A well drafted and mutually accepted contract will allow different businesses to mutually exchange value and establish long term business relationships. Transactions should run smoothly, with clarity on what is expected of each party to the agreement.
That is barring the moment a party or parties fail to act in accordance with a term of the agreement, creating a breach of contract.
Breaches of a commercial agreement – what are they?
A breach of contract will occur when a party has failed to comply with a term or condition of a contract. Examples are failing to deliver on a promise, perform a level of service expected by the recipient or simply honour a crucial aspect of the agreement altogether.
Individual scenarios are far reaching and unique, depending on the type of business and industry the agreement was made in. Common scenarios will tend to centre around the following;
- The failure to deliver goods or services to a recipient
- Delivering defective goods to a recipient
- A party failing to make payment or payments under the terms of an agreement – not only resulting in a breach of contract but also a debt claim
- Failing to complete a task or service to agreed timescales or with reasonable care and skill
- A misunderstanding or a disagreement over specific terms or obligations of a business or individual
- Disagreements over a business partnership agreement
There might also be a disagreement over whether an implied term has been breached. Implied terms are ones not set out expressly in writing.
A Court might determine there are implied terms in the contract either from legislation or from the regular actions and common dealings between parties over a long period of time.
A breach of contract can also be the result of misrepresentation – briefly, that is where one party has made a false statement of fact that has been relied on by the innocent party and persuaded them to enter into the agreement. These statements can be made falsely, negligently, or even fraudulently and will have persuaded a party to rely on the statement as fact and enter into the agreement.
Is there a valid contract?
This question is the starting point to establish whether a claim for breach of contract can be made in the first place. The formation of a contract was covered in our most recent article – “How do I know if I have a legally enforceable contract?”
The key elements of an offer, acceptance, consideration, and intention to create legal relations need to be present. Most contracts will have been made in writing but some might have been established through actions, text messages, emails or other conduct creating a binding agreement.
Is there a breach and what is the effect?
If there’s a valid contract, examining the terms of the agreement and facts surrounding the breach is the next area to look at. The language of the terms and correspondence between the parties need examining. Legal advice is beneficial if there is any misunderstanding or ambiguity over the terms or to understand if there are implied terms in the agreement.
A claim for breach of contract will have resulted in either financial loss or a claim for damages by the aggrieved party (the Claimant), in addition to any other appropriate remedy for the breach.
How severe is the breach?
Breaches of contract can fall into one of these categories depending on how severe the breach is –
A material breach,
Minor breach or
These categories are important to understand as they help determine what type of remedy is available when making a claim for breach of contract.
If there is a valid claim for breach of contract, you’ll need evidence to support the claim. Evidence is going to be fact specific according to the nature of the breach and business involved – photos, emails, invoices, ledgers, witness evidence or even text messages can help a business substantiate or defend a claim for breach of contract.
The evidence must also demonstrate a financial loss incurred or support a claim for damages because of the breach.
Remedies available to businesses
As mentioned, the remedies available to a Claimant for breach of contract are dependent on the severity of the breach mentioned earlier. Common remedies are;
Damages – compensation awarded for the losses you have suffered as a result of the other party breaching the terms of the agreement. Note that a party will also be expected to mitigate any losses as a result of a breach.
Recission of the contract – effectively cancelling the contract and restoring the parties back to their original positions prior to the agreement
Specific performance – an order that the party who breached a fundamental term is required to fulfil their obligations as the parties intended or expected.
Court proceedings to settle a breach of contract claim will ideally be a last resort after all parties to the agreement have attempted to reasonably resolve the matter in open correspondence.
Written correspondence setting out each parties’ respective position will hopefully settle the dispute that has arisen. In more serious or complex breach of contract matters, mediation is another means in which settlement of a dispute can hopefully be achieved.
Obtaining legal advice and communicating via a solicitor will often help promptly resolve a dispute or assist with negotiating settlement of a dispute at an early stage.
Should court proceedings be necessary, a ‘pre-action’ Letter of Claim is must first be sent by a Claimant, notifying the other party
- What they consider the terms of the contractual agreement were,
- What the circumstances of the breach were and
- What they require to resolve the matter.
All evidence to support a Claimant’s position should also be disclosed. Only after this, can Court proceedings be issued by a Claimant if the parties involved still fail to resolve the matter.
Once a claimant starts court proceedings, the party against who a claim is being issued (the Defendant), will have to file a Defence in response. The Court will make a default judgement granting the remedy the Claimant is seeking, such as payment for financial loss of damage, if no Defence is filed.
After filing of a Defence, the Court will set out a timetable of steps the parties have to follow leading up to a final Court hearing. The recoverability of costs at the conclusion of a hearing will depend on the value of the losses or damage being claimed. As the subject of costs is quite wide, our dispute resolution team will cover this area in more detail in a future article.
Defences against a claim for breach of contract
Defences that can be filed in response to a Court issued claim for breach of contract include;
‘Force majure’ – where liability for a breach of contract can reasonably be excused due to events outside of the parties control such as a natural disaster or other unforeseeable event.
See our previous article on force majure for more information
Frustration of the contract – where the performance of the contract was impossible due to an unforeseen event.
Waiver – when a party inadvertently waives their right to make a claim for breach of contract through their conduct during the previous course of dealings whilst the contract was in force. The full topic of waiver in relation to contracts is beyond the scope of this article, however our dispute resolution team can advise you on this in detail and any other valid defences in response to a claim for breach of contract.
Parties seeking to issue or defend a claim for breach of contract must not forget the legal deadline to issue a Court claim is generally 6 years from the date the breach occurred.
If the breach relates to fraud or negligence, the time limit till start from when the negligent act or fraud was discovered by a Claimant.
Where a contract has been entered into as a deed such as a lease, the deadline will be 12 years from the when the breach occurred.
How can our dispute resolution solicitors help?
Correctly examining the terms of the agreement and facts surrounding a breach of contract can be a minefield for some. They must be considered carefully before making a claim for breach of contract.
The same can be said for determining the severity of a breach, the evidence needed to substantiate a claim, navigating court proceedings, and determining what exactly a fair remedy for breach of a contract would be.
Obtaining legal advice at an early stage is crucial before a dispute escalates and becomes time consuming and costly for a business. Our dispute resolution department are on hand to advise and assist you every step of the way.
Contact us today on +44 (0) 207 228 0017 or via the form below.