Consultancy Contract Termination: The Rights and Responsibilities

In case a consulting contract becomes impracticable for either party, the party might wish to move forward with terminating the contract to free themselves of their contractual obligations under it. The firm that hires the consultant often has the upper hand in this case, as there would be provisions in the contract that allow them to terminate it on a wide variety of grounds. 

Consultants are not entirely without recourse in these matters, as they can also terminate contracts if the need arises. This blog seeks to answer the question of “can a consultant terminate a contract?”

Can a consultant terminate a contract?

Whether a consultant can terminate a contract is dependent on the presence of several factors. Broad situations in which a consultant may terminate a contract are enlisted below:

Breach of contract:

•  In case of either a wilful or accidental breach, that was not caused by factors outside the control of the hiring firm, the consultant would be in a position to terminate the contract.

• Section 39 of the Indian Contract Act allows promisees to terminate contracts if the promisor refuses to perform, or disables themself from performing, their contractual obligations.

• The breach contemplated under this section can be of two types: anticipatory breach or present breach. 

• The former type of breach would arise when the promisor has stated their intention to not perform their obligation, whereas the latter would occur when they fail to perform their obligation.

• Both of these situations enable a promisee, the consultant for the purposes of this discussion, to terminate the contract. The obligations of the hiring firm vary from contract to contract, but one common obligation is prompt payment in the agreed-upon format.

• In this manner, the question of “can a consultant terminate a contract?” would be answered in the affirmative in case of a breach of contract.
  

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Impossibility of performance:

• Can a consultant terminate a contract if there is no way to perform it? Yes, they can. Punishing a person to perform an impossible task would be manifestly unfair, which is why consultants have a method to terminate contracts where the obligations cannot possibly be performed.

• Section 56 of the Indian Contract Act gives an answer to “Can a consultant terminate a contract due to impossibility of performance?” by providing that an agreement to do an act that is impossible is void.

• This Section has been interpreted by Courts to include both, impossibility at the time of the creation of the contract, as well subsequent impossibility. 

• If one party knew that the act they promised to do was impossible, and the other party was not aware of this fact, the former is liable to financially compensate the latter.

• Additionally, if either of the parties explicitly assumes the risk of the impossibility occurring and continues to enter into the contract, they will not be able to avail the defence of impossibility.

• Barring these situations, impossibility of performance would render the contract void and would allow a consultant to terminate their contract.

• To avail this defence, consultants must take care not to promise things that may be impossible, or may become impossible to do.
  

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Termination by agreement:

• Can a consultant terminate a contract if both parties agree to the termination? Yes, this is another method through which a contract can be terminated.

• This method of terminating contracts is particularly useful as it maintains cordial relations between the parties.

• Section 62 of the Indian Contract Act frees parties from the obligations of a contract that has been substituted, altered, or revoked. If a consultant can negotiate a new contract or the revocation of the present contract, they can, in essence, terminate the contract.

• If both parties agree, the answer to “can a consultant terminate a contract?” is a straightforward yes.
  

Neglect or non-cooperation:

• If the hiring firm does not provide the consultant with the resources and facilities that are required to perform their tasks, the consultant would be unable to act in the manner that the firm expects them to. This brings up the question of “can a consultant terminate a contract if the firm does not provide the resources necessary for their job?”

• Section 67 of the Indian Contract Act excuses promisees from their contractual obligations if the promisor refuses or neglects to provide the facilities that they would reasonably be expected to provide for performance of the contract.

• In a practical situation, this might manifest as a refusal to allow a financial consultant to analyse the financial documents of the firm. Similar situations where the consultant is unable to acquire the resources or information necessary for their tasks would fall under the ambit of this Section.

• As it would be unrealistic to expect a consultant to perform their duties without the resources that are necessary to do so, this Section allows consultants in these situations to terminate their contract.

• So, can a consultant terminate a contract if the firm does not provide the resources necessary for their job? Yes, they can.
  

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Procedure for termination of contract

After considering the question of “can a consultant terminate a contract?”, it is important to move towards termination in a proper manner. This involves the following steps:

• Examine the clauses of the contract under which the consultancy has been established to find clauses relating to termination.

• If a relevant clause has been found, document the circumstances that would lead to the application of the clause. This includes communications with the management, memos within the office, and other forms of official documentation that record the act which is being used as the basis for termination.

• Draft a letter of termination. Clearly state the reasons for terminating the contract, the relevant clause in the consulting contract, or the statutory provision allowing termination.

The question of “can a consultant terminate a contract?” can have varied answers depending on the situation, but it can be answered with a “Yes” if the circumstances are right. As the termination of a contract is a serious matter, it is important to consult a legal professional before taking any serious steps towards it.