Australia: Life After Termination - Address Contractually Or Leave To The Common Law?

Key Point

  • There are rights and obligations which are capable of surviving termination.

It is becoming increasingly common for construction contracts to contain not only a clause that sets out the compensation payable by a defaulting party on termination but also a clause that sets out the other consequences of termination, such as the various rights and obligations that survive termination. Given this growing trend, this article will examine the consequences of termination at common law and, in particular, what rights and obligations are capable of surviving termination and some of the issues associated with including such a clause in a contract.

Consequences of termination

When a contract is terminated, it is often said that it "comes to an end" or "ceases to exist". However, these statements are somewhat misleading as the contract not only continues to exist but continues to have operation in some respects. What is in fact "terminated" is the future performance of the contract - that is, the primary obligations of the parties that have been partially performed at the time of termination and those that would have fallen due for performance had the contract not been terminated.

Termination takes effect from the time a party exercises the right to terminate the contract, not from the time that party was entitled to terminate. This is in contrast to "rescission ab initio" (rescission from the beginning) which may be available if there is a defect in the formation of the contract, in which case the contract is annulled from its inception and the parties are substantially restored to the position they held before they entered into the contract.

Which obligations survive termination?

While termination puts to an end the primary obligations of each party, there are other obligations which may survive termination. Those obligations generally fall within one of the following three categories:

  • The first category is comprised of obligations that arise when there is breach of contract. If the contract is terminated in those circumstances, the parties' primary obligations are substituted by a secondary obligation that is imposed on the party in default which requires it to pay compensation to the other party. This secondary obligation to pay compensation survives termination of the contract.1

For example, in a construction context, upon termination of the contract by either party, the contractor is relieved of its primary obligation to carry out and complete the works. If, however, the contract was terminated as a result of the contractor's default, the law imposes a secondary obligation on the contractor requiring it to pay compensation to the owner. That compensation will usually comprise any additional cost incurred by the owner in completing the works that is over and above the contract price.
  • The second category applies to termination for any cause and consists of obligations that are ancillary to the main purpose of the contract. These may be of a substantive or procedural nature. Examples of this type include an agreement to refer differences or disputes to arbitration, an obligation not to disclose confidential information and an agreement as to the choice of forum.
  • The third category consists of terms which regulate the secondary obligations of the parties. In other words, terms which regulate the defaulting party's obligation to pay compensation to the other party. In the context of a construction contract, commonly found examples of this category, particularly in this resource-constrained market, are terms that limit the contractor's liability to the owner. These include limiting the contractor's overall liability, capping the contractor's liability to pay delay or performance liquidated damages or excluding the contractor's liability for indirect loss.

Whether or not obligations in the second or third category survive termination is a question of construction and, therefore, will depend on the intention (actual or implied) of the parties in each particular case.

Which rights survive termination?

Rights that have unconditionally accrued prior to termination continue to have effect after termination. Where the contract has been terminated for breach, even the defaulting party may enforce rights that have unconditionally accrued in its favour.

There are generally two types of accrued rights that survive termination:

  • the right to damages for breach of contract. The breach may be one that gives rise to a right to terminate at common law or to a contractual right to terminate. It may even be an earlier breach and not the one which ultimately gave rise to the contract being terminated; and
  • the right to receive performance of a contractual obligation. The most common example of this type is the right to payment of an amount fixed by the contract which has "unconditionally accrued" prior to termination. Whether such a right has "unconditionally accrued" depends on the (actual or imputed) intention of the parties. In the absence of an indication of that intention, the consequences flowing from termination (including whether that right has unconditionally accrued) will be governed by the common law.

A common example of this right in a construction context is the recovery of progress payments or instalments due under the contract. Upon becoming entitled to a progress payment or instalment, a contractor will, except in certain circumstances,2 be able to recover the amount of the progress payment or instalment from an owner even if the contract is terminated for the contractor's breach.

Clauses that set out what rights and obligations survive termination

Although certain rights and obligations are capable of surviving termination at common law, there are, at the same time, sound reasons why parties may choose to include a clause in the contract that expressly addresses this issue. The first is to achieve greater certainty and not rely on the common law which may, in some circumstances, produce an outcome that was not contemplated by the parties. The second is that the parties may wish to alter the common law position by stipulating that certain additional rights and obligations survive termination than would normally do so under the common law.

In either case, parties should be aware that the inclusion of such a clause can potentially have some adverse consequences such as inadvertently altering the application of the common law in circumstances where the parties were only intending to restate the common law in the clause. Accordingly, the parties should ensure that the common law in this area is well understood and the clause is drawn correctly.

The parties should also consider whether the inclusion of such a clause may be interpreted as an exhaustive statement of the parties' intention, particularly where the parties have included a list of rights and obligations that are intended to survive termination. To reduce the likelihood of this interpretation, the contract should provide that the rights and obligations that may survive termination are not limited to those set out in the clause. This should allow the parties to set out a list of rights and obligations that survive termination and, at the same time, not exclude the possibility of other rights and obligations surviving termination at common law.


1 This secondary obligation to pay compensation also arises when there is a breach of contract that does not result in the contract being terminated. If the contract is subsequently terminated for another breach or for some other reason, that obligation will, subject to any contrary intention expressed in the contract, survive termination.

2 Those circumstances include where the contract is held to be an entire contract despite the fact it provides for progress payments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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.