Whether 'tis better to terminate10 March 2016
The traditional notion of terminating a contract in the event of a breach may not always be the best course of action in agreements between resource companies and landowners.
This is because the relationship between a resource company and a landowner will exist independently of any contract and will continue for as long as both parties have rights over the same land.
Contracts between resource companies and landowners usually refine or clarify the pre-existing relationship, adding in details such as land access processes, rehabilitation standards, indemnities and making available plant and equipment to the landowner after operations finish.
These contracts inevitably provide a better deal for both parties. If there is an ongoing relationship, traditional termination rights may need to be seriously considered and even excluded.
Under common law, parties can terminate contracts where there is a fundamental breach of that contract, regardless of whether there is a specific clause that addresses the issue.
If an agreement is terminated, future rights may be lost, such as loss of access by the resource company and loss of the right of the landowner to benefit from indemnities or higher rehabilitation requirements.
For that reason, it will sometimes be better to exclude the rights of either party to terminate a contract for breach.
Clear words are needed in any agreement to exclude any termination rights. Removal of termination rights in an agreement is not a licence for parties to breach a contract at will, as there will still be consequences that flow from any breach.
Rather, it is a way to ensure that any contractually agreed enhancements to the relationship endure for the benefit of both parties.
If termination is not permitted, then other remedies such as damages, review processes and dispute resolution may need to be beefed up to ensure that both parties' interests are protected and that an innocent party is not disadvantaged by a breach of the other.