Discharge of contract and remedies - Termination of contract...

Learning Outcomes

This article examines the discharge and termination of contracts in English law for SQE1 FLK1, including:

• Discharge by expiry, recognising when a contract naturally ends, how notice provisions operate, and which rights and obligations survive the expiry date
• Discharge by breach, distinguishing repudiatory, anticipatory, and minor breaches, and identifying the consequences of each type for termination and damages
• Discharge by frustration, applying the “radically different” test, and evaluating limits such as foreseeability, allocation of risk, self‑induced events, and force majeure clauses
• Legal consequences of each method of discharge, including the effect on future performance, accrued rights, and parallel restitutionary claims
• Requirements for valid termination, with emphasis on election, affirmation, clear communication, and the risks of wrongful termination
• Categorisation of contractual terms as conditions, warranties, and innominate terms, and how this classification affects remedies and the right to terminate
• Remedies available to the innocent party, including expectation and reliance damages, specific performance, injunctions, and restitutionary recovery
• Operation of the Law Reform (Frustrated Contracts) Act 1943 in reallocating losses following frustration, with reference to prepayments, expenses, and valuable benefits
• Application of these principles to typical SQE1-style multiple-choice questions and scenario-based problems, using exam-focused reasoning and structured analysis

SQE1 Syllabus

For SQE1, you are required to understand the legal rules and practical implications of contract discharge and termination, with a focus on the following syllabus points:

• the different ways a contract can be discharged: expiry, breach, and frustration
• the distinction between repudiatory, anticipatory, and minor breaches
• the doctrine of frustration and its limitations
• the legal consequences and remedies following termination, including damages and specific performance
• the requirements for mitigation and remoteness of damages
• the categorisation of contract terms (conditions, warranties and innominate terms) and its impact on termination
• the effect of affirmation/election and the need to communicate termination clearly
• the statutory framework: s 15A Sale of Goods Act 1979 (B2B) and the Law Reform (Frustrated Contracts) Act 1943

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is a repudiatory breach, and what rights does it give to the innocent party?
2. When will a contract be discharged by frustration?
3. What is the difference between rescission for breach and rescission for misrepresentation?
4. What is the effect of termination by expiry?

Introduction

Contracts do not last forever. They may come to an end by expiry, by breach, or by frustration. For SQE1, you must be able to identify how and when a contract is discharged, the legal consequences of each method, and the remedies available to the innocent party. This article explains the main ways a contract can be terminated and the relevant remedies, and it highlights key practical points such as how to assess repudiatory breach, how to deal with anticipatory repudiation, and how to distinguish true frustration from merely increased difficulty or expense.

Discharge by Expiry

A contract may end automatically when it reaches the end of its agreed term or when a specified event occurs. This is known as discharge by expiry.

Key Term: discharge by expiry
The contract ends because the agreed period has passed or a specified event has occurred, without any breach by either party.

Many contracts specify a fixed duration or a clear end date. If so, the contract terminates on that date unless renewed. If the contract is for a particular project or event, it ends when that project or event is completed.

Some contracts require notice to be given before expiry. If so, the party wishing to end the contract must comply with any notice requirements.

Termination by expiry releases parties from future obligations, but does not unwind what has already been done. Rights that have accrued prior to expiry (such as payment for work done or liquidated damages already triggered) remain enforceable unless the contract provides otherwise.

Where parties continue to perform after a fixed term expires, their conduct may give rise to an implied contract on the same or similar terms (subject to any express requirements for renewal). Always check any holding-over or extension provisions.

Worked Example 1.1

A solicitor is employed on a 12-month fixed-term contract. At the end of the 12 months, neither party takes steps to renew. What is the legal position?

Answer:
The contract is discharged by expiry. Both parties are released from further obligations, and there is no breach.

Discharge by Breach

A contract may be discharged if one party fails to perform their obligations. The seriousness of the breach determines the innocent party's rights.

Key Term: breach of contract
A party fails or refuses to perform their contractual obligations, or performs defectively, without lawful excuse.

Repudiatory Breach

A repudiatory breach is a serious breach that goes to the root of the contract. It allows the innocent party to terminate the contract and claim damages.

Key Term: repudiatory breach
A breach so serious that it deprives the innocent party of substantially the whole benefit of the contract.

