A recent decision in the Supreme Court has reinforced the principle that termination clauses will be interpreted in a sensible and businesslike manner. In DR Design (NSW) Pty Ltd v Grand City International Development [2017] NSWSC 1778, the court was asked to determine whether termination of an architectural services contract was valid, or in fact wrongful repudiation.

In the contract, both parties had an express right to terminate with 48 hours’ notice. GCI (the client) also had the additional obligation of paying DR the value of the work completed to date upon termination. When GCI purported to terminate the contract via a letter, DR claimed that their termination was not valid as they had not paid for the outstanding work yet. However, by applying the principle that termination clauses should be interpreted in a sensible, businesslike manner, the court decided that the payment obligation set out in the termination clause was a consequence of termination rather than as a condition precedent to the exercise of the right of termination.

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