If you enter into a business contract with a supplier, you receive a promise from them. They commit to deliver a product or service by a specific date and perform a designated function in a certain way. The vast majority of transactions occur smoothly. Most contracts are delivered on time and to everyone’s satisfaction. But what happens when one side doesn’t hold up their end of the bargain? The matter becomes a breach of contract.
Whether you’re a startup business or a seasoned company managing dozens of suppliers, any breach is serious and potentially costly. Understanding what to do when a deal falls apart and you’re left high and dry is essential. In this blog, we’ll walk you through a breach of contract and some tools at your disposal to remedy the situation. It can only be a high-level overview of steps you might want to consider to protect your business. It should not be read as formal legal advice, and we recommend consulting commercial lawyers if you have specific concerns.
What is a Breach of Contract?
Under UK law, a breach of contract happens when one party fails to fulfil their side of a legally binding agreement. Failure can look different depending on the situation, but breaches typically fall within one of three categories.
- Minor Breaches: The term ‘minor’ is open to interpretation, of course, but it usually refers to a breach of one or two elements of the contract. It may be that part of a contract hasn’t been met, a slight delay occurs, or the product isn’t quite as advertised, but the core deliverables of the agreement remain intact. Minor breaches can generally be solved by open communication and negotiation.
- Material Breach: A material breach describes a significant failure at the heart of the agreement that leaves the purchaser seriously disadvantaged. It is often a material breach that gives grounds for a breach of contract claim.
- Anticipatory Breach: An anticipatory breach looks into the future. If one party knows that a deadline is to be missed, a product will underperform, or an obligation will not be met, they can make an anticipatory breach claim based on their ability to perceive what’s coming.
Legal Remedies for a Breach of Contract
Contract law offers several remedies to help put things right if things go wrong. These legal responses can succeed on two levels. Firstly, they can use the law to give the purchaser the expected outcome. If that’s not possible, they can compensate the injured party for the loss and inconvenience.
The most common remedy is compensatory damages, whereby the party responsible for the contract breach covers the losses caused directly by the breach. This provides a monetary solution, at least. Consequential damages also cover additional indirect losses caused by the breach, such as a reduction in profit or additional running costs.
Some contracts pre-handle breaches with pre-determined damages. Known as liquidated damages, these take the form of pre-agreed amounts of compensation paid when specific breaches occur. Liquidated damages for late delivery, for example, might be expressed in daily, weekly or monthly values that add up the longer the delay. As they’re agreed upon when a contract is signed, liquidated damages often avoid disputes about compensation values when a breach is identified.
Other legal remedies include Specific Performance court action. A Specific Performance action compels the party responsible for a breach to carry out their obligations as promised. Sometimes, if a contract is viewed as poorly drafted, misleading or signed under duress, it can be rescinded. In the case of rescission, the contract is cancelled, and both parties are restored to a pre-contract state of affairs.
The final legal avenue for a breach of contract is a Court Injunction. This serious, often costly, course of action heavily penalises an at-fault party and prevents further damage.
If any of these outcomes are looming on the horizon for your business, it might be time to speak to breach of contract solicitors or lawyers. They can provide advice on navigating your options.
Steps to Take When a Contract is Breached
Are you concerned about a breach of contract? It is perfectly normal to feel a little trepidation but fear not. We have prepared a list of practical steps you can take to tackle your concerns head-on.
1. Review the Contract
Before panicking, it is worth digging out the original signed contract document and reading it in cold, dispassionate detail. The ideal way to start is to adopt an analytical approach to identifying which clause or clauses haven’t been met. This will help you decide if you are facing a minor or material breach or dealing with an anticipatory issue. Check for other relevant details, such as liquidated damages or references to dispute arbitration or mediation steps.
2. Communicate With The Other Party
It is undoubtedly best for two parties in a contested contract to begin by simply speaking to each other. A breach may be a misunderstanding that can be cleared up without resorting to legal discourse. Addressing a problem calmly and professionally is typically the best route to a satisfactory outcome.
3. Send a Legal Notice
If the second step doesn’t lead to agreement, it’s probably time to get formal. A letter confirming a breach of contract, outlining the problem, and advising the supplier of potential damages sought is the first official step. Once the letter has been sent, the issue is raised from a complaint to a formal contractual legal matter.
4. Seek Mediation or Arbitration
Immediately consulting lawyers and preparing for litigation isn’t always the answer. Alternative Dispute Resolution (ADR) options can help both parties reach a fair outcome before resorting to the courts. Many ADR schemes are available. Most follow three steps: conciliation, mediation, and arbitration. Some industries even have independent ombudsman schemes that provide an alternative to the courts.
5. Take Legal Action if Necessary
If all else fails, you might be forced to consider suing for breach of contract. This can be a county court claim, a high court case or, in employment matters, a breach of contract employment tribunal. In some cases, the threat of court action might encourage parties to settle for a financial deal. A breach of contract settlement agreement compensating the aggrieved party without resorting to combative litigation is often considered a good result.
Preventing Contract Disputes
While not every dispute is avoidable, many disputes involving breach of contract can be prevented with a little proactive effort from buyers. The following can help you prevent problems and disagreements;
Clear Contracts: Poorly written, vague and obtuse clauses can lead to misunderstandings and disputes. Contracts and service agreements should be fair, concise and easily read, with little or no opportunity for misinterpretation or misdirection. If a supplier asks you to sign a contract that isn’t clear, refuse and ask them for clarification.
Understand Business Law: Nobody expects you to match a legally qualified professional, but a brief understanding of commercial legal principles can help prevent contract breaches. Do clauses make sense? Are they enforceable? Are you being treated fairly?
Legal Review: Having a legal professional review key contracts to flag potential risks is a good use of resources. It may seem costly in the short term, but having a watertight contract backed with legal opinion might well pay dividends if a supplier ends up in breach of that contract. Engaging with breach of contract lawyers early in the process isn’t overkill—it’s just good business sense.
Conversation: It’s easy to forget contractural details if you’re embarking on a new business relationship or starting an exciting new project, but discussing contractural matters openly and honestly is vital. All parties must understand what they’re agreeing to before they sign on the dotted line. It influences everything that happens afterwards.
What To Do Next?
IContract failures are not always the result of bad intentions or underhand business practices. Sometimes, people and organisations fail to deliver what you expect. There are a multirude of reasons things can go awry. Fortunately, contract law exists to protect your interests on such occasions.
At Jamieson Law, our team of friendly, expert breach of contract solicitors are here to provide practical, jargon-free legal advice to businesses like yours. We can help handle breaches of employment contracts, breach of contract lawsuits, or, if you’ve gone past that, negotiating a breach of contract settlement agreement.
Don’t wait until you’re knee-deep in a dispute to seek help. Contact Jamieson Law for contract dispute support. We can help you ensure contracts are your business’s best friend—not its biggest headache.
FAQs
Depending on the details of your case, you can pursue compensatory, consequential or liquidated damages. You can also ask the courts to enforce it or rescind it and start again. Before reaching litigation, however, many businesses choose Alternative Dispute Resolution (ADR) as a first port of call.
To prove breach of contract, you’ll need to produce the signed agreement, evidence of failure or non-compliance, and proof of any damages or losses you have suffered or might suffer in the future.
You might be entitled to compensatory damages to cover your direct losses, consequential damages to cover indirect losses, or pre-agreed liquidated damages outlined in the contract itself. The details will depend on the case.
We would recommend getting legal advice as soon as a dispute arises. Early engagement will prevent escalation and, ultimately, save costs down the line.