Repudiatory breach can occur in several ways:

• breach of a condition (an essential term)
• a renunciation or refusal to perform future obligations
• an impossibility created by a party’s own act
• a sufficiently serious breach of an innominate term (see below) that deprives the other party of substantially the whole benefit of the contract (Hong Kong Fir approach)

If a breach is repudiatory, the innocent party has a choice (election): terminate (accept the repudiation) or affirm the contract and insist on performance. Termination must be communicated clearly and unequivocally. If affirmed, the right to terminate for that breach is lost, although damages may still be claimed. Care is required: a wrongful attempt to terminate where only a minor breach has occurred is itself a repudiatory breach.

Anticipatory Breach

If a party indicates before performance is due that they will not perform, this is an anticipatory breach. The innocent party can accept the breach and terminate immediately or wait to see if performance occurs.

Key Term: anticipatory breach
A party declares, before performance is due, that they will not perform their contractual obligations.

Electing to affirm an anticipatory breach can be risky. If a supervening event occurs that frustrates the contract or otherwise lawfully discharges it before performance falls due, the innocent party can lose the right to damages for the anticipatory breach. There are also practical limits to affirmation: the innocent party cannot insist on performance where it requires the co‑operation of the contract-breaker or where there is no legitimate interest in keeping the contract alive.

Minor Breach

A minor (non-repudiatory) breach does not entitle the innocent party to terminate the contract, but damages may still be claimed. Where the breach concerns a term implied by the Sale of Goods Act 1979 in a B2B sale, s 15A may treat a very slight breach as a warranty (compensable in damages) rather than a condition justifying rejection.

Innominate Terms

Some terms are neither conditions nor warranties. The effect of a breach of an innominate term depends on the seriousness of the consequences.

Key Term: innominate term
A contract term where the remedy for breach depends on the effect of the breach, not the label given to the term.

Under the Hong Kong Fir approach, ask whether the breach has deprived the innocent party of substantially the whole benefit of the contract. If yes, the breach is repudiatory and termination is available. If not, the remedy is damages only. This approach avoids allowing parties to escape contracts for trivial breaches, while preserving termination for serious failures.

Statutory guidance: in a B2B sale contract, breaches of the SGA implied terms are generally conditions. However, s 15A SGA 1979 provides that if the breach is so slight that it would be unreasonable to reject, the buyer’s remedy is damages, not termination. In consumer contracts, the CRA 2015 provides specific statutory remedies that operate differently and are not the focus here.

Worked Example 1.2

A company contracts for delivery of machinery by 1 June. The machinery is delivered on 5 June, causing no real loss. Can the buyer terminate the contract?

Answer:
Unless time was expressly stated to be of the essence, a short delay is likely to be a minor breach. The buyer can claim damages for any loss but cannot terminate.

Exam Warning

In SQE1, always check whether the breach is serious enough to justify termination. Not every breach gives a right to end the contract.

Practical points on termination for breach

• Election: Once aware of a repudiatory breach, the innocent party should decide promptly whether to accept the breach and terminate or to affirm the contract. Delay, continued performance, or conduct consistent with the contract continuing may amount to affirmation.
• Communication: Acceptance of a repudiatory breach should be communicated clearly. Ambiguous conduct risks disputing whether termination was valid.
• Wrongful termination: Treating a non-repudiatory breach as repudiatory and purporting to terminate is itself a repudiatory breach, exposing the terminating party to damages.
• Accrued rights: Termination for breach ends future obligations but leaves accrued rights intact (e.g., payment for delivered goods, accrued liquidated damages, rights to claim damages for past breaches).

Worked Example 1.3

A supplier emails two months before a critical deadline stating they will not deliver at all due to internal restructuring. The buyer relies on the delivery to meet its own commitments.

Answer:
This is likely an anticipatory repudiatory breach. The buyer can accept the repudiation and terminate immediately, claiming damages (subject to mitigation and remoteness), or affirm the contract and insist on performance. Affirmation is risky: if a frustrating event later occurs before performance is due, damages may be lost. Clear communication of termination is advisable if replacement supply can be sourced.

Worked Example 1.4

A buyer rejects a large B2B delivery of packaged goods because a small proportion of cases are packed in 24s instead of the specified 30s. The goods are otherwise conforming, and the repacking cost is modest.

Answer:
In the B2B SGA context, breach of description or sample is usually a condition, but s 15A SGA 1979 may apply where the breach is so slight that rejection would be unreasonable. If so, the buyer’s remedy is damages (e.g., the reasonable cost of repacking), not termination.

Discharge by Frustration

Sometimes, after a contract is formed, an unforeseen event occurs that makes performance impossible or radically different. If neither party is at fault and the event was not provided for in the contract, the contract may be discharged by frustration.

