The Power of the Business Contract and What to Do When it is Breached

April 25, 2017

At LawBite we’re on a mission to ensure that our clients are aware and educated in the best ways to resolve issues before they become a BIG problem.  In business, we all know that the biggest problems that keep you awake at night normally revolve around cash flow and suppliers or customers not keeping up their end of the deal.

Our expert commercial Lawyer Hannah Newell has some great advice on how you can often solve the issue before approaching your lawyer for help:

So you have carefully crafted or considered the business contracts you have entered into with your customers or suppliers and diligently arranged for the contract to be signed, sealed and delivered. You consider that you have a good and solid business contract in which neither party can have any doubt as to their respective obligations. Then the contract is breached – your supplier consistently fails to deliver on time and it has knock-on effects for your business or your customer simply fails to pay the agreed amount at the agreed time. Your efforts to discuss this have fallen on deaf ears and the situation cannot be rectified by a further phone call or demand letter. What are your options?

Where you are confident that you have the basis of a robust business contract, your first step is to send a letter before action. Going to court is the last resort – litigation can be an expensive process for all parties and the court expects you to make every effort to resolve matters in dispute before you seek to issue court proceedings. Furthermore, you can be expected to demonstrate that you have done this if the matter gets to court and if they consider that more could have been done, you might win your case but you find that you have to cover some or all of your own legal costs. Where this happens, litigation can be a false economy.

Lawyers call this ‘pre-action conduct’, the starting point for which is your initial letter before action, known as the LBA. The LBA can be a powerful pre-emptive tool, especially where you have contractual certainty. This first shot from the bows, if properly crafted, has the potential to resolve your issues without recourse to the courts. So what do you need to consider and what should you include?

The Letter Before Action – Key Points to Include:

Make it clear that the LBA is an LBA by simply marking it as ‘Letter Before Action’. This is formal correspondence that seeks to get to the root of the contractual breach. Provide an accurate and factual background to the circumstances and clearly list the clauses of the contract that have been breached and how. Include copies of the contract and any other documents that demonstrate the breach including email chains, correspondence, photographs and so on.

Explain clearly how the breach of the contract has caused you loss. If that is a straightforward sum of money then remember to include the necessary interest. If it is loss caused by non-delivery or failure of equipment then set out your monetary loss as a result as well as any additional costs you have incurred in putting things right. For example, did you have to hire equipment because equipment provided was faulty? Did non-delivery of goods have a knock-on effect on your business? Again, include documents that support this including invoices and receipts.

Tell your contractual counterpart what you reasonably expect them to do and within what timescale. Pay up within 14 days. Deliver the promised goods on the next scheduled date. Replace and/or repair the defective equipment within 7 days of notification. Ensure your request is reasonable and that you have mitigated any losses where possible.

If it is not quite clear what has occurred you may need to request that further documents are made available. Would sight of their purchase orders support your case? Ask for them. There is a Pre-Action Protocol that calls for all parties to a dispute to provide all documents that would allow the other party to consider their case. Point out that this Protocol applies and that you expect them to adhere to it.

Remind the recipient in your letter that you want to resolve the matter quickly, fairly and at minimal costs in the interests of both parties and ask them to consider engaging in ‘alternative dispute resolution‘ such as a mediation. The court encourages parties to get around the table and discuss matters with an objective third party before racing all guns blazing to the court steps.

Set a timescale for an acknowledgement of your LBA and for a substantive response. This depends on the complexity of the matter but 14 days would be the norm. Keep track of any response and send a prompt chaser if nothing is received.

A good LBA can resolve your dispute and if not, sets the right tone for any future proceedings. Where there has been a clear breach of a contract and you lay this out correctly, the other party will want to avoid litigation and should seek to respond promptly.

If you’ve tried some of Hannah’s suggestions above and your business is still struggling to deal with a breach of contract problem then our LawBriefs are available to help.  You can contact us for a FREE legal advice consultation by clicking here or calling us on 020 7148 1066.   

 

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