A legal guide to breach of contract and contract disputes

A legal guide to breach of contract and contract disputes

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Contracts are fundamental to business and the legal system. Defining the rights and obligations of the parties involved, and ensuring their interests are protected, carefully written contracts are always recommended because they provide a clear record of the agreed terms.

They are also easier to enforce should a breach of contract occur. That’s important because, no matter how good the relationship between the parties, or how robust the agreement, sometimes you simply cannot stop a breach of contract from happening.

When a contract is breached, it can be very stressful and potentially cost a lot of time and money. Sometimes, it can be tricky to establish whether a legal agreement has been breached, especially as poorly drafted contracts can be complex and frustratingly vague.

Whether you want to pursue or defend a breach of contract claim, this comprehensive breach of contract guide will help you understand the intricacies of contract disputes and what you need to do to reach a satisfactory resolution.

What constitutes a breach of contract?

A breach of contract occurs when one party fails to fulfil their obligations as specified. A contract breach can happen for any number of reasons. For example, where one party:  

  • Carries out sub-standard work
  • Refuses to perform their duties as set out in the contract 
  • Does not pay within the limits specified in the contract
  • Fails to deliver services or goods as contracted 
  • Does not perform their duties in the timescales agreed.

A breach of contract is not a criminal offence. But there are legal steps you can take to resolve the matter by liaising with experienced breach of contract solicitors.

Types of contract breaches

Contract breaches can take various forms, and they are generally categorised into the following types: minor, material, fundamental and anticipatory. How best to deal with a breach of contract depends on the category of breach and the parties involved.

  1. Minor breach of contract 
    A minor breach (also called a partial or immaterial breach) happens when one party does not fully meet their contractual obligations. The offending party may be unaware that they have caused a violation.

    A minor breach does not damage the contract beyond repair and can be simple to remedy. Nevertheless, the innocent party may seek damages for any losses experienced because of the breach.
  2. Material breach of contract
    A material breach happens when there has been a more significant violation of the contractual terms. This type of breach can have severe consequences, and one party may have received significantly less value from the contract than was agreed.

    Following a material breach, the innocent party may seek legal help to resolve the issue. Legal remedies may include suing for damages and, in some cases, terminating the contract. Open discussions and mediation can help both parties to resolve the situation before it escalates.

  3. Fundamental breach of contract
    A fundamental breach is a violation so serious that it becomes impossible for the innocent party to receive the benefits they were promised when signing up to the agreement. With the correct legal advice, the contract can be legally terminated when a fundamental breach occurs, and the innocent party can seek damages.
  4. Anticipatory breach of contract
    An anticipatory breach occurs when one party clearly states or demonstrates that they will not fulfill their contractual obligations. An anticipatory breach may apply to a specific term/condition or the complete agreement. Following an anticipatory breach, the innocent party can treat the contract as if it were already breached and seek damages and or termination.

Common breach of contract claims

Contract breaches can take various forms and cover multiple contract types, including:

  • Building contracts
  • Commercial leases
  • Contracts of sale/hire
  • Financial agreements
  • Franchise agreements
  • Employee contracts

Here are some of the most common types of contract breaches that our solicitors can help you with:

  • Non-Payment. For example, where the non-payment of goods or services, rent, loans, or any other financial obligation occurs.
  • Breach of Confidentiality. For example, where unauthorised sharing of confidential information occurs despite an explicit non-disclosure agreement or confidentiality clause. 
  • Late Performance. For example, where there has been a delay in the delivery of goods, completion of services, or another time-sensitive obligation.
  • Failure to Deliver. For example, where the agreed-upon quantity or type of goods are not delivered as arranged. 
  • Failure to Perform. For example, where the agreed services are not provided, or the quality of those services falls below what was stipulated in the contract. 
  • Quality and Performance Issues: For example, where the delivered goods or services do not meet the specified quality standards or do not perform as expected. 
  • Misrepresentation or Fraud. For example, where one party makes false representations in the formation of the contract. 
  • Repudiation. For example, when one party explicitly states or acts in a way that indicates they will not perform their contractual duties leading to an anticipatory breach of contract. 
  • Change in Terms. For example, where one party makes unilateral changes to the terms of the contract without the agreement of the other party. 
  • Wrongful Termination. When one party terminates the contract without following the agreed-upon termination procedures or without a valid reason.

How to prove a breach of contract

Proving a breach of contract typically involves demonstrating three key elements: the existence of a contract, that the contract was breached, and that a loss was suffered as a direct consequence of the breach.

  1. Proving the existence of a contract
    Proving that a legally binding contract existed is the first step in any breach of contract claim. The simplest way to prove that a contract exists is to have a written document signed by both parties. However, a contract is not always a written document, so a breach of contract can be a verbal, written or implied agreement between parties.To prove the existence of a contract, your solicitor may:
    • Provide evidence showing that an agreement was in place. This may include written agreements, correspondence, or oral agreements if they are legally valid.
    • Show that both parties gave proper consideration to the contract.
    • Confirm that all parties involved had the legal capacity to enter into the contract.
  2. Proving that the contract was breached 
    Once you have established a legally binding contract exists, your solicitor will seek evidence that it was breached. This may involve:
    • Reviewing the contract terms to establish each party’s specific obligations and duties.
    • Gathering documents, correspondence, and other evidence to establish where a breach occurred. This may include emails, written communications, invoices, receipts, and performance records.
    • Clarifying what part of the contract was breached and how.
    • Finding witnesses with firsthand knowledge of the contract and the breach, and gathering their testimony.
    • Bringing in experts with specific technical or industry knowledge to support your case.
  3. Proving that a loss was suffered as a direct consequence of the breach 
    To successfully claim damages or other legal remedies, you must prove that you suffered a loss as a direct result of the breach. To help you do this, your solicitor will:
    • Gather evidence to prove that there is a direct link between the breach and the losses incurred, and how the breach was the primary reason for the damages.
    • Calculate and provide evidence of the actual financial losses suffered as a result of the breach.
    • Where appropriate, show that you made reasonable efforts to mitigate your losses (e.g. seeking an alternative supplier).

    Once a breach has been established, your breach of contract solicitor will advise you on your legal options.

Steps you can take to avoid a breach of contract

When you enter into a contract, there is no foolproof way to prevent a breach because you cannot control the other party’s actions. But you can mitigate the risk.

The