Wrongful termination: it can turn on you

Termination looks like power. One party has had enough, the contract gives a right to end it, and a notice goes out. But a termination is only as good as the ground it stands on and the procedure it follows. Get either wrong and the notice does not end the contract in your favour. It can end it in the other party's favour instead.

Two ways a termination is made out

A termination under the Section 8 provisions has to satisfy two separate things, and both matter.

The first is substance. There has to be a ground. The default relied on must actually be one the contract allows termination for, and it must actually have occurred. A genuine belief that the other side is performing badly is not a ground if the contract does not list it, or if the facts do not support it.

The second is process. The contract sets out how termination is to be done: the notices required, the periods to be given, the person who may serve them, the manner of service. These are not formalities to be brushed past. They are conditions of the right being exercised properly.

What a bad termination becomes

Here is the sting. A termination that is not justified, whether because the ground is not made out or the procedure was not followed, is not simply ineffective. It can itself be a repudiatory breach. By purporting to end the contract without the right to do so, the terminating party shows an intention no longer to be bound, and that is the classic shape of repudiation.

The other party can then accept that repudiation as bringing the contract to an end and claim damages for the breach. So the party that reached for termination as a remedy becomes the party in breach, facing a claim rather than pursuing one. A mistake about the ground, or about the process, turns the terminating party into the wrongdoer.

Why the ground has to be the right ground

It is not enough to have some reason to be unhappy. The ground stated has to be one the contract permits termination for, and the facts have to fit it. Relying on a ground that does not exist in the contract, or that the evidence does not support, leaves the termination unsupported even if the relationship really had broken down.

This is why the instinct to terminate first and justify later is dangerous. If the justification does not hold up against the ground actually relied on, the notice was wrongful from the moment it was served, and no amount of later reasoning repairs it.

Why the procedure has to be followed

The procedure exists because termination is a serious step and the contract wants it taken deliberately. Skipping a required notice, giving a period shorter than the contract allows, or serving in a manner the contract does not accept can each be enough to make the exercise defective. The right may have existed, but it was not exercised properly, and an improperly exercised right can be no better than none at all.

Why the evidence decides it

When a termination is challenged, the argument is about two things: what the ground was and whether it was made out, and whether the procedure was followed. Both are questions of fact, and both are settled by the record.

• The date the decision was taken and the ground it rested on
• The facts said to support that ground, as they stood at the time
• The notices served, when, by whom, and how
• The trail of changes leading up to the decision, so the ground can be tested against what was actually happening

A party that can produce the date, the ground and the supporting trail is in a position to defend the termination as effective. A party reconstructing it afterwards, from recollection, is arguing from a weaker place and inviting the counter-claim.

The discipline before serving notice

The exposure runs both ways, which is the point. The party thinking about termination should treat it as a decision to be evidenced, not just made. And the party on the receiving end of a defective notice has a real option: accept the repudiation, end the contract, and claim.

The check before the notice goes out

• Is the ground one the contract actually allows termination for?
• Do the facts, as they stand now, support that ground?
• Have the required notices, periods and manner of service been followed exactly?
• Is the date, the ground and the supporting record captured, so the termination can be defended if challenged?

If all four hold, the termination stands on both legs. If the ground is shaky or the procedure was rushed, the safer conclusion is that the notice is not yet ready, because a wrongful termination does not just fail. It hands the other side a claim.