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Between the energy crisis, Brexit, Covid 19 pandemic-related delays and the lorry driver shortages, many SMEs are finding it difficult to fulfil their contractual obligations. 

If this applies to you, then no need to panic. Below you will find some really useful guidance regarding your options, if you are unable to perform your contractual obligations. 

And if you need further help, you can contact our Commercial Law Solicitors who can expertly advise and represent you. We can take care of your legal problems so you can concentrate on your business.

Below are the steps you should take if you realise that you cannot fulfil a contractual obligation, such as delivering an order on time or completing a project by a deadline.

1. Check the terms of the contract

Although this may seem obvious, you would be surprised how often this step is overlooked. You need to check the terms of the contract that govern your relationship with the other party. It may contain terms such as a force majeure clause that allows you to terminate the contract due to the occurrence of an event that is beyond your control. Alternatively, you may be able to argue that the contract has been frustrated. The contract may contain a disputes resolution clause that you can follow regarding your inability to perform to the terms of the agreement.

2. Talk to the other party

Once you have checked the terms of your contract you need to talk to the other party. In all but a small number of cases, which usually involve significant sums of money being attached to the contract being performed, you and the other party to the agreement should be able to negotiate an extension or an alternative solution. This may or may not involve you having to pay compensation.

3. Seek legal advice

If the other party is not prepared to negotiate on an extension or alternative solution and demands that the contract be terminated and compensation paid, you need to talk to a Commercial Law Solicitor. 

To establish you have breached the contract, the other party must prove on the balance of probabilities that you failed to perform your contractual obligations.

There are three categories of breaches:

Minor breach of contact

A breach has occurred, but it is slight and does not affect the execution of the contract. 

Material breach of contract

Several breaches have occurred, or the breach goes to the heart of the contract which means the contract cannot be performed.

Anticipatory breach of contract

You inform the other party that you cannot perform part or all of your contractual obligations. The other party can then cancel the contract and claim compensation.

A Commercial Law Solicitor will quickly inform you as to which category of breach your situation falls into.

4. Try and resolve the matter by Alternative Disputes Resolution (ADR)

If a breach of contract can be established, then going to Court is the last resort. Instead, you should try and resolve the matter through ADR, which is quicker, cheaper, and above all, private. In most contractual disputes, mediation or negotiation are the preferred methods. When it comes to construction contract disputes, adjudication applies to all ‘construction contracts’ as defined in the Housing Grants, Construction and Regeneration Act 1996 (also known as the Construction Act 1996) Construction Act. You cannot contract out of the right to adjudicate.

5. Prepare for litigation

As mentioned above, most breach of contract cases are resolved long before litigation is considered an option. However, in some cases, it is inevitable. You will need to collaborate closely with your Solicitor to ensure you understand the risks of defending the claim and whether tactical measures such as accepting (or declining) a Part 36 offer is in your best interests.

Wrapping up

Being unable to meet your contractual obligations can be incredibly stressful, especially if it is due to something that is out of your control. The most important thing to do is not panic and examine the terms of the agreement to establish your options. 

Seeking expert legal advice will ensure (if applicable) that you can rely on force majeure or frustration. A Commercial Law Solicitor can also take the matter off your shoulders when it comes to negotiating with the other party or preparing for mediation or adjudication. 

Finally, although you may be busy and just want the matter to disappear, the worst thing you can do is ignore the fact that circumstances out of your control mean you will be unable to perform your contractual obligations. As far as possible, keep talking to the other party - this will help protect the commercial relationship and your reputation within your industry sector.

Get legal assistance from LawBite

If you find yourself in a position where you or the other party cannot fulfil a contractual obligation, there are a series of steps you can take. LawBite expert contract law lawyers are ready to help you make sure you are aware of all your options and take the right legal action to protect your business.

Book a free 15-minute consultation with one of our expert lawyers today. They can review your contacts and/or draft a new one for you.

Additional useful information

In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.

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