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International Construction Law Review

CURRENT ISSUES IN THE TERMINATION OF CONSTRUCTION CONTRACTS BRONWYN LINCOLN * AND KATHERINE AISTROPE Freehills, Melbourne 1. INTRODUCTION When a client approaches his or her lawyer seeking advice on how to terminate a contract before completion of the contract term, there is a series of warning bells which sound in the lawyer’s mind. The reason for this is that unless there is agreement amongst the parties to the contract to bring the contract to an end, there will often be substantial risks in the course the client is seeking to adopt. The fact that the contract is a construction contract, be it, for example, a design and construct contract, engineering, procurement and construction contract or a joint venture agreement, in most cases does not impact on the contracting parties’ legal rights to terminate; it may, however, impact on practical considerations which need to be taken into account before the termination occurs. There are several well established bases on which a party can terminate a contract. First, as mentioned above, the parties can by agreement bring the contract to an end. Secondly, the termination may arise out of a breach by one party of a condition or fundamental term of the contract. Thirdly, the termination might come about through the enforcement by one party of a term of the contract which empowers that party to terminate in certain circumstances. It is beyond the scope of this article to examine in detail all the bases upon which termination rights may arise. The objective of this paper is, therefore, to consider, in the light of recent Australian authorities, two aspects of the termination of contracts which are particularly relevant to construction contracts. These are the doctrine of election and the concept of termination for convenience. The latter, in particular, has been the subject of debate in various Australian jurisdictions and amongst legal commentators in recent times. 2. ELECTION 2.1 What is election and when does it arise? The doctrine of election involves a choice by a party to a contract between two inconsistent rights. For the purposes of this article, these inconsistent rights * Partner, Freehills, Melbourne. Pt 4] The Termination of Construction Contracts 489

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