Key Term: frustration
A contract is automatically discharged when an unforeseen event occurs, without fault of either party, making performance impossible or fundamentally different.

The modern test is whether performance, in the new circumstances, would be radically different from that originally undertaken, so that it would be unjust to hold the parties to it. Frustration is narrowly applied.

Typical categories where frustration may arise:

• impossibility (e.g., destruction of the subject matter; unavailability of a specific means of performance; supervening incapacity or illness in a contract for personal services)
• supervening illegality (e.g., a change in law or sanctions rendering performance unlawful)
• frustration of common purpose (where the principal purpose known to both parties is destroyed, as in hiring rooms solely to view a cancelled procession)

Frustration does not apply if:

• the event was self-induced or results from a party’s choice or fault
• the event was foreseeable or contemplated and the risk was allocated in the contract
• performance has become more difficult, more expensive, or less profitable, but still possible (mere hardship is not enough)
• a force majeure clause covers the event (the clause will govern instead)

Delay may frustrate a contract if it is so severe and unexpected that performance after the delay would be radically different. Where delay is temporary, the court looks at the anticipated length and effect relative to the contract period and the purpose of performance.

Worked Example 1.5

A venue is hired for a concert. Before the event, the venue is destroyed by fire. Is the contract frustrated?

Answer:
Yes. The contract is frustrated because performance is now impossible due to an unforeseen event, and neither party is at fault.

Key Term: force majeure clause
A contract term that excuses performance if specified extraordinary events occur.

Further illustrations and limits

• Alternative route or method: If the closure of a usual route makes delivery longer and costlier but an alternative route exists, frustration is unlikely; the contract is normally still performable.
• Supervening illegality: If a change in law after formation prohibits performance (e.g., export bans), the contract is frustrated.
• Leases: A lease may, in principle, be frustrated, but only in rare cases—temporary loss of access will not usually suffice unless it deprives the lessee of substantially the whole benefit for a significant portion of the term.
• Self‑induced frustration: Where a contract offers alternative means of performance (e.g., two named ships) and one is lost but the other was committed elsewhere by the promisor’s choice, frustration is not available—performance was still possible had the promisor not chosen otherwise.

Worked Example 1.6

A shipping contract contemplates carriage via the most direct route through a canal that later closes unexpectedly. An alternative route is available, taking twice as long and costing more.

Answer:
The contract is unlikely to be frustrated merely because performance is more difficult or expensive. If the contract does not make the direct route an essential term, the shipowner must perform via the alternative route and cannot claim frustration.

Exam Warning (Frustration)

Do not confuse true frustration with hardship. Increased cost, loss of profitability, or expected delays do not generally frustrate a contract. Always check for a force majeure clause—it will usually displace the doctrine and govern the parties’ rights.

Legal Consequences of Termination

When a contract is discharged, the parties are released from future obligations. However, rights that have already accrued remain enforceable.

If a contract is terminated for breach or frustration, the innocent party may be entitled to remedies. Termination for breach does not affect accrued rights (e.g., instalments due, or damages for prior breaches). Termination must be exercised with care: a wrongful termination can itself be a repudiatory breach.

If frustration occurs, the contract ends automatically at the time of the frustrating event. At common law, that could produce harsh results; the Law Reform (Frustrated Contracts) Act 1943 (LRFCA 1943) now adjusts the parties’ financial positions, as outlined below.

Remedies Following Termination

Damages

Damages are the primary remedy for breach of contract. The aim is to put the innocent party in the position they would have been in if the contract had been performed.

Key Term: damages
Financial compensation awarded for loss caused by breach of contract.

Measures of damages include:

• expectation (loss of bargain), e.g., lost profit; difference in value between what was promised and delivered; or reasonable cost of cure where proportionate
• reliance (wasted expenditure) where expectation loss is uncertain or speculative; not available to escape a bad bargain
• in limited situations, damages for non‑financial loss (e.g., distress) where a major object of the contract is enjoyment or freedom from distress

Damages are subject to the usual limitations:

• causation: the loss must result from the breach
• mitigation: reasonable steps must be taken to reduce loss; successful mitigation does not penalise the innocent party, and reasonable mitigation costs are recoverable
• remoteness: loss is only recoverable if it was within the reasonable contemplation of both parties when the contract was made as the probable result of breach

Key Term: mitigation
The innocent party must take reasonable steps to reduce their loss. Failure to mitigate may reduce the damages recoverable.

Key Term: remoteness
Damages are only recoverable for losses that were reasonably foreseeable at the time of contracting.

