If a termination notice refers to a wrong reason or no reasons at all, can the correct reason(s) be relied on at a later stage? Maybe, but be careful.
Enterprise purported to terminate its agreement with C&S because of reason “A” which it said amounted to a repudiatory breach of the agreement by C&S. Enterprise later sought to rely on reason “B” as well. C&S argued that, even if reason B was established, it could not be taken into account to justify the termination.
The Court stated that, as general rule, a party who gives a wrong reason or no reason at all, may later justify the termination if, at the relevant time, there were facts in existence which would have justified the termination.
However, this general rule may not apply if the breach(es) relied upon are ones which could have been remedied. Here, C&S argued that the additional breach relied on as reason “B” after the termination could have been put right if it had been given an opportunity to do so.
The Court indicated that such an exception would apply only to anticipatory breaches or to situations where steps could have been taken to avoid the party being in breach altogether, either by giving it an opportunity to perform its obligation in time or by enabling it to perform in some other valid way.
As a result, the exception did not apply in this case because the breaches relied on by Enterprise had already occurred.
COMMENT: Although Enterprise was able to rely on reasons for termination not stated in its original termination notice, the drafting of a termination notice should not be taken lightly. A properly drafted termination notice may not avoid the termination being challenged in court, but it will certainly limit the issues subject to litigation (with the associated cost savings).
