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Zachary
Zachary, Attorney
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Experience:  Lead trial/International commercial attorney licensed 11 yrs
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Regarding the termination of a business agreement defining

Resolved Question:

Regarding the termination of a business agreement defining a joint venture

Given the following parameters I would highly appreciate answers to the below questions:

Note:
- text in quotes is text that is written exactly as in the agreement in question.
- The phrase TerminatingCompany refers to the company that terminated the agreement.

Parameters of the scenario:
(A) The agreement contains a clause called “Agreement termination, penalty requirement”. That clause defines a penalty and specific costs that “TerminatingCompany is required to provide”.

(B) This clause has no mention of whether individual clauses or the agreement become null and void upon termination.

(C) This clause has no mention of whether the penalty and costs discussed are the “sole and exclusive” remedy to the non-terminating party.

(D) This clause does not have a standard phrase on how the termination affects “rights and obligations that have arisen or accrued prior to the date of termination”. But it does contain a phrase stating that TerminatingCompany “is required to pay for any obligations that the joint venture has entered into and has to pay for”.

Questions:
Suppose the TerminatingCompany and non-terminating party go into arbitration to settle what is due from the TerminatingCompany, what should a fair arbitrator conclude in regards XXXXX XXXXX following questions?

(1) Should the arbitrator conclude that the agreement is “null and void from the date of termination and onwards”? (see e.g. item B above).

(2) Should the arbitrator conclude that all clauses in the agreement, and not just the termination clause, should be considered when assessing the obligations that the joint venture has entered into while the agreement was in force? (see e.g. items C and D above).

(3) Should the arbitrator conclude that the cost to the TerminatingCompany can go beyond the penalty and specific costs defined in the termination clause? (see e.g. items A, C, D & 2 above).
Submitted: 1 year ago.
Category: Legal
Expert:  Zachary replied 1 year ago.

Hi,

Thank you for your questions. I will address them below one at a time:


(1) Should the arbitrator conclude that the agreement is "null and void from the date of termination and onwards"? (see e.g. item B above).

When an agreement is terminated only the terms which can reasonably understood to survive the termination of the agreement will be found to still be binding. Therefore, if the provision of the contract in question regards XXXXX XXXXX are to only take place during the contract, then that provision is terminated and the parties are no longer obligated to act accordingly unless the right has accurred prior to the termiantion.

(2) Should the arbitrator conclude that all clauses in the agreement, and not just the termination clause, should be considered when assessing the obligations that the joint venture has entered into while the agreement was in force? (see e.g. items C and D above).

Yes, even though the contract has been terminated, this does not mean that the entire contract is not to be read as a whole in a post-termination dispute regarding the contract. In fact, the contract cannot be read in any other way. The arbitrator must look at the entire contract to determine the obligations of the parties.

(3) Should the arbitrator conclude that the cost to the TerminatingCompany can go beyond the penalty and specific costs defined in the termination clause? (see e.g. items A, C, D & 2 above).

This depends on the exact language of the termination clause. If the language is stated as a limitation of liability, then the arbitrator should limit the damages to that specific amount as agreed to by the parties unless there is a reason that the clause should be thrown out. Further, the arbitrator may not enforce a "penalty" clause as generally these are not enforceable as they are invalid under the law. A liquidated damages clause is the only type of preset "penalty" that can be legally enforced.



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Best Regards,



ZDN



Zachary, Attorney
Category: Legal
Satisfied Customers: 3831
Experience: Lead trial/International commercial attorney licensed 11 yrs
Zachary and 18 other Legal Specialists are ready to help you
Customer: replied 1 year ago.

Thanks for the quick answer. I have no problem giving a good rating after our interaction. Some follow-up on the answer to question three:


 


The termination clause never actually uses the word "Penalty" (I was paraphrasing other words), instead it states that TerminatingCompany should provide $X to help the non-terminating company pay for getting workers into other positions/jobs. Does that change the picture at all on that part?


 


Also, the termination clause uses the words "$X is required from TerminatingCompany", in my mind that can be read that other obligations the joint venture entered into can result in higher amounts, and by having the TerminatingCompany pay that higher amount, the lower "required" amount is met, i.e. the wording "required" only sets a lower bound. And other obligations entered into can result in higher payments needed from TerminatingCompany.


 


Thanks


Dadi

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