Contracts are the building blocks of your business. They govern your relationships with suppliers, customers and all other third parties. A properly drafted contract will clearly identify what is expected of each party and the terms on which you have agreed to do business. If a third party breaches their contract with you, your business can suffer considerable disruption and significant losses. Here, our breach of contract solicitors describes what constitutes a breach of contract, set out the evidence required to make a claim and explain the process and potential remedies.
Contents:
What constitutes a breach of contract?
All parties to a contract are obliged to perform their duties perfectly. If the other party fails to do so, you may have a claim for breach of contract. Common examples of instances which may constitute a breach of contract include:
- where a party fails to deliver goods or services on time or at all
- where a party fails to make payment on time or at all
- where the goods or services delivered are defective
Occasionally, a term which the parties have not expressly agreed may be implied into the contract by the Court. Although the Court generally do not like to interfere in contractual terms which have been negotiated and agreed by parties, and so in business-to-business contracts, the typical position is that a court will not seek to imply terms.
Occasions whereby the Court may imply terms into a contract are when those terms:
- reflect how the parties have regularly done business together
- are standard practice in the relevant industry
- are required to accurately reflect the parties’ intentions
- are implied by statute or common (case) law
In business-to-business contracts for the sale of goods, for example, various terms may be implied, including those relating to the quality of the goods, the seller’s right to deal with them and, if not expressly addressed, payment terms.
A failure to adhere to an implied term may place a party in breach of contract.
What evidence do you need to make a breach of contract claim?
You need to satisfy strict legal criteria to bring a breach of contract claim. The relevant criteria are:
There is a legally binding contract
You will need to show that there is a legally binding contract in place and be able to evidence its terms. To be legally binding, a contract must comprise an offer, acceptance, consideration and an intention to create legal relations. If any of these elements are missing, there is no enforceable contract in place. In addition, the parties must have ‘capacity to contract’, meaning that they are legally able to enter into the agreement. Generally speaking, any entity recognised by law has capacity to contract. Where a party to a contract is a corporate body, it is crucial to check that those signing on behalf of the corporate body have the authority to bind it; if they do not, the contract may be unenforceable.
Your contract will ideally be in writing and place clear, unequivocal obligations on the parties. Contracts can also be formed by exchanging emails or text messages, inferred by conduct or made orally. These contracts and their terms can, however, be considerably more difficult to evidence. It is, therefore, vital to take legal advice when entering into a contract to ensure the parties’ intentions are well documented.
The other party has failed to perform their duties under the contract
You must have clear evidence that the other party has not adhered to their duties under the contract. They may have failed to perform any of their duties, performed some but not all of their duties or performed poorly.
The types of evidence you may use to prove that the other party has failed to perform their duties include:
- photographs
- delivery notes
- correspondence between the parties
- expert evidence
- witness evidence
You have suffered loss as a result of the breach
You cannot bring a breach of contract claim merely because the other party has failed to perform; you must have suffered loss as a result. The type of loss you have incurred must have been a foreseeable consequence of the subsequent breach at the time you made the contract.
You are under a duty to mitigate any loss. This duty is not an onerous one; you simply cannot act unreasonably and allow your losses to escalate. Say, for example, you agreed with another party that they would provide equipment for you to stage a concert, but the equipment turned out to be defective. If you refused a third party’s offer of alternative equipment which would allow the concert to go ahead, you may be unable to claim against the party in breach for all losses arising from cancelling the concert.
The breach occurred within the last 6 years
Generally speaking, breach of contract claims must be brought within 6 years from the date of the breach. This is extended to 12 years if the contract is executed as a deed. A deed is a contract with more onerous execution requirements and is required by law in some circumstances, such as for the sale of land.
These general time limits can be varied by contract. It is, therefore, essential to seek legal advice from a breach of contract solicitor as soon as you become aware of a breach to ensure that you do not jeopardise your claim by taking action too late.
What should I do if I believe I have a claim?
As soon as you become aware of a potential breach of contract, there are numerous steps you should take. These include:
Collating and preserving evidence
If you decide to pursue a claim for breach of contract, you will need evidence of the breach. It is therefore crucial to collate and retain all relevant evidence. You should take photographs of any defective goods as soon as they are received. If possible, speak to witnesses and make a note of their recollection. Any dealings you have with the other party should preferably be in writing, by a follow-up email to confirm conversations if necessary. This will provide a paper trail which you can rely on to show the sequence of events and circumstances of the breach.
Reserving your rights
You can protect your position whilst considering your options by expressly telling the other side (preferably in writing) that you reserve your rights and you should do this immediately. This means that any action you take is not intended to either affirm or terminate the contract. Saying is different from doing, however, and this tactic is not a failsafe; sometimes, your subsequent actions may be deemed to constitute affirmation or termination. You should seek urgent legal advice to avoid inadvertently undermining your position.
Taking legal advice
Timely legal advice will ensure that your position is properly protected. Your solicitor will review the terms of the contract, consider the law and advise on the options available to you.
Legal advice will ensure that you do not take any action which may damage your claim. Many people believe, for example, that every breach of contract gives rise to a right of termination. This is incorrect. Whilst a breach of contract may, in some circumstances, give you the right to terminate, the breach of contract remedies available depend on the nature of the obligation the other party has failed to perform and the effects of that failure. Sometimes, even obligations as fundamental as those relating to payment may not justify termination. If you wrongly terminate the contract, you may be liable for breach of contract which could allow your counter-party to bring a claim against you. Further, if you wish to continue doing business with the other party, termination can be counterproductive. There may instead be scope to serve a notice demanding they remedy the breach.
