Termination clause (incl. for bribery or change of control)

Model termination clause, triggered by persistent or material breach, paying a bribe, upon change of control, insolvency, non-compliance with laws or regulations, addressing post-termination rights.

Weagree’s model termination clause addresses the main reasons for termination of an agreement. The termination right is triggered in case of a persistent or a material breach, if the other party or its employees or subcontractors pay a bribe in connection with the agreement, in case the other party fails to comply with laws and regulations, or if the other party is subject to a change of control (aka change in control).

In defining what constitutes paying a bribe, inspiration was sought in international conventions and materials dealing with the subject. Accrodingly, the concept of bribery was captured by the words “bribe, gift, gratuity, commission or other thing of value, as an inducement or reward”. For the right to terminate, this then applies to the persons involved on that other party’s side (“its employees, agents or subcontractors”), and prohibits them where such bribery results in “doing or forbearing to do any action in relation to this Agreement” or “showing or forbearing to show favour or disfavour to any person in relation to this Agreement”. Obviously, as such scope is quite extensive, a carve-out (justified payment, not legitimating termination) if they were simply “lawful inducements and rewards to [Supplier]’s employees or, by a subcontractor, such subcontractor’s employees”. Likewise, the termination ground ‘bribery’ has been kept conceptual and simple.

Another termination ground is for change-of-control: the situation where a counterpart (usually a supplier or partner) is taken over by a third-party who is competitor of the party entitled to terminate. The challenge is also here to define what a change of control entails. Also here, the better option is to stay ‘conceptual’ (and not seek to be exhaustive in listing the possible manifestations of the concept). Inspiration for adequate wording can be found in how “Affiliate” (or rather, its defining term “control”) would be defined: often identifying two main scenarios, the one being a simple shareholder-percentage (to not-apply anymore upon the change of control), the other being the controlling of the management of the other party (being a majority of a management board’s directors being replaced). If the criteria is met, the resulting change in control should be detrimental to the terminating party. Obviously, these two scenarios can happen in thousands of legitimate contexts. It is therefore important to keep the termination clause ‘conceptual’.

After termination, the then existing (assumed) obligations may still (or may not) be performed duly and timely. Since the termination of a long-term agreement might cause liability on the side of a termination customer (for reliance by its terminated supplier on remaining capable of recovering any investments thanks to a continued relationship), it is important, to the extent effective, to stipulate that in such significant causes for termination, no right to compensation by the customer exists.

As in any termination clause, after termination, it may be useful to clarify that certain obligations will survive anyhow. This would in particular be essential for the clauses on confidentiality, warranty claims, limitation of liability, indemnities, governing law and dispute resolution, and other provisions that expressly or by their nature are intended to continue to have effect. One might (rightfully) argue that these clauses will anyhow survive termination, but making this explicit could be a helpful reminder to the business people going forward, post-termination.