It can be highly stressful if you are in a situation where you have entered into a commercial contract with another business, but something has happened to indicate that an obligation you agreed upon might not be performed by them after all. Here we look at the nature of an anticipated breach of contract, circumstances in which it may occur and the remedies available to you if this situation arises.
- What is an anticipatory breach of contract?
- What is the difference between an actual and an anticipatory breach of contract?
- When might an anticipatory breach of contract occur?
- Anticipatory breach and repudiation
- When will a party have renunciated its liabilities under the contract?
- What are the remedies for an anticipatory breach of contract?
What is an anticipatory breach of contract?
An anticipatory breach of contract occurs when the other party to your contract indicates in advance of the time for performance (in other words, before they were supposed to do something that they had contracted to do), either expressly or by their conduct, an intention not to perform or do what they promised to do in accordance with the terms you agreed upon initially – or that they are not going to do it in the way in which you initially agreed between yourselves at the time of entering into the contract.
An anticipatory breach of contract arises when you are faced with the other party demonstrating their intention not to perform a contractual obligation.
What is the difference between an actual and an anticipatory breach of contract?
An anticipatory breach is when the other party you have contracted with shows by virtue of their express words or behaviour that they do not intend to do something which they agreed to do under the terms of your contract, before the time they are supposed to do it.
An actual breach of contract occurs when the other party fails to perform their contractual obligation on the date upon which they were due to do something.
When might an anticipatory breach of contract occur?
There are two main factors you will need to consider when determining whether an anticipatory breach of contract has occurred:
- Has the other party demonstrated to you by their words or conduct that they do not intend to be bound by the terms of your contract any longer? (This is referred to as renunciation of the contract).
- Has it become impossible for the other party to perform their contractual obligations as a result of its own actions?
To bring a successful claim, there must be a subjective belief on your part that the other party will breach the contract.
Example scenarios of an anticipatory breach of contract
Below are some example scenarios which may give you a flavour of the circumstances in which it could be argued that an anticipatory breach of contract has taken place:
- A supplier telling you that they can no longer deliver goods to you on the date upon which you agreed for delivery when forming the contract, with this information being given to you in advance of the originally agreed delivery date.
- The other party informing you that, due to a change in their circumstances, they will be unable to perform their part of the contract because it has for some reason become impossible to do so (again, this would need to be prior to the date upon which the agreed performance was due).
- The other party refusing to give you access to a property you need to enter in order for you as the innocent party to perform your part of the contract; for example, if your business is catering, you may have a contract with a venue to provide the food for an event and an anticipatory breach here would be the venue telling you before the date of the event that they will no longer allow you to access their land to provide the catering on that day.
Anticipatory breach and repudiation
When discussing the term 'repudiatory breach' in the context of a contractual agreement, this means that you – as the innocent party – have been deprived of the substantial benefit of the same as a result of the other party’s actions in their breaching a fundamental term of the contract.
An anticipatory breach is often referred to as an 'anticipatory repudiatory breach' because the other party, by virtue of their words or conduct, is demonstrating an intention to commit a repudiatory breach of the contract. You may therefore be able to treat the contract as repudiated on the basis of this anticipatory breach of contract.
Additionally, it is important to be aware of the fact that it is for you to choose whether to terminate or affirm the contract in the event that you find yourself in the above situation, because a repudiatory breach of any type does not end a contract automatically.
The range of options and remedies available to you in these circumstances are discussed further along in this guide.
When will a party have renunciated its liabilities under the contract?
As touched upon above, renunciation is when the other party indicates that they will not perform their contractual obligations in accordance with your agreement. Renunciation needs to be demonstrated by their words or their conduct. The court will consider certain guiding factors when presented with a contractual dispute and claim for an anticipatory breach of contract:
- Did the other party clearly demonstrate to you a refusal to perform a contractual obligation that went to the 'root' of the contract?
- Was that refusal absolute?
- In assessing whether the refusal was absolute (which is a necessary component of a successful claim), would an objective, reasonable person in your situation regard the refusal as being absolute without any doubt?
- What does your history with the other party demonstrate, insofar as the contractual arrangement in question is concerned? All of the relevant words and conduct must be considered in determining whether a renunciation amounting to an anticipatory breach of the contract has occurred.
What are the remedies for an anticipatory breach of contract?
In the first instance, you are entitled to terminate the contract before the time for performance arrives, and claim damages from the other party. Alternatively, you may choose to wait for the time for performance to arrive, in the hope that the other party does perform their obligations as originally agreed. It is recommended that you take legal advice from a dispute resolution solicitor before deciding how best to proceed if you find yourself in this situation.
If a court successfully upholds your claim for an anticipatory breach of contract, you are entitled to damages. It is important to highlight here that, in assessing the entitlement to damages, the court will expect you to show that you would have been in a position to perform your side of the contract if the other party had not breached the same. If the court concludes that you would have been unable to perform, there is a risk that the level of damages awarded to you may be reduced.
Navigating contractual relationships with other businesses can prove tricky at times; particularly at the moment considering the effect of the Covid-19 pandemic on all industries. Unfortunately, this may lead to an increased likelihood of businesses experiencing anticipated breaches of contract and it is therefore more important than ever to get the right legal advice as soon as this possibility arises, to minimise any potential damage to your company. Our team of business dispute specialists can help identify whether an anticipatory breach has occurred and provide you with the right advice accordingly.