Your Commercial Agreement Has Been Terminated: 10 Things to Check Before Taking Legal Action in Cyprus

Receiving a notice terminating an important commercial agreement can have immediate and substantial consequences for a business.

A distributor may suddenly lose an exclusive territory. A licensee may lose the right to exploit a product or intellectual property. A supplier may lose a major customer. A service provider may see a long-term revenue stream disappear overnight.

But receiving a termination notice does not necessarily mean that the other party had the legal right to terminate the agreement.

Under Cyprus law, whether a termination is valid will depend on the terms of the contract, the alleged breach and the circumstances surrounding the termination.

If an important commercial agreement has been terminated, here are 10 practical issues to examine immediately.

1. What Does the Termination Clause Actually Say?

Start with the contract.

Most substantial commercial agreements contain provisions specifying when and how either party may terminate the relationship.

Check:

• the grounds permitting termination;
• whether written notice is required;
• the required notice period;
• whether particular breaches permit immediate termination;
• whether the agreement requires a warning before termination; and
• whether a specific procedure must be followed.

The fact that one party wishes to end the commercial relationship does not necessarily mean that it has a contractual right to do so immediately.

2. Was There Actually a Breach?

Termination notices commonly allege that the other party breached the agreement.

That allegation should be examined carefully.

What specific contractual obligation was allegedly breached? When did the breach occur? What evidence supports the allegation? Had the parties previously accepted the same conduct without objection?

The existence of a commercial disagreement does not automatically establish a contractual breach.

3. Was the Alleged Breach Serious Enough to Justify Termination?

This is often one of the most important questions.

Not every contractual breach necessarily gives the innocent party the right to terminate the entire agreement.

Depending on the contract and circumstances, a breach may give rise to a claim for damages without giving a right to bring the whole contractual relationship to an end.

If the breach was not sufficiently serious and the contract did not otherwise provide a right to terminate, the purported termination may itself constitute a breach of contract.

4. Was the Other Party Required to Give You Time to Fix the Problem?

Many commercial agreements contain a cure period.

For example, the contract may provide that if one party commits a breach, the other must first give written notice identifying the breach and allow 10, 15 or 30 days for it to be remedied.

Only if the breach remains uncorrected after that period may termination become available.

If the agreement contains such a mechanism, ask:

Was proper notice given?
Was the alleged breach clearly identified?
Were you given the contractual period to remedy it?
Was the agreement terminated before that period expired?

Failure to follow the agreed procedure can become central to a subsequent dispute.

5. Check All Communications Before and After the Alleged Breach

Do not examine the termination letter in isolation.

Emails, WhatsApp messages, meeting minutes and correspondence between the parties may provide important context.

They may show that the alleged breach was previously accepted, that additional time was granted, that negotiations were continuing or that the stated reason for termination differs from what was being discussed between the parties at the time.

Preserve these communications immediately.

6. Do Not Assume You Must Accept the Termination

If you consider the termination unlawful, your response can be important.

Depending on the circumstances, legal advice should be obtained promptly on whether the termination should be disputed and what rights should be expressly reserved.

Simply allowing significant time to pass without properly considering your position can make an already complicated commercial dispute more difficult.

7. Calculate What the Termination Will Actually Cost Your Business

For a significant commercial agreement, the loss may extend far beyond one unpaid invoice.

Consider the financial consequences.

Has the business lost future revenue?

Was significant money invested specifically to perform the agreement?

Were employees recruited?

Was stock purchased?

Were premises, equipment or infrastructure acquired?

Has an exclusive distribution territory been lost?

Are commissions or other payments outstanding?

A damages claim must ultimately be supported by evidence. Therefore, businesses should begin documenting the financial consequences of the termination from an early stage.

8. Can You Claim Lost Profits?

Potentially, yes.

Under Cyprus contract law, damages may be recoverable for losses satisfying the applicable principles of causation, foreseeability and remoteness.

Lost profits may therefore form part of a commercial claim in appropriate circumstances, but they cannot simply be asserted.

Historical accounts, sales performance, existing orders, projections, market information and expert evidence may become important in establishing what would probably have occurred had the agreement continued.

The larger the claim, the more important a properly evidenced damages analysis becomes.

9. Do You Need Urgent Court Action?

Some termination disputes cannot simply wait for a final judgment.

For example, termination may be accompanied by attempts to transfer assets, misuse confidential information, appoint a replacement distributor, dispose of disputed property or take other steps capable of causing immediate harm.

Depending on the circumstances, interim relief from the Cyprus Courts may be available.

Whether such relief is appropriate will depend on the particular facts and the legal requirements for the order sought.

Urgency therefore needs to be considered at the very beginning of the dispute.

10. Decide What You Actually Want to Achieve

Litigation strategy should start with the commercial objective.

Do you want compensation?

Do you want outstanding payments?

Do you want to preserve the commercial relationship?

Do you want to negotiate an orderly exit?

Do you want to prevent the other party from taking a particular action?

Or has the relationship broken down completely, leaving damages as the realistic remedy?

The answer may affect whether the appropriate first step is a formal legal notice, negotiations, interim proceedings or a substantive claim before the Cyprus Courts.

The Key Question

When a substantial commercial agreement is terminated, the real question is not simply:

“Did the other party send a termination notice?”

The important question is:

“Did the contract and the law actually give them the right to terminate it?”

Where the answer is no, the termination itself may expose that party to a substantial claim for breach of contract and damages.

Has Your Commercial Agreement Been Terminated?

If your business is involved in a dispute concerning the termination of a licensing, distribution, supply, services or other commercial agreement connected with Cyprus, Christos Paraskevas LLC can advise on the validity of the termination, available remedies, damages and proceedings before the Cyprus Courts.

This publication provides general information on Cyprus law and does not constitute legal advice. The validity and consequences of termination depend upon the terms of the particular agreement and the circumstances of each case.