This week, our experts explore how to walk away from a supplier or client agreement without ending up in a legal dispute or burning bridges.
Every small business owner has been there. You signed a contract that made sense at the time, and now it doesn’t. Maybe the supplier isn’t delivering, the terms no longer fit where your business is headed, or the relationship has quietly broken down on both sides.
Getting out cleanly, without a legal battle or a permanently damaged relationship, is one of the trickiest situations an SME owner can face. This week on Let’s Talk, our experts discuss the practical and legal options available to Australian business owners who need to exit a contract, and how to do it without making things worse.
Let’s Talk!
Christopher Bruce, Special Counsel, DBH Lawyers
“Your legal rights and obligations need to be properly understood prior to taking action. If there is a written contract, check whether it contains conditions that allow an exit and any requirements, including any notice period.
If you think there has been a breach, check whether the contract contains provisions on how deal with this. A “notice of default” may be required if the contract is silent, or if there is no written contract.
Where there has been an unforeseen catastrophic event preventing either party from being able to fulfil the contract, there may be an ability to suspend or terminate the contract under “force majeure”.
It is also possible to negotiate a mutual termination of the contract, and agree and document any relevant terms of settlement.
Care needs to be exercised as there are potentially serious consequences for unlawful termination, including an allegation of repudiation of the contract, giving the other party an option to either affirm the contract or terminate and potentially sue for damages.
If in doubt, consult a qualified commercial lawyer to review any proposed termination strategy.”
Gemma Thompson, Principal Consultant, Proxima Australia
“Exits are rarely straightforward. They’re often time-pressured, commercially sensitive, and shaped by declining trust, financial exposure, or sustained underperformance.
Start early. The best exits begin long before termination. Work through notice periods, dispute mechanisms, and transition plans in advance. Anchor conversations in outcomes – performance gaps, evolving business needs, governance issues. Transparency creates a clearer path for both parties.
Prioritise continuity. Before formally triggering termination, stabilise operations and build a credible transition plan. Poorly performing contracts create internal noise, so control the narrative through a single governance structure to avoid escalation.
Avoid litigation unless necessary. Unless there’s fraud or material breach, litigation is costly distraction. Focus instead on commercial leverage for an orderly exit: understand your contractual rights, maintain professionalism, and act decisively once the decision is made. Delays rarely serve either party.
Remember context. The commercial world is small. Today’s difficult supplier may be tomorrow’s strategic partner. Exit in a way that minimises risk, cost, and tension.
The goal is an orderly transition, not a drawn-out battle.”
Imran Mir, Commercial Lawyer, Owen Hodge Lawyers
“Finding yourself locked into a contract that no longer works is a situation many NSW businesses face. The key is knowing how to exit lawfully – and tactfully.
Start with the contract itself. Look for termination clauses, notice requirements and any dispute resolution obligations. Many contracts allow termination for convenience with proper written notice, which is often the cleanest path forward.
Know your legal grounds. Under NSW contract law, termination may be available where the other party has committed a serious breach or repudiated the contract. The Australian Consumer Law also provides additional rights where misleading conduct or unfair contract terms are involved.
Communicate professionally. Give written notice in accordance with the contract, state your grounds clearly and avoid inflammatory language. Where both parties are willing, a deed of termination with a mutual release of claims offers the cleanest exit for everyone.
Explore negotiation first. A direct conversation or mediation can resolve most disputes without the cost and stress of litigation – and preserves the relationship where possible.
Getting this wrong can expose you to a wrongful termination claim. When in doubt, seek advice before acting.”
Morgan Wilson, Founder and Director, creditte chartered accountants and advisors
“Bad contracts don’t end cleanly by accident. They end cleanly because someone handled the exit well.
The first thing I tell clients is to read what they actually signed. Most people don’t. There is usually a termination clause, a notice period, or a performance trigger that gives you a legitimate path out. Start there before you do anything else.
If the contract does not give you a clean exit, document the problem in writing. Not to build a legal case. To create a shared understanding of what is not working. Most suppliers and clients will negotiate their way out of a relationship that is clearly broken, especially if you frame it as a reset rather than a blame game.
The relationship survives or dies based on how you have the conversation. Come in with a clear reason, a fair wind-down proposal, and no ambush. Give the other party somewhere to land.
Getting legal advice before you act is not weakness. It is how you protect yourself when things go sideways.”
Ric Marks, Founder & Principal Advisor, Ultimate Marks
“Most bad contracts don’t become bad overnight.
Usually there were warning signs long before the relationship reached breaking point. Expectations drift. Scope changes. Communication deteriorates. Trust starts to erode.
The biggest mistake I see business owners make is waiting until they’re angry before addressing the issue. By that point, every conversation feels like a fight.
