How to escape from a legally binding contract

If you’re one of the many IT business owners exploring contract opportunities abroad in the hope that a suitable assignment with an overseas outfit crops up, then escaping from your current commitment in the UK could be on the cards, assuming you get what you wish for.

Or you could be like the contractor keen to demonstrate an absence of MOO by walking as soon as coding is complete which, similarly, could see you breach the terms of your legally binding contract which the coding project’s on.

As with anything concerning the law, there’s a right way and a wrong way of going about such a situation and, almost needless to say, the people who end up spending a lot of money on me have often tried to do things the ‘wrong’ way.

It may sound obvious but it’s often the first thing I have to mention to persons who approach me as a contracts lawyer: you can’t get out of a contract just because you’ve changed your mind. If you try to, you are likely to find that you are in breach of the contract and are likely to have to pay damages.

So, what can you do if you are committed to a legally binding contract and want out?

The first thing to say is that a great deal will depend on the terms of the contract plus the reasons and circumstances for wanting out. It will be important that you fully understand the terms that you are bound by and the potential damages for breaking the terms of the contract. You should ideally not take any action until you have had some legal advice from a professional in commercial contracts law.

That said, and while keeping the above in mind, there are generally three ways you might be able to secure release from a commercial contract:

  1. Ask to be released

As simple as this might seem, it is often the one thing that business owners often don’t consider. Instead they employ tactics like delaying or stopping payment, failing to supply goods or services, or simply being ‘commercially awkward’ to try and force the other party’s hand. This rarely, if ever, works and it’s not recommended.

It’s much better to talk to the party with whom you are bound by the contract, perhaps via your solicitor/contracts expert. Sometimes neither party is really happy with the agreement and how things are working out, and by raising the point you can agree a mutually acceptable way to sever the agreement.

  1. Use termination clauses

Look at the termination clauses in your contract as there may be an opportunity to come out of the contract early. Even so, there are potential dangers to watch out for. There are often clauses in contracts such that you may have to pay a considerable sum to end the contract early.

While this might not be the preferred option, it could be a suitable one if being bound by the contract is holding you back or costing you money in other ways. Any extra sums payable under the contract need to be part of the negotiations and you will need a carefully drafted settlement agreement to avoid paying these or reduce what you would otherwise have to pay.

You may also be able to exit the contract by giving suitable notice, which again might not be a perfect solution but could prevent you entering into a full scale commercial dispute.

  1. Exploit a loophole

You will almost definitely need a lawyer to help you with this because essentially what you are looking for are any mistakes, unfair clauses or loopholes which will allow you to exercise a right to terminate the contract legally and without it costing anything.

The bottom line

You may have very legitimate reasons for wanting to terminate a contract, which might for example include a breach of contract by another party but, as with any legal document, it’s really important to take proper advice and act within the law. Failure to do so can be costly, both in terms of cash and reputation.

As told to ContractorUK by solicitor Gary Cousins, co-founder of legal advisory Cousins Business Law.

Editor’s Note: Further Reading – Beating the IT contract crunch ii) Broken Promises

Monday 1st Oct 2012
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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