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In business, contracts are key. Once you sign one, you are contractually obliged to keep up your end of the bargain. But you may reach a point where you have signed a contract and the other party is not performing their obligations to the standard they promised. Or, perhaps you and the other party are having a difference of opinion and cannot agree. Contracts can eventually falter, and in some cases, tense relations can devolve into lengthy court proceedings. It may be worth including a dispute resolution clause in your agreement. This article will explain: 

  • whether contention regarding fulfilment of contractual obligations may amount to repudiation;
  • how a dispute resolution clause can help; and
  • whether cancelling the contract is an available option.

What Is Repudiation?

When the other party repudiates a contract, this means that they refuse to perform their obligations as specified in your contract after they sign it. This is a repudiatory breach of your contract. It has to be clear that they do not intend to complete their side of the deal. You would look to their words and actions as evidence of this lack of intention. If you can prove that the other party repudiated the contract, then you may have the right to cancel that contract.

For example, you may receive an email from the other contractual party refusing to continue paying for your product because they think your prices are too high. Likewise, the other party decides to switch to a different supplier. These actions could amount to repudiation.

Additionally, a party may repudiate the contract if they only refuse to uphold certain parts of the contract. Suppose they refuse to perform their contractual duties unless they can complete them according to entirely new terms. In that case, this can amount to a partial repudiation.

Repudiation is a severe matter, and courts require an appropriate level of evidence proving it as a breach of contract. Check your contract to see if there is a clause explaining what actions would qualify as contract repudiation, or whether it outlines a dispute resolution process. 

What Is a Dispute Resolution Clause?

A dispute resolution clause outlines the process that you and the other contractual party can use to remedy a dispute, should one arise. If the issues you are having can be solved through mediation and negotiation, you should take advantage of this avenue. A well-drafted dispute resolution clause can help you avoid costly legal proceedings altogether.

Note that if your contract has such a clause and you do not go through its mechanisms before beginning legal proceedings, then you may be liable for a breach of contract. If you have a serious disagreement with the other contractual party, check to see what resolution processes you already have available in your agreement.

Elements Your Dispute Resolution Clause Should Cover

Scope of Dispute

This would include a definition of ‘dispute’, and how broad you consider the definition to be. Does this clause only apply to disputes regarding this specific contract, or does it cover disagreements on matters outside of the contract as well?

Mechanism of Resolution

This covers what process or protocol you and the other party will use to resolve the dispute. How will you select an independent third party? Will you use a mediation or arbitration service?

Trigger

You should make sure the contract details how either party can begin the dispute resolution process. Usually, this would be some kind of written notice.

Timing

This clause would outline the timing of the resolution process. After you send written notice, how long does the other party have to respond? How long will you be in mediation until you move to the next step?

Failure

A dispute resolution clause should cover what happens if resolution fails, or one of the parties does not comply properly. 

Payment

It is also a good idea to specify who pays for the dispute resolution process. For example, both parties may pay equal shares of the costs.

When Can I Cancel a Contract?

Your contract may include a cancellation clause, detailing which circumstances gives either party a contractual right to cancel. Usually, such a clause would include:

  • what conditions grant you the right to cancel;
  • the process for cancelling your contract; and
  • the consequences of said cancellation. For example, whether you need to close any accounts or return a product.

Some contracts include a right to terminate or cancel the contract as long as you give appropriate notice. 

The law also grants you, as the aggrieved party, the right to cancel a contract if a party:

  • repudiates the contract terms before they fulfil their contractual obligations; or
  • makes a misrepresentation affecting your agreement to the contract or breaches an essential term.

Your contract may modify these rights to cancel, and you may not be able to rely on these legal actions. Read through your contract document thoroughly to see what clauses will affect your rights in such a fashion.

Key Takeaways

After you sign a contract, you may find that the other party is not fulfilling their side of the deal as you expected. This may amount to repudiation. However, this is a very serious legal action, so you should ensure you use any dispute resolution clauses that your contract outlines. Otherwise, you may be able to cancel the contract. If you would like more information or help with disagreements around your contract, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is repudiation?

A party repudiates a contract when they refuse to perform their obligations under the contract after they have signed it. This can apply to the whole of the contract, or just to specific parts.

What is a dispute resolution clause?

A dispute resolution clause is a clause in your contract that outlines what you and the other contractual party should do if you have a dispute. It will specify what a dispute is, and what the resolution process looks like. This may include mediation or arbitration procedures.

What is a cancellation clause?

A cancellation clause (sometimes known as a termination clause) provides the circumstances in which you or the other contractual party can cancel the contract. It will also specify how you can cancel the contract, including how much notice you need to give and what the consequences are.

When can I cancel a contract?

You can cancel a contract if the other party repudiates the contract before they fulfil their contractual obligations or makes a misrepresentation affecting your agreement to the contract or breaches an essential term.

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