Commercial contracts are the ties that bind the business world together. However, like every relationship, circumstances can change, resulting in agreements being ruptured.
The key to dealing with a breach of contract is to swiftly seek advice from a commercial solicitor who can advise you of your legal rights and the best course of action to protect your business, commercial reputation, and cash flow.
What is a breach of contract?
A breach of contract occurs when one or more parties to the contract fail to perform their duties under the agreement or abide by the terms and conditions of the contract.
When does a breach of contract occur?
Before investigating whether there has been a contract breach, it must first be established that a valid contract exists, including an offer, acceptance, consideration, and intention to create legal relations.
If an agreement is in place, you need to be able to show that the other party did not perform the obligations required of them under the contract.
Breaches of contract fall into three categories:
- Minor breach of a contract - where a term(s) has been breached, but the breach is so inconsequential that the remainder of the contract can be performed (the injured party can sue for damages but will not usually be allowed to terminate the agreement)
- Material breach of a contract - multiple breaches have occurred, or the breach goes to the heart of the contract, making it impossible for the contract to be performed
- Anticipatory breach of a contract - one party notifies another that they will be unable to perform part or all of their contractual obligations. The contract can, in these cases, be terminated, and damages sought
If a contract breach is established, you still need to provide evidence that the other party’s non-performance resulted in you suffering damage and that the damage was not too remote from the breach.
Can a misrepresentation result in a breach of contract?
A misrepresentation is an untrue statement of fact or law made by Party A (or their agent) to Party B, which encourages Party B to enter the contract, thereby causing Party B loss.
The test for whether a statement is a misrepresentation is assessed objectively, based on whether a reasonable person in the same position as Party B would have been induced to enter into the contract.
A misrepresentation makes the contract voidable by the claimant, meaning they may choose to render the agreement invalid. A misrepresentation may be fraudulent, negligent, or innocent, and the remedy available to the claimant will depend on which of the categories above the breach falls into.
How should I deal with a breach of contract?
As much as we would like to think otherwise, consistently impeccable service, the timely delivery of goods and materials and the prompt payment of invoices are simply not the way the world works.
As we have seen with the Coronavirus pandemic, many unforeseen factors can affect the ability of businesses to adequately perform their contractual obligations and pay their bills on time.
Therefore, the question often is not whether a breach of contract has occurred but if this is pursuing a legal remedy is commercially worthwhile.
If you believe the terms of an agreement have been breached, the first step is to try and sort the matter out informally. If the contract relates to a large project, has international elements, or involves a mandatory or anticipatory breach, it is best to seek legal advice at the outset.
However, a quick phone call or email often resolves the problem of minor breaches. Undoubtedly, the other party has experienced a similar issue, so you should hopefully have some empathy with your claim.
Should you need to instruct a Commercial Solicitor, rest assured that they will make every effort to use alternative dispute resolution (ADR) methods such as negotiation, adjudication (in the case of construction contracts), and, mediation to keep legal costs down and preserve the commercial relationship (crucial if a project needs to be completed). Going to Court should always be a last resort. However, they can also provide guidance on how to sue for breach of contract.
What are the remedies for breach of contract?
There are several remedies the Court can award for breach of contract, including:
- Damages - to compensate you for any financial loss resulting from the breach.
- Specific performance - an order that the other party completes their part of the contract
- Rescission - putting the parties back into the same position they were in before the contract came into existence
- Injunctions - an order that the other party take a specific action or refrain from doing something
What damages can be claimed for breach of contract?
A claimant can claim the below compensatory damages for breach of a contract:
- Punitive damages - generally of a nominal value, punitive damages are rarely claimed and are more common in criminal cases
- Damages for loss of enjoyment/amenity - this is mainly down to a claimant having to demonstrate whether a further monetary award is necessary and, if so, what that sum should be (damages in this respect are, therefore, only awarded in limited circumstances)
- Damages for distress - are awarded an aim to put the injured party in the same position they would have been in, should the tort not have occurred
- Loss of reputation damage: the claimant must first have some financial loss, as damages for a loss of reputation cannot be claimed on its own
- Restitution damages: claimed when the defendant has profited from the breach. In such cases, the claimant can seek the profit obtained, providing they can show the profit was a direct result of the breach
Can I terminate a contract that has been breached?
Most commercial contracts make provisions for when termination can occur. For example, the agreement may state that the contract can be terminated in the case of a material breach or if one of the parties becomes insolvent.
If the contract provides no express provisions for termination, the following may justify ending the contract:
- A material breach
- In an anticipatory breach, for example, one party refuses to carry out all or part of their contractual obligations
- The contract has become impossible to perform through the acts or omissions of one party
Terminating a contract can expose you to a claim by the other contractual parties. For example, you must give termination notice in the agreement's format. Therefore, you should always seek advice from an experienced commercial law solicitor before taking such action.
Quick action following a breach of contract is vital to mitigate potential losses. If you believe a breach has occurred:
- Establish whether a legally valid contract exists and the specifics of the breach
- Try and resolve the breach by phone or email
- If the above does not get results, consult a Commercial Solicitor for advice
A solicitor will quickly let you know the strength of your position and advise you on whether pursuing the breach is commercially viable. Remember, solicitors are business people, too, and their advice will always be focused on protecting your best interests.
Get legal assistance from LawBite
Contract law can be confusing and knowing when an employee, investor, landlord, contractor or partner has breached their obligations can be even more so. If you think someone is in breach of contract, book a free 15 minute consultation with one of our expert commercial lawyers or call us on 020 3808 8314 - we’ll be able to help you determine if a breach of contract has occurred and be able to recommend the next steps to help you resolve the matter.