A breach of contract occurs when any part of a legally binding agreement is not honoured. This could range from a delayed payment to more significant infringements like not providing something that was guaranteed in the contract. Such issues can lead to a whole array of obstacles and can leave lasting damage to an individual’s or company’s operations, finances, and reputation.
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Recognising the gravity of such situations is critical, and so is the knowledge of how to address and resolve them. In this article, our civil litigation lawyers in London discuss the complexities of breach of contract cases, providing clarity on legal terms, practical remedies, and the process of securing a fair and just resolution.
What is a Breach of Contract?
First, let’s understand what a ‘contract’ is.
A contract represents a legally binding agreement established amongst two or more entities. Each party to a contract is required to fulfil the specific terms of the contract or to refrain from certain actions, known as contractual obligations. When any party fails to execute their part of the agreement, this is known as a breach of the contract. Such failure can range from a minor delay in performance to a complete disavowal of the contract’s terms and conditions.
The breach of a contract triggers a legal mechanism where the party in breach may be held liable for the consequences of their failure. This liability often leads to a breach of contract claim, where the affected party seeks to enforce the contract, obtain remedies for the breach, or receive compensation for any loss suffered because of the breach.
Settling these claims is a pivotal element of contract law and is crucial in upholding the integrity and dependability of contractual commitments within the commercial sector.
Different Types of Breach of Contract
Understanding the different types of contract breaches is crucial for any party to a contract, as it dictates the legal remedies available and the severity of potential penalties. Breaches can range in seriousness from minor inconveniences to significant failures that render the contract’s purpose void.
Minor Breach of Contract
When a minor or partial breach of contract happens, it means the outcome slightly deviates from the agreed terms, yet the main purpose of the contract is still achieved. An example of this could be a delay in the delivery of a service by one day. This type of breach usually does not have a major impact on the contract’s intended result. Consequently, the party who is not at fault may seek compensation only for the losses directly arising from the breach.
Material Breach of Contract
This refers to a more serious violation that substantially affects the contract’s value and outcome. It occurs when a party receives something significantly different from what was outlined in the agreement. For example, if a company orders a specific product for a conference but receives an entirely unrelated item, this constitutes a material breach. The non-breaching party in such a situation may seek remedies that could include the repair, replacement, or monetary compensation for the breach.
Fundamental Breach of Contract
A fundamental breach is so intense that it permits the non-breaching party to discontinue the contract and seek damages. It is a grave violation that undermines the contract’s very foundation. An example would be a manufacturer’s failure to deliver a product essential to the business of the innocent party, thereby giving the latter the right to end the contractual relationship and claim for losses incurred.
Anticipatory Breach of Contract
Anticipatory breach, also called anticipatory repudiation, is when one party explicitly communicates that they do not want to fulfil future obligations under the contract. This declaration enables the non-breaching party to take immediate action for breach of contract despite the actual breach not having occurred yet. This could involve seeking damages or looking for other ways to mitigate the anticipated loss due to the non-performance.
Remedies for Breach of Contracts
When a breach of contract occurs, the injured party can seek remedies to repair the situation and compensate for any losses. The court provides several forms of relief, each tailored to address the specific harm caused by the breach.
This is the most widespread remedy for a breach of contract. The objective is to return the affected party to the position they would have been in if the contract had been executed as initially planned. This can take the form of special damages, which compensate for quantifiable losses like lost profits or additional costs incurred due to the breach. General damages may also be awarded for more abstract losses such as inconvenience or loss of amenity.
In some cases, contracts specify predetermined amounts of compensation, known as liquidated damages, to be paid in the event of a breach for some industries. However, the party suffering the loss is expected to take reasonable steps to mitigate their damages and must prove that the breach directly caused the losses claimed.
The injunction is a legal remedy issued by a law court to address and prevent further contractual violations immediately. It functions in two primary ways:
- By restraining the party in breach from undertaking any further actions that could infringe on the rights of the other party involved in the contract.
- By obligating the party that has violated the agreement to perform a specific act to make amends, such as providing restitution to the other party.
The strategic use of an injunction can be necessary in situations where it’s imperative to freeze the current state of affairs, preventing further damage until a detailed legal review can take place. For instance, if a former employee tries to use a company’s intellectual property in violation of their contract, an injunction could prevent these activities immediately, protecting the company’s interests while the dispute is fully adjudicated.
This remedy forces the breaching party to fulfil their promises under the accord. It’s an order by the court that essentially forces the party in breach to deliver on their promises rather than just providing financial compensation. This remedy is typically reserved for situations where economic damages are insufficient to remedy the harm, such as when the contract is unusual or rare.
In cases of repudiatory breach, where the breach is so serious that the contract cannot be recovered, the court may deem the contract terminated. However, it is critical for the non-breaching party not to assume an end to the contract hastily and fail to perform their own contractual duties, as this might lead to being counter-accused of contractual breach.
How Do You Prove a Breach of Contract?
