Issues relating to contract termination became especially relevant during the COVID-19 pandemic. This is due to the fact that some business entities have been forced to terminate contracts with their counterparties for various reasons. Accordingly, this article outlines the grounds for unilaterally terminating a contract.
It is important to note that under the legislation of the Republic of Kazakhstan (hereinafter, the “Legislation of the RK”), the following general grounds for contract termination may be distinguished:
• by mutual agreement of the parties;
• material breaches of the contract (by court decision);
• and other circumstances provided by the Legislation of the RK or the contract.
This article discusses the grounds that may be used for unilateral termination of a contract.
First, the Civil Code of the Republic of Kazakhstan (hereinafter, the “CC RK”) establishes the principle of freedom of contract. Under Article 380 of the CC RK, individuals and legal entities are free to conclude contracts, and the parties may include in their agreements provisions granting the right to unilateral termination and the rules governing its application.
Accordingly, business entities should pay attention to the wording of an existing contract, since it may contain a provision granting the parties the right to unilaterally terminate the contract with subsequent notice to the counterparty.
Second, the CC RK provides for grounds for unilateral termination of a contract in cases where the other party materially breaches the contract.
Under paragraph 2 of Article 401 of the CC RK, termination in judicial proceedings is permitted for a material breach by the other party. A material breach is a violation by one party that causes such harm to the other party that it is substantially deprived of what it was entitled to expect when entering into the contract.
An example of a material breach is a decision of the judicial panel of the Mangystau Regional Court in a case brought by LLP “Saya” (the customer) against LLP “Parus LTD” (the contractor) for termination of a construction contract and recovery of KZT 12,952,175. The claimant petitioned the court because the contractor, despite receiving an advance payment of KZT 12,952,175, failed to perform the turnkey construction work. On this basis, the court terminated the contract under subparagraph 1 of paragraph 2 of Article 401 of the CC RK, having established a material breach.
Thus, a court may grant a business entity’s claim to terminate a contract if it finds that a material breach occurred.
Third, the CC RK also regulates specific types of contracts that contain special provisions for termination at the request of one party.
For example, under paragraph 1 of Article 476 of the CC RK, in a supply contract, unilateral refusal to perform the contract (in whole or in part) or unilateral amendment of the contract is permitted in the event of a material breach by one of the parties. Another example is a lease agreement: under paragraph 2 of Article 556 of the CC RK, at the request of the lessor, a lease agreement may be terminated on grounds including if the lessee intentionally or negligently substantially damages the property.
It follows that grounds for unilateral termination may arise from contracts themselves, as well as from general and specific provisions of the CC RK. It should also be noted that a termination agreement between business entities must be executed in the same form as the original agreement, unless otherwise provided by law, contract, or business customs (paragraph 1 of Article 402 of the CC RK).
For example, if a contract was concluded in written or notarised form, the termination must be formalised in the same manner.
It is important to note that under the legislation of the Republic of Kazakhstan (hereinafter, the “Legislation of the RK”), the following general grounds for contract termination may be distinguished:
• by mutual agreement of the parties;
• material breaches of the contract (by court decision);
• and other circumstances provided by the Legislation of the RK or the contract.
This article discusses the grounds that may be used for unilateral termination of a contract.
First, the Civil Code of the Republic of Kazakhstan (hereinafter, the “CC RK”) establishes the principle of freedom of contract. Under Article 380 of the CC RK, individuals and legal entities are free to conclude contracts, and the parties may include in their agreements provisions granting the right to unilateral termination and the rules governing its application.
Accordingly, business entities should pay attention to the wording of an existing contract, since it may contain a provision granting the parties the right to unilaterally terminate the contract with subsequent notice to the counterparty.
Second, the CC RK provides for grounds for unilateral termination of a contract in cases where the other party materially breaches the contract.
Under paragraph 2 of Article 401 of the CC RK, termination in judicial proceedings is permitted for a material breach by the other party. A material breach is a violation by one party that causes such harm to the other party that it is substantially deprived of what it was entitled to expect when entering into the contract.
An example of a material breach is a decision of the judicial panel of the Mangystau Regional Court in a case brought by LLP “Saya” (the customer) against LLP “Parus LTD” (the contractor) for termination of a construction contract and recovery of KZT 12,952,175. The claimant petitioned the court because the contractor, despite receiving an advance payment of KZT 12,952,175, failed to perform the turnkey construction work. On this basis, the court terminated the contract under subparagraph 1 of paragraph 2 of Article 401 of the CC RK, having established a material breach.
Thus, a court may grant a business entity’s claim to terminate a contract if it finds that a material breach occurred.
Third, the CC RK also regulates specific types of contracts that contain special provisions for termination at the request of one party.
For example, under paragraph 1 of Article 476 of the CC RK, in a supply contract, unilateral refusal to perform the contract (in whole or in part) or unilateral amendment of the contract is permitted in the event of a material breach by one of the parties. Another example is a lease agreement: under paragraph 2 of Article 556 of the CC RK, at the request of the lessor, a lease agreement may be terminated on grounds including if the lessee intentionally or negligently substantially damages the property.
It follows that grounds for unilateral termination may arise from contracts themselves, as well as from general and specific provisions of the CC RK. It should also be noted that a termination agreement between business entities must be executed in the same form as the original agreement, unless otherwise provided by law, contract, or business customs (paragraph 1 of Article 402 of the CC RK).
For example, if a contract was concluded in written or notarised form, the termination must be formalised in the same manner.