But I don’t like it anymore ….

Signing up to an agreement that turns out to be a “bad” deal commercially does not, of itself, entitle you to terminate.

The first thing to do is review your agreement to find out whether you have any grounds to terminate. A termination clause for convenience – that is one where a party is able to terminate for any reason (even where there has been no breach) – on giving notice is the easiest way to exit.

If there is no such clause in the documentation, then you will need to look at the broader termination provisions and especially the ones permitting termination for breach of a contractual obligation. However, those provisions often come subject to serving notice, giving the defaulting party the opportunity to “cure” the breach and perhaps a further test of whether such a breach is “material”. In other words, such termination provisions are not usually straightforward.

In fact, and in my experience, termination clauses are usually drafted to prevent the other party from being able to walk away easily. This is against a background where a lot of effort has gone into negotiating the deal that is expected to last a long time.

Therefore, my advice to clients when negotiating these agreements, especially long term JV arrangements, is to make the effort at the start to set out as clearly and fully as possible what is expected from each party. This does take time and clients often find it tedious particularly when pressed for details in relation to deadlines, quantities, deliveries and other provisions dealing with the relationship. The provisions should also be benchmarked against service levels so one can determine easily what represents complying with the agreed obligations and what does not.

Another advantage is that it challenges both parties right at the beginning of the relationship to think carefully about what they expect the other to be doing to make the deal a success. That, in turn, often leads to a better understanding of how the deal is going to work in practice, which is in both parties’ interests. In short, do the grunt work at the beginning to make sure everyone understands what they are expected to do to make the deal a success rather than hoping to sort it out as you go along.

The contents of this article are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this article. © Mundays LLP


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