To successfully claim a breach of contract, the claiming party must present a compelling case that satisfies several key criteria. These criteria establish that a contract existed, there was a failure to perform contractual obligations, and that this failure resulted in damages to the non-breaching party.
Firstly, there must be proper evidence that establishes the existence of the contract, whether it is written, verbal, or implied by actions. The terms of the contract must be transparent and approved by all parties. Having documentation or credible testimony to support the contract terms is crucial at this stage.
Secondly, the claimant needs to demonstrate that the other party did not maintain their end of the agreement. This could be shown through clear instances of non-fulfilment, such as not providing agreed-upon goods or services. This might be through direct evidence of non-performance, such as failure to deliver goods or services, or through demonstrating that what was provided did not meet the agreed standards or terms
Lastly, the claimant must illustrate that this breach resulted in a specific loss or damage. This involves connecting the breaching party’s failure to quantifiable damage, whether it’s a financial loss, lost opportunity, or other forms of detriment that the contract was intended to protect against.
Throughout this process, the claimant must also be prepared to respond to any defences raised by the other party, proving their own adherence to the contract and efforts to mitigate any losses. Given the complexity of such matters, legal guidance from a commercial lawyer is recommended to ensure a structured and persuasive presentation of the case.
Alternative Options for Dispute Resolution
Litigation is not the only option to resolve a contract dispute. Alternative Dispute Resolution (ADR) methods like mediation and arbitration offer parties the chance to resolve the issue outside of court, which is often faster and cost-effective.
Mediation offers a route where a neutral facilitator, known as a mediator, assists the conflicting parties in reaching an agreement. Unlike a judge, the mediator does not issue a ruling. Instead, a mediator helps both sides communicate their points of view and work for a resolution that each can accept.
The process is confidential and voluntary, emphasising the preservation of professional relationships and providing a foundation for future interactions between the parties.
Arbitration is similar to a private trial, where an arbitrator hears the evidence and arguments from each side and makes a binding decision. It is a more formal process than mediation but typically offers more flexibility than court proceedings.
Parties have the opportunity to define the rules of the arbitration process, and they can select an arbitrator with specialised knowledge relevant to their dispute. The resulting decision is enforceable in a similar manner to a court judgment, but the opportunities for appeal are significantly limited.
Termination of Contract Following a Breach
Deciding whether you can terminate a contract after a breach depends greatly on the terms set within the contract itself. Many commercial agreements include specific clauses that define the occurrences under which termination is allowable. Commonly, these provisions cover scenarios such as a material breach or insolvency of a party.
In the absence of explicit termination clauses, the law typically recognises certain situations that may warrant ending a contract:
- A material breach, which goes to the heart of the agreement, can be grounds for termination.
- An anticipatory breach occurs if a party indicates they will not fulfil their upcoming contractual duties.
- The contract has become unattainable to perform due to one party’s actions or inaction.
Before terminating a contract, it is vital to follow any specified procedures for termination noted in the contract, such as providing proper notice before the termination. Terminating a contract without complying with the terms or without a legally sound reason could result in legal action for wrongful termination.
Seeking Legal Guidance for Breach of Contract? Let us Help!
If you are dealing with a breach of contract, swift and expert legal support is crucial. Our team can provide you with the guidance and support you need to safeguard your interests and make sure that the commitments specified in your contracts are fulfilled.
Whether you are seeking to enforce the terms, secure remedies for a breach, or obtain compensation for losses incurred, we are here to navigate the complexities of contract law on your behalf. Don’t let a contract breach disrupt your business or personal affairs.
Contact us now for a consultation, and let’s take the first step towards resolving your issues and restoring your peace of mind.
A breach of contract is any failure to meet the terms as agreed upon in the contract. This could be a missed deadline, non-delivery of goods or services, or any action that contradicts the contract’s stipulations.
If you believe you have a breach of contract claim, you should gather any evidence or documents that support your claim and consult with a solicitor who can assess the validity of your claim.
A business dispute is a conflict or disagreement between two or multiple parties in a business association. It can include disputes arising from breach of contract, partnership disagreements, or other issues related to business transactions.
The time limit to make a claim for a breach of contract will depend on several factors, and this includes the type of contract. Generally, though, it is 6 years in the UK. Consult with a solicitor to determine the applicable time limit in your specific case.
Our legal team boasts an extensive background in various types of civil disputes. We have expertise in managing situations including, contract violations, real estate disagreements, instances of professional carelessness, protection of intellectual property, labor law and dealing with defamation.
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Dr Bernard Andonian – the Co-Founder of Gulbenkian Andonian Solicitors, is an experienced Immigration Solicitor, former Judge, and recipient of a PhD in Law from the University of West London. He has over four decades of experience practising UK Immigration, Human Rights and Civil Litigation Law. He has served on the Law Society Immigration Law Panel, achieved numerous groundbreaking decisions in higher courts and is featured in the Legal 500’s Hall of Fame.