In Malaysian commercial practice, a “Termination for Convenience” clause is typically viewed as an absolute right, permitting a party to exit a contract without proving breach if the notice period is observed. In contrast, under the Chinese Civil Code, exercising this right is more complex than the clause’s wording suggests.
The Malaysian Approach: Absolute Contractual Rights
Malaysian law generally enforces written agreements. If parties agree that either may terminate “at any time without cause” with 30 days’ notice, courts will uphold this right.
Following Sababumi (Sandakan) Sdn Bhd v Datuk Yap Pak Leong [1998], Malaysian courts seldom question a party’s reason for termination unless estoppel or statutory protections apply. The primary concern is strict compliance with procedural requirements, such as the notice period.
The Chinese Civil Code: The Duty of Good Faith in Exit
Under the Chinese Civil Code, exercising a termination right is governed by the “Golden Rule” of good faith (Article 7). While Article 562 allows parties to set termination conditions, this right must be exercised honestly and fairly.
If a party abuses a termination for convenience clause, for example, by ending a long-term supply agreement after the supplier has made significant investments, a Chinese court may review the motive. If the termination breaches good faith, the terminating party may be liable for damages, even if the notice period was met. This approach contrasts sharply with the Malaysian literalist stance.
Article 566 and the Settlement of Accounts
Article 566 of the Chinese Civil Code poses a technical challenge for Malaysian practitioners. In Malaysia, termination for convenience usually ends the relationship once the final invoice is settled.
In China, Article 566 requires parties to fulfil obligations such as settlement and liquidation after termination. It also states that termination does not remove the right to seek damages if the exit breaches the duty of good faith (Article 509). Therefore, a “convenience” exit may not provide the clean break a Malaysian lawyer would expect.
Post-Termination Duties: The Statutory Afterlife
As previously discussed, Article 558 imposes mandatory post-contractual duties of notice, assistance, and confidentiality. In Malaysia, these duties apply only if expressly included in a survival clause.
Under the Chinese Civil Code, these duties are statutory. After termination for convenience, a Malaysian party may be legally required to assist the Chinese counterpart with project transition or return sensitive data. Failure to comply can result in new legal action, even after the contract ends.
Conclusion: Drafting for a Fair Exit
The key lesson for practitioners is that under Chinese law, drafting a termination clause is only part of the process. Managing the exit is equally important.
In Malaysia, success depends on referencing the clause. In China, it requires demonstrating that the exit was reasonable and transparent. To mitigate risk, Malaysian clients should document the commercial rationale for termination and provide comprehensive transition assistance. In a jurisdiction governed by good faith, a fair exit is always safer than a merely convenient one.
The article was first published on LinkedIn.
Clement. Of All Trades. 
Posted on 19 February 2026
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