Australia: Omitting work from contract - variation or termination?

Key Points:

A principal's right to reduce or omit work will not amount to termination unless the work has been reduced to nil and was in "substance" a termination.

Contractually, in the absence of default by the contractor, a principal can only effectively remove work from a contractor if the contract gives the principal a right to:

  • omit work; or
  • terminate the contract for convenience.

In relation to the former, courts have been reluctant to allow the principal to omit work from a contract unless the contractual terms expressly allow it. The High Court found that the principal could not omit work from the contractor simply to redirect it to a third party, unless the contractual term was so specific as to prescribe that right (Carr v JA Berriman Pty Ltd (1953) 89 CLR 327).

In relation to the latter, where the contract entitles the principal to terminate for convenience (ie. unilaterally and without any cause) the law has developed such that a termination for convenience clause is likely to be read down and rendered unenforceable, unless it is clear and unambiguous and strictly complied with.

In a recent Federal Court decision, BAE Systems Australia Ltd v Cubic Defence New Zealand Ltd [2011] FCA 1434, Justice Besanko considered both concepts, and found that:

  • the right to reduce or omit the scope of work under a contract does not of itself result in termination of the contract; and
  • a party which has reduced the scope of work to be performed in the future under the contract to nil can be found to have terminated the contract, if the reduction was in "substance" a termination.

In his decision, Justice Besanko appears to have moved away from a traditionally strict approach taken to the right to terminate for convenience, by considering the substance of the parties' actions, and not merely their conduct pursuant to the relevant contract.

The contract, subcontract, and purported termination

The Commonwealth had entered into a contract with Cubic Defence for the supply and operation of a live-simulation range instrument and information system for its Combat Training Centre (Prime Contract). Cubic Defence subsequently entered into a subcontract with BAE Systems, which included the operate and support/manage phase (O and S/M) of the Prime Contract.

The Prime Contract provided that the Commonwealth may vary or terminate the contract with Cubic Defence without cause, subject to certain provisions. In turn, the Subcontract permitted Cubic Defence to terminate the Subcontract with BAE Systems, or to reduce the scope of the contract, if it received a "corresponding notice to that effect from the Commonwealth".

The Commonwealth proposed to separate the acquisition and the support elements of the Prime Contract so that, in effect, the O and S/M components of the Prime Contract would be removed, and form part of a separate contract between the Commonwealth and Cubic Defence. Some time later, a deed and a new contract were executed between the Commonwealth and Cubic Defence.

Cubic Defence subsequently told BAE Systems that the Commonwealth had terminated for convenience a portion of the Prime Contract which included all O and S/M requirements and, in turn, that Cubic Defence was terminating for convenience all of the corresponding O and S/M requirements pursuant to the termination clause of the Subcontract.

Reduction in scope or termination?

BAE Systems sought a declaration from the Federal Court that the deed between the Commonwealth and Cubic Defence did not amount to notice under the relevant termination clause of the Prime Contract. As no such notice was given, BAE Systems submitted that Cubic Defence could not have terminated the Subcontract, given that it lacked the "corresponding notice... from the Commonwealth" and therefore the clause was not engaged.

In characterising the deed and subsequent contract between the Commonwealth and Cubic Defence, Justice Besanko noted that, if the effect of what had occurred was a variation which amounted to a reduction in the scope of the Prime Contract, then Cubic Defence was bound to pass on that reduction under the Subcontract.

Justice Besanko ultimately found that what the Commonwealth purported to do was to reduce of scope of the Prime Contract and, even though this resulted in a reduction to nil, it did not constitute notice to Cubic Defence of the termination of the Prime Contract.

"The substance of what occurred"

Although Justice Besanko found that the effect of the Commonwealth documents was to reduce the scope of the Prime Contract, rather than to terminate the Prime Contract for convenience, he concluded that "it is the substance of what occurred which matters" and, ultimately, the substance of what has occurred under the Prime Contract and under the Subcontract was the same. On this basis, Justice Besanko held that Cubic Defence had validly terminated the Subcontract.

In essence, Justice Besanko's decision was that a reduction in the scope of work under the Prime Contract, which had the effect of removing all future work to be performed under the Subcontract, allowed Cubic Defence to terminate the Subcontract for convenience. This is despite the fact that when the relevant clause is read literally, Cubic Defence could only exercise that right if the Commonwealth had given notice of termination under the Prime Contract.

A wider adaptation of the "substance" approach?

Justice Besanko's holistic approach – that "it is the substance of what occurred which matters" – seems a novel one in relation to termination for convenience clauses in contracts. It may, if it is more widely accepted, open up the possibility that parties could terminate for convenience even if an express provision of the contract is not strictly adhered to.

Given that the approach has not been tested, it will be interesting to see whether there will be a wider adaptation of the "substance" approach. Such a development could, however, be problematic given the level of uncertainty it might create around termination for convenience clauses. Indeed, just where one draws the line may be quite arbitrary.

In the present case, for example, it could be argued that the substance of what occurred was that the work to be performed by Cubic Defence had not materially changed; rather, the change was to the contractual framework in which it was to be performed. In other words, the work that was taken away formed part of a new contract between the Commonwealth and Cubic Defence, but the same work no longer was to be done by BAE Systems.

More than 50 years ago, the High Court stated in Carr v J A Berriman Pty Ltd (a case which was not referred to in Justice Besanko's judgment) that, unless the contract expressly provided for it, a principal cannot remove work from a contract only to have the work performed by somebody else. It is arguable that not passing the work the subject of the new contract onto BAE Systems could fall foul of the decision in Carr v J A Berriman Pty Ltd where the clause under consideration did not expressly provide that the work being omitted may be passed onto a third party.

It is the authors' opinion that, notwithstanding that the Federal Court has taken a wider approach, parties should seek to strictly adhere to the contractual terms, in particular when exercising a contractual right to terminate. The risk of not doing so will amount to unlawful termination and entitle the other party to accept the conduct as repudiation and, in turn, lawfully terminate the contract.

You might also be interested in ...

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.