Can you terminate a B2B Contract?

There are many significant differences between being a consumer and a business, especially regarding contracts. Mollie Leak, Solicitor in our Commercial Litigation and Dispute Resolution team, examines business-to-business contracts in detail. She also answers a question many clients ask us - Can you terminate an agreement under common law where the contract entered has no provisions for termination?

What constitutes a business-to-business (B2B) contract?

As obvious as this sounds, it is any contract where both parties act on behalf of a sole trader, partnership, limited company or even a charity. B2B contracts are drawn up for various reasons, but most commonly, the sale of goods and provision of services.

It's important not to get B2B and Business to Consumer (B2C) contracts mixed up. B2C is business to consumer, and although both are legally binding, they abide by different rules. 

If all parties act as a sole trader, partnership, limited company or even a charity, you have likely entered into a B2B Contract.

Terminating a B2B Contract

There may be many reasons why you want to terminate a B2B contract. For example, you may have found a cheaper service elsewhere and would like to move to a different provider. A fixed-term contract specifies a period of time in which you agree to pay for a service, and you cannot terminate the contract out of convenience. If the term is not fixed, you may be able to cancel the contract, and you will likely need to give notice before the contract ends. 

If there is a minor, repeated or material breach of the contract by the other party, you are still not in a legal position to terminate. Although you cannot terminate based on minor breaches, you may be eligible for damages depending on the circumstances.

A Force Majeure clause, however, may allow you to terminate before the fixed term is up. Force Majeure relates to a frustrating event; however, there is no common law doctrine to say the contract can be terminated, so this clause is not a guaranteed 'easy get out.'

If a party in the contract has merged with another company or has been bought by another business, you still, unfortunately, cannot use this situation to terminate the contract. Even if the party in the B2B contract becomes insolvent, the agreement remains until the end of the fixed term.

Even if you are in a contract with a sole trader who dies, the personal representatives of the deceased's estate will still be liable to carry out the contract's obligations. 

You are now probably thinking, is there any way out of a B2B contract? The answer is yes; there are a few instances where a B2B contract can be terminated.

You may be able to terminate a contract when a detriment arises, and no end date is specified in the contract. If the agreement is no longer profitable and is in place indefinitely, there will be a right to exit. However, this is usually subject to reasonable notice and should be checked before any action is taken. The notice period may be stated in the contract, but if not, then you have to evaluate the individual facts. For example, the contract may be a monthly service agreement, so providing at least one month's notice could be reasonable.

Another possible cause for termination is in the event of a repudiatory breach of the contract. A repudiatory breach is something that either: 

• Breaches a condition of the contract;
• A party refuses to perform all or substantially all its obligations under a contract; or
• If a party makes it impossible to perform the contract;

If the performance of the contract becomes illegal, then the contract becomes discharged. You do not have to continue with your side of the agreement. Similarly, if the contract becomes frustrated (when something renders a contract physically, legally or commercially impossible to fulfil), then the contract is automatically terminated. The only exclusion of this is whether the contract specifically addresses the events of the frustration.

Things to consider

The above only gives you a brief idea of when you can and cannot terminate a B2B Contract if no termination clauses exist. These clauses will likely be present, stipulating when you can and cannot terminate. As such, it is always crucial to read the contract thoroughly. You should also read the Terms & Conditions of the agreement, even if they are on a separate document or with the other party.

If you are about to sign a B2B Contract or are already in the middle of an existing agreement and have questions concerning termination, you should seek legal advice. Your legal representative will advise you on what the clauses mean, why they were included, and how this will impact your business.

You should also consider where you believe your business is going within the term of the B2B Contract. For example, if your business is likely to expand, you will need to consider if your supplier can meet the increase in demand further down the line. Likewise, if the costs of the materials you use will likely decrease in the near future, consider whether you want to enter into a longer-term contract. 

It is also helpful to be mindful of whether you want to keep the working relationship with the other side of the B2B contract. If you do, it may be sensible to negotiate new contract terms rather than terminating outright. However, you should be cautious when entering contract negotiations. It may waive your rights to terminate the contract early.

The above should assist you in determining whether you can terminate a contract should anything go wrong or if you change your mind. However, you should also be aware that there is no cooling off period with B2B Contracts as there often are with B2C contracts. Ensure you are confident about the agreement before signing the dotted line. Once signed, terminating could be complicated, depending on the clauses in place. 

To discuss business-to-business contracts or for advice on how to terminate your agreement, you can contact Mollie Leak in the Commercial Litigation and Dispute Resolution team on 02380 717487 or email mollieleak@warnergoodman.co.uk.