. Some of the approvals required to open the stores were at the sole discretion of Burger King. The actions were uncooperative to the contractual objectives and were malicious in nature

Summary – Conduct standards Depends on terms of the contract. Conduct standards require you to act honestly, without malice, listen to the considerations of others Does not mean putting commercial interests of others ahead of yourself. Implied “good faith” never excludes express rights of the contract.

Executive Necessity Counter Argument – The Government has an unfettered right to terminate a contract and may do so without providing compensation to the contractor. Doctrine of Executive Necessity – Government is able to break a valid contract due to acceptable government reasons. Rederiaktiebolaget Amphrite v The King [1921] 3 KB 500. What would public dealings with Government be like if we could break contract at any time? Is there a contract if Obligations are optional?

Executive Necessity Delvin LJ :“ The Courts will draw a distinction between an act done for general executive purpose and an act done for the purpose of achieving a particular result under the contract in question” Commissioners of Crown Land v Page [1960] 2 QB 274 at 293. Express compensation provisions under the contract are not unenforceable despite an unfettered right to terminate. Port of Portland Pty Ltd v Victoria [2010] HCA44 There is an unfettered right to break contract however the circumstances of this are quite rare. In any case a termination for convenience clause is not required

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