Occasionally, you may become aware that the other party intends to breach the contract beforehand. A supplier of goods, for example, may inform you that they cannot deliver the goods by the time agreed. This situation is called ‘anticipatory breach’. You have various options in an anticipatory breach situation. You could hold tight and wait to see if the other party fulfils their obligations, or you may be able to terminate the agreement and claim damages.
Do you need to resolve a business dispute?
Speak to our business dispute solicitors and learn what legal options are available to you, the cost of those options and the steps you can take to resolve your dispute.
What is the claims process?
If your breach of contract solicitor considers that you have a viable breach of contract claim, they will advise on your options, including legal action. In the event you decide to pursue a claim, the process typically involves the following steps:
Sending pre-action letter of claim
Your solicitor will prepare a detailed letter to send to the other party. This letter sets out information relating to:
- the terms of the contract
- the circumstances of the breach
- the action required
The letter will inform the other side that if they fail to take the action demanded, you may issue a claim for breach of contract.
Considering alternative dispute resolution
Court proceedings can be a slow and expensive process. Your solicitor will consider whether your claim could be settled through alternative means such as mediation or arbitration.
Issuing a claim
If the matter cannot be resolved through alternative means, you can issue a claim by filing the relevant documentation with the appropriate Court and paying a fee. The nature of the dispute will dictate which Court has authority. Court procedure can be complex and arduous, and it is advisable to seek advice from a solicitor who will prepare and file all relevant documentation at Court within the applicable time limits and prepare and present your case in the best possible way.
Considering any defence
The other party must serve their defence within strict time limits. Your solicitor will advise on the merits of the defence and its effects on your claim. The Court will set a timetable detailing the steps each party needs to take, and by when. The parties may settle the matter at any point during this process; if they do not, a hearing date will be set.
Obtaining Judgment in Default
If the other party does not defend the claim, you may be able to obtain ‘Judgment in Default’ against them. This is akin to a judgment obtained after a trial and can be enforced in the same way.
Collecting the debt
Once you have obtained a judgment either following a trial or in default, the other party must pay the damages due within a specified time period. If they fail to do so, there are numerous methods by which you can collect the sums, including using a bailiff to cease goods to the value of the debt and taking a charge over the other party’s property.
Remedies for breach of contract
There are several possible remedies for breach of contract. They include the following:
Damages
The most common remedy in breach of contract cases is damages. The purpose of damages is not to punish the wrongdoer; it is to put you in the position you would have been in had the other party performed their part of the contract. Punitive damages are almost never recoverable in breach of contract cases.
For example, say you bought some goods from a seller. If the seller failed to deliver your goods on time, your damages would likely be based on the difference between the price payable under the contract and the cost of the goods on the open market at the time the seller failed to deliver them. This general position would be inappropriate in some instances, such as when you had agreed to sell the specific goods to a third party. In this situation, since your ability to fulfil your deal with the third party relied on you receiving the seller’s precise goods, your damages would likely be based on your lost profit and any additional liability you incurred.
Other types of damages are not calculated with reference to a party’s losses. For example, ‘restitutionary damages’ are based on the benefit gleaned by the other party from their breach as opposed to your losses. These are very much the exception rather than the rule in breach of contract claims, though, and will only be awarded in exceptional circumstances.
Termination
In some cases, it may be possible to terminate the contract due to a breach by the other party. Termination excludes the parties from having to do anything further under the contract. It does not preclude a party from claiming damages for any breaches that have already occurred.
A right of termination can arise under the contract itself or at common law, and the first thing to do when considering terminating a contract is to identify your legal grounds for doing so.
Most commercial contracts contain express terms governing termination, which you must adhere to. Those clauses might dictate a series of steps you must take before terminating. For example, you may need to serve notice on the other party, giving them an opportunity to remedy the breach before terminating. If you don’t follow the requisite steps, you will be in breach of contract.
Any contractual termination rights will operate alongside your common law right to terminate unless the contract expressly excludes those rights. The common law allows any party to a contract to terminate it immediately if the other party commits a ‘repudiatory breach’. A repudiatory breach is a breach of a term that goes to the heart of the contract and denies a party all its benefits. Whether a particular breach is serious enough to be classed as a ‘repudiatory breach’ depends on the facts, including the parties’ intentions and actions and, sometimes, industry norms. An example of conduct that might be held to be a repudiatory breach is a party refusing to perform its obligations – a contractor walking off a construction site, for instance.
If you are considering terminating a contract for breach, you must proceed with utmost caution. If you get it wrong, you may be in breach of contract yourself, and liable to pay damages to the other party. Taking legal advice from expert breach of contract solicitors like ours before taking any action in connection with terminating a contract is essential.
Specific Performance
Specific performance is a Court Order compelling a party to a contract to perform a contractual obligation. It is a discretionary remedy, meaning it is not available as of right in breach of contract claims; it is up to the Court to decide whether to award it. A notable benefit of specific performance is that you need not wait until the other party commits the breach to apply; if you anticipate a breach, you can act before it has occurred.
The remedies available depend on the nature of the breach and its effect. Whilst termination and the recovery of damages may be available for significant breaches, the remedies available for more minor breaches may be limited to damages. Your solicitor will advise on the remedies applicable to your situation.
There are several possible remedies for breach of contract. They include the following:
Summary
Contract law is vast and complicated. Breach of contract claims can be extremely complex, requiring consideration of the terms of the contract as well as any industry standards, applicable statutes and case law. You should seek legal advice as soon as you become aware of any breach of contract, to protect your position and minimise the losses incurred. Your solicitor will review all relevant materials and assess the merits of your claim. They will work with you to decide on the best course of action and act swiftly to obtain your preferred remedy from the other party or if necessary, the Court.