Contributory negligence can reduce damages where the defendant’s liability arises from a duty to take reasonable care (for example, professional services), but not in respect of strict contractual obligations divorced from negligence.

Worked Example 1.7

A client pays £2,000 in advance for a festival ticket. The festival is cancelled due to a government ban on large gatherings. Can the client recover the money?

Answer:
Yes. The contract is frustrated. Under the Law Reform (Frustrated Contracts) Act 1943, the client can recover the pre-paid sum.

Worked Example 1.8

A contractor builds a swimming pool 9 inches shallower than specified. The pool is safe and usable, and the property value is unaffected. The owner claims the full cost of reconstruction.

Answer:
The court will generally not award disproportionate “cost of cure” damages where there is no loss of value and the owner can use the pool as intended. A modest sum for loss of amenity may be awarded; otherwise, damages may be nominal.

Specific Performance

In some cases, the court may order the party in breach to perform their contractual obligations. This remedy is discretionary and usually only available where damages are inadequate (e.g., contracts for unique goods or land). The court will not order performance of personal service contracts.

Key Term: specific performance
A court order requiring a party to carry out their contractual obligations.

Factors relevant to discretion include adequacy of damages, mutuality, supervision, and undue hardship. A negative injunction (see below) may be more suitable to restrain breach of negative obligations.

Injunction

An injunction is a court order restraining a party from doing a particular act. It may be granted to prevent a breach or to enforce a negative obligation (e.g., not to compete or not to disclose confidential information), and in exceptional cases to maintain the status quo where damages would be inadequate.

Key Term: injunction
A court order prohibiting a party from breaching a contract or requiring them to do something.

Courts do not grant injunctions that would indirectly compel performance of personal services, but they may restrain a party from acting inconsistently with a negative covenant.

Remedies for Frustration

When a contract is frustrated, the Law Reform (Frustrated Contracts) Act 1943 applies. Money paid before the frustrating event can be recovered, and money due but not yet paid ceases to be payable. The court may allow a party to retain or recover expenses incurred before the frustrating event if it is just to do so (s 1(2)). Where one party has obtained a valuable benefit (other than money) by reason of performance, the court may award a just sum for that benefit (s 1(3)).

Practical operation:

• s 1(2): prepayments are recoverable; the payee may set off a just allowance for expenses up to the total of sums paid/payable before frustration
• s 1(3): where a party has gained a non-monetary benefit (e.g., usable work product), the court may award a just sum reflecting the value of that benefit, having regard to the effect of the frustrating event and any sums retained or recoverable under s 1(2)

The Act aims at fairness, not full loss apportionment; outcomes depend on the value of any benefit retained and the parties’ expenditures.

Worked Example 1.9

A builder is refurbishing a venue under a lump-sum contract. Half the work is complete when the venue is unexpectedly destroyed in a fire not caused by either party.

Answer:
The contract is frustrated. Prepayments can be recovered; sums due but unpaid cease to be payable. The court can allow the builder a just allowance for expenses against prepayments (s 1(2)) and may award a just sum if the client has received a valuable benefit (s 1(3)). If the works were destroyed and conferred no continuing benefit, a s 1(3) award may be nil, though a set‑off for expenses may be allowed from prepayments.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• Discharge of contract may occur by expiry, breach, or frustration.
• Repudiatory breach allows the innocent party to terminate and claim damages; minor breaches do not.
• Anticipatory breach occurs when a party indicates in advance they will not perform; the innocent party can accept or affirm, but must beware of affirmation risks.
• Innominate terms are assessed by the seriousness of a breach’s consequences; only serious effects justify termination.
• Statutory guidance: in B2B sale contracts, s 15A SGA 1979 may limit rejection where the breach is very slight.
• Termination must be communicated clearly; a wrongful termination is itself a repudiatory breach.
• Accrued rights survive termination; future obligations are discharged.
• Frustration discharges a contract only where performance becomes impossible or radically different, without fault and not covered by a force majeure clause.
• Self‑induced and foreseeable events will not frustrate; mere hardship is insufficient.
• Remedies for breach include damages, specific performance, and injunctions; damages are limited by causation, mitigation, and remoteness.
• On frustration, pre-paid sums may be recoverable and expenses/benefits may be adjusted under the Law Reform (Frustrated Contracts) Act 1943.

Key Terms and Concepts

• discharge by expiry
• breach of contract
• repudiatory breach
• anticipatory breach
• innominate term
• frustration
• force majeure clause
• damages
• mitigation
• remoteness
• specific performance
• injunction