Termination for convenience clauses give one party a contractual right to end the agreement without fault. They are common in government procurement, construction, technology supply, and long-term service arrangements throughout Australia.
When drafted well, these clauses offer commercial flexibility; when drafted poorly, they expose parties to significant legal and reputational risk.
This guide, prepared by our contract law team, explains how the clauses operate under Australian law, outlines statutory and common-law limitations, and provides drafting strategies to protect your client’s interests.
Key Takeaways
- Termination for convenience is generally enforceable in Australia if it complies with express contract terms
- A party exercising the right must still act honestly and for a purpose contemplated by the contract
- Statutory controls (e.g. Australian Consumer Law and Security of Payment legislation) may override or restrict unfettered termination rights
- Clear drafting on notice periods, compensation, and survival of key obligations reduces the risk of dispute
- Government templates usually include capped compensation; private sector parties should follow suit
What is a Termination for Convenience Clause?
A termination for convenience (T4C) clause grants one or both parties a unilateral right to end the contract for any reason or no reason at all, provided contractual procedures are followed.
In practice, it functions as a risk-management tool where project scopes, budgets, or political circumstances may change suddenly.
Typical Clause Language
- “The Principal may, at its absolute discretion and for its sole convenience, terminate this Agreement by giving the Contractor 30 days’ written notice”
- “Either party may terminate this Agreement for any reason on 90 days’ written notice to the other party”
- “The Client may terminate this Agreement at any time for its convenience by giving the Service Provider 30 days’ written notice. Upon such termination, the Client shall pay:
a) Fees for Services performed up to the date of termination
b) The Service Provider’s reasonable, unavoidable costs incurred prior to receipt of notice, capped at 10 % of the Contract Price
c) No amount for anticipated profits”
Is Termination for Convenience Legal in Australia?
Yes – but only if the clause is properly drafted and used in good faith. Australian courts uphold T4C clauses where the:
- Clause is drafted clearly and unambiguously
- Terminating party complies with contractual notice requirements
- Clause does not breach statute, public policy, or equitable restraints such as unconscionability
Key Case Law
- Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 – parties must not exercise contractual powers dishonestly or for an improper purpose
- Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 – implied duty of reasonableness or good faith may limit capricious exercise of discretionary powers
- Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187 – termination powers must be exercised in good faith
Statutory Limitations
Australian Consumer Law (ACL)
Section 21 (Unconscionable Conduct) may invalidate a T4C clause enforced against a weaker negotiating party
Schedule 2, s 23–28 (Unfair Contract Terms) apply to small business standard-form contracts; a one-sided right to terminate without cause is presumed unfair
Building and Construction
Security of Payment legislation in each State and Territory (e.g. Building and Construction Industry Security of Payment Act 1999 (NSW)) voids “pay when paid” clauses and may limit termination designed to avoid payment obligations
Government construction contracts often tie T4C rights to capped reimbursement of demobilisation and overhead costs
Employment Contracts
Although labelled “T4C”, an employer’s right to terminate is still regulated by the Fair Work Act 2009 (Cth), requiring notice periods and protection from adverse action
Good Faith and Proper Purpose
Australian courts increasingly imply an obligation of good faith, particularly where one party wields a discretionary contractual power. To minimise challenges:
- Include a recital that termination may occur for changing commercial, regulatory, or technological circumstances
- Provide a transparent notice mechanism requiring reasons for termination (even brief)
- Offer reasonable compensation for unavoidable costs
Drafting Checklist
Issue | Drafting Tip | Why It Matters |
Scope of right | Expressly state whether the right is unilateral or mutual | Prevents argument that both parties may terminate |
Notice period | Specify calendar days, method of service, and effective date | Avoids disputes over timing |
Compensation | Define reimbursable costs (e.g. work in progress, committed materials, demobilisation) and exclude loss of profit unless agreed | Aligns with common government approach |
Survival clauses | List confidentiality, IP, indemnities, dispute resolution, and insurance clauses that survive termination | Preserves critical protections |
Interaction with defaults | Clarify that the convenience right is separate from default termination provisions | Avoids the misconception that defaults must exist |
Need to draft or review a termination for convenience clause? Prosper Law provides fixed fees and a free initial consultation so you can manage risk and maintain flexibility with confidence.
Exercising the Right: Practical Steps for Businesses
Check the contract – Confirm you have a valid T4C right, and understand notice and compensation rules
Document a reason – While not always legally required, having a commercial justification supports your good faith
Draft the notice properly – Include clause reference, termination date, and compensation details
Serve the notice correctly – Follow the agreed delivery method (e.g. email, registered mail)
Record discussions – Keep a file of all communications in case of dispute
What Can Go Wrong?
Poorly drafted or misused T4C clauses can result in:
Repudiation claims if the clause is exercised without proper notice
Court injunctions stopping the termination
Unfair contract term findings that void the clause
Damage to reputation – especially in government or procurement settings
Case Study: IT Outsourcing Dispute
In 2023, a Victorian government agency terminated a $25 million cloud services contract for convenience after budget cuts. The vendor claimed $8 million in lost profit. Because the template capped compensation at “reasonable costs excluding profit”, the Supreme Court dismissed the profit claim, emphasising the clause’s clarity and the agency’s compliance with 30-day notice. The vendor recovered data-migration costs only, illustrating the power of precise drafting.
Need help drafting or negotiating a termination for convenience clause? Contact our team for pragmatic, industry-specific advice.
Frequently Asked Questions
Can a termination for convenience clause be one-sided?
Yes, but one-sided rights risk being declared unfair under the ACL for standard-form contracts involving small businesses
Is compensation for loss of profit mandatory?
Not unless your clause expressly allows it. Most government contracts exclude it, and private contracts should too unless profit is specifically negotiated.
How much notice must be given?
Only the period stated in the contract; if none is specified, the clause may be void for uncertainty
Does the terminating party need to provide reasons?
Legally not always, but providing a brief commercial rationale helps satisfy the duty of good faith
Can a termination for convenience clause override Security of Payment rights?
No, statutory payment rights survive, and any clause that attempts to avoid payment is likely void under the relevant Security of Payments Act
