UK Law and Practice Contributed by: Richard Brown, Louisa Chambers, Adam Wyman and Michael Ross, Travers Smith LLP
Partial Termination and Change of Control The customer may also seek to include a right to ter - minate where the supplier commits specified service failures and may insist that such termination rights can be exercised in respect of the affected services only or in respect of the contract as a whole. Another ter - mination right commonly requested by the customer is a right for the customer to terminate upon a change of control or ownership of the supplier. A well-drafted change of control clause will also include an obligation for the supplier to provide notice: • of any prospective change of control (subject to relevant confidentiality obligations); and • within a specified number of days of any change of control occurring. Repudiatory Breach In addition to the express termination rights set out in the contract, under English common law, an innocent party will normally have a right to terminate a con - tract for “repudiatory breach”, where the other party breaches a condition of a contract. A condition of a contract is a term that goes to the essence of the con - tract – whether or not a term is to be categorised as a condition will be a matter of contractual interpretation in each case. Damages If the contract is terminated for breach, the innocent party may be able to claim damages for losses suf - fered as a result of the breach (see 4.3 Liability ). Ter - mination for repudiatory breach will often allow greater scope for a damages claim than reliance on an express clause allowing termination for material breach. If a party terminates in circumstances where it was not in fact entitled to do so (eg, because the breach was neither material nor repudiatory), that party may be exposed to a damages claim for unlawful termination. 4.3 Liability Under English contract law, only loss that was in the reasonable contemplation of the parties at the time the contract was entered into (as a probable result of a breach of it) is recoverable. Outsourcing contracts will typically distinguish between direct and indirect loss. Direct loss means any loss arising naturally and directly from the breach according to the usual course
– suppliers can be obliged under the outsourced sup - ply contracts to continue to supply to a customer once it enters an insolvency or restructuring process, even where there are pre-insolvency arrears. Suppliers can also be prevented from making the payment of such arrears a condition of continued supply. The relevant outsourcing contract may only be terminated with the consent of the customer or (if the customer is in administration or liquidation) the appointed insolvency practitioner, or with the leave of the court (if the court is satisfied that the continuation of the contract would cause the supplier hardship). If the supplier’s right to terminate arises after the insolvency or formal restruc - turing process begins (eg, for non-payment of goods supplied after that time), then there is no prohibition on termination. Given how difficult CIGA makes it for suppliers to rely on insolvency termination triggers, suppliers may seek to include earlier triggers so as to permit termination before the “relevant insolvency procedures” contem - plated in CIGA – for instance, if the customer gives notice of its intention to appoint an administrator (as opposed to the actual appointment of an administra - tor). In addition, suppliers may seek to further mitigate the impact of CIGA by including a requirement for the customer to provide ongoing financial information to monitor any signs of distress of the customer and/or review their procedures for responding to late pay - ment by customers to pick up on any potential signs of financial difficulties. Force Majeure In addition to the above termination rights, the con - tract may also contain termination rights in circum - stances where a party is prevented from carrying out its obligations under the contract for a specified peri - od owing to a “force majeure” event. Force majeure clauses exist in a variety of different forms; as a result, whether a “force majeure event” has occurred is highly fact-specific and depends on the precise drafting of the relevant force majeure clause. The occurrence of a force majeure event does not necessarily mean that a party will be relieved of liability for any failure in performance or delay in performance. Again, this will turn on whether the drafting of the clause and factual matrix supports such an outcome.
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