Letter giving notice of termination of contract

What is this document?

A letter giving notice of termination of contract is a document through which one contracting party informs another that the contract is terminated before both parties have completely fulfilled their contractual obligations. After termination, the parties are discharged from their remaining obligations to perform under the contract.

Parties have the right to terminate an agreement if the contractual terms confer such a right or, under the common law, when there was a breach of an essential term, a sufficiently serious breach of an intermediate term or repudiation.

Essential terms of a contract, also known as conditions, are terms of such importance that a party would not have entered into the contract unless they had been assured of strict or substantial performance of this term, and this is made known to the other party (Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd). The test of essentiality of a clause depends on the intention of the parties when the contract is executed, and this intention may be evidenced either by express or implied terms in the contract.

An intermediate term is a non-essential term of the contract. To give rise to the right of termination, a breach of a non-essential term must affect the fundamental purpose of the contract and cause substantial loss to the aggrieved party.

Repudiation is the clear demonstration by one party to another of their inability or unwillingness to perform their obligations under a contract. The repudiating party, who is unwilling and unable to perform a contractual obligation, must deprive the aggrieved party of substantially the whole of the benefit of which they would have received if the repudiating party performed its side of the bargain.

When a party becomes entitled to terminate because of breach or some other intervening factor, it is confronted with a decision legally classed as ‘election’, where the aggrieved party has the options to either affirm the contract or terminate it. This decision (i.e. the decision to affirm or terminate) is irrevocable and irreversible.

If a party elects to affirm, the contract remains in force and all rights and obligations remain binding. The party then loses the right to terminate for the particular cause.

If the party elects to terminate, this is effective and all requirements for further performance are waived. However, previous rights remain recoverable.

What are the options for a response?

A response to a letter giving notice of termination of contract will depend on the particular circumstances of your case.

If you agree with the termination, you can write a termination acceptance letter or do nothing.

If you wish to dispute the breaches alleged by the other party, you can do it based on several grounds, including:

• Arguing that there was no breach of an essential term, sufficiently serious breach of a non­essential term or repudiation;
• Arguing that the terminating party is also in substantial breach of the contract, so the termination is wrongful and unreasonable;
• If there was repudiation, showing evidence that the terminating party had previously affirmed the contract for the same breach;
• The terminating party had not allowed you the opportunity to remedy the breach before choosing to terminate the contract (in the event that you were entitled to this opportunity);
• The letter of termination is not valid because it does not meet the requirements of election (for example, the terminating party did not disclose the type of breach or did not expressly communicate the election to terminate).

What is the legal effect of ignoring it?

If you ignore a letter giving notice of termination of contract, a validly terminating party is then entitled to immediately seek to recover damages for breach of contract from you.

What documents and information do you need to give your lawyer?

If you received a letter giving notice of termination of contract, you should seek legal advice as soon as possible and provide your lawyer with: 

• the letter;
• copy of the contract;
• documents related to the negotiation of the contract, including correspondences between the parties;
• any other document or information that your lawyer deems necessary.