A breach of contract occurs when a party fails to perform a contractual obligation, performs it defectively, or indicates that it will not perform it. Harper James is a UK full-service commercial law firm advising businesses on the laws of England and Wales, including commercial disputes.
Damages are the usual remedy for breach of contract. Their purpose is to put the innocent party, so far as money can, in the position it would have occupied if the contract had been performed. A claim may include direct financial loss and, where the contractual and legal tests are met, consequential loss or lost profits. The claimant must generally show that the loss was caused by the breach, was within the parties’ reasonable contemplation when they contracted, and has been calculated with appropriate evidence. The claimant must also take reasonable steps to mitigate its loss.
The contract may specify an agreed payment for a breach. A valid liquidated damages clause can provide a defined remedy, but a clause that imposes a disproportionate detriment may be treated as an unenforceable penalty. Liability caps, exclusions of loss, notice requirements and contractual limitation periods also affect the amount and availability of damages.
A serious breach, or a breach of a condition, can give the innocent party a right to terminate the contract. Termination is not automatically available for every breach. The contract may provide a specific termination mechanism, including notice and an opportunity to remedy the default. Ending the agreement without a valid right can itself constitute a breach. Termination also does not usually remove accrued rights, such as a claim for unpaid invoices or damages.
In limited circumstances, the court may grant specific performance, requiring a party to carry out its contractual obligation. An injunction may restrain threatened conduct or require a party to stop acting in breach. These remedies are discretionary and are generally considered where damages are inadequate, for example in relation to unique property or confidential information. They are not normally used to compel ongoing personal services or close supervision of a continuing relationship.
A business should first identify the contractual obligation, the relevant breach, and any notice, cure, escalation or dispute-resolution provisions. It should preserve documents, quantify the financial effect, check insurance and review liability limits. A formal letter before action usually sets out the breach, the remedy sought and the deadline for response. The parties may then negotiate, use mediation, or commence court or arbitration proceedings, depending on the agreement. The choice depends on the evidence, urgency, commercial relationship, likely recovery, cost and time involved.