LEGAL CONSEQUENCES OF TERMINATING CONTRACTS

Very rarely, a contract will provide that termination of the contract will cancel the contract as if it had never been entered into. However, for most contracts, termination results in all parties being relieved of performing future obligations under the contract.

This means that the parties will still be liable for their breaches of contract before termination. Contracts sometimes stipulate that certain obligations are to continue even after termination of the contract (for example, confidentiality obligations or dispute resolution processes).

General provisions in the contract (for example, a limitation of liability or an indemnity) will continue to apply in respect of what happened before termination. If a principal lawfully terminates a contract, it will usually be able to recover from a defaulting
party the additional costs involved in having the contract completed by someone else. These costs usually flow from the breach of contract that led to the termination. If a contractor lawfully terminates the contract, it may, depending on the circumstances, be
entitled to recover from a defaulting party the expenses it incurred in demobilizing or paying out subcontractors, as well as the loss of profit.

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