My advice is to get clear on two things before you do anything else: what the contract actually says, and what outcome you’re genuinely trying to achieve.
Sometimes the goal is to exit.
Sometimes the goal is to reset the relationship.
Sometimes the problem isn’t the contract at all — it’s that neither party is operating the way the agreement originally intended.
If an exit is necessary, I try to approach it professionally and directly. Focus on facts rather than blame. Document discussions. Honour legitimate obligations. Give reasonable notice where possible. Leave emotion out of the correspondence.
I’ve found that most commercial relationships can be exited respectfully when both parties understand the expectations and the process.
The objective shouldn’t be winning the argument. It should be reducing risk, protecting your reputation, and creating the cleanest path forward for everyone involved.”
Maria Kathopoulis, CEO & Chief Marketing Officer, UNTMD
“The biggest mistake businesses make when exiting a bad contract is letting emotion lead the process. Once communication turns reactive or personal, the situation escalates fast.
Separate frustration from documentation. Before doing anything, review the agreement: termination clauses, notice periods, breach conditions, payment obligations, liability, and dispute resolution. Then document everything factually: dates, missed deliverables, delays, unpaid invoices, scope changes. Evidence, not opinion.
I’ve seen relationships that were commercially recoverable destroyed by poor communication before any legal issue took hold. According to World Commerce & Contracting, poor contract management costs businesses an average of 9% of annual revenue through disputes, delays, and operational fallout – a number that hits hard for SMEs on tight cash flow.
The cleanest exits happen when concerns are raised early, expectations are documented clearly, and both sides are given a reasonable pathway forward. Not every relationship is meant to last. Priorities shift, budgets tighten, alignment disappears.
The goal isn’t to win. It’s to protect cash flow, minimise disruption, preserve reputation, and avoid legal exposure, while handling the process professionally.”
Justin Sulley, Director, Spend Solutions
“Exiting a poor performing supplier or client relationship requires significant planning & preparation to ensure that it fulfills your contract obligations, supports ongoing operational requirements & you are able to maintain a cordial relationship with the other party.
Maintaining an open relationship with a contracted party is dependent upon you treating them the same way you would expect to be treated. Specifically, this means that you have been open & honest to the other party over a reasonable period of time about the performance of the contract, its impact on your organisations & the potential options if performance doesn’t improve. Central to this is acting as an honest broker and working with the other party to address specified concerns so they have the opportunity to address them.
Seeking to end a contract even when it is performing expectations will naturally raise questions regarding your motivations.
Understanding your rights & responsibilities within the contract is critical to ensuring that if you do exit the contract that you will not be in breach & potentially be liable for costs. Where significant costs are involved, engaging with a contract lawyer before exiting the contract is a wise move.”
Michael Russell, Managing Director, Finwave Finance
“Exiting a bad contract well is mostly about sequencing. Most people lead with the exit and then try to manage the relationship. The ones who do it cleanly tend to do it the other way around.
Before you do anything formal, understand what the contract actually says. Termination clauses, notice periods, and breach provisions are not boilerplate. They are the rules of the exit. If the contract is silent on termination, you are dealing with common law principles, and the cost of getting that wrong is higher than the cost of getting advice first.
If there is a legitimate basis to exit, written communication is your protection. Be factual, be brief, and avoid language that attributes blame or signals a future dispute. The goal of that first letter is to open a door, not close one permanently.
Where possible, offer something in the transition. A reasonable handover period or flexibility on timing costs very little and changes the emotional temperature of the whole situation. Most relationships that survive a contract exit survive because one party made it easier than they had to.
If the other party is in breach, document everything before you raise it. Courts and mediators work on evidence, not recollections.
The relationship and the legal position are not in conflict if you manage them in the right order.”
Kim Woodward, Director & Founder, Woodward Finance
“Most business owners know a contract has gone bad long before they do anything about it. That hesitation is usually what makes it worse.
At Woodward Finance, we often see the impact when a supplier agreement or major client contract starts putting pressure on cash flow. I recently spoke with a transport operator who had taken on a long-term subcontracting arrangement that looked profitable on paper. Rising fuel, labour and maintenance costs meant the contract was no longer viable, but they were reluctant to walk away for fear of damaging the relationship.
The first thing I tell clients is to read before they react. Most contracts contain exit clauses, notice periods or performance triggers that provide options if you know where to look.
In this case, an honest conversation led to revised commercial terms that worked for both parties and preserved the relationship.
If there is genuine financial exposure, involve a commercial solicitor early. Exiting a contract well is a finance and risk decision just as much as a legal one. Know your numbers, know your obligations and move decisively, but respectfully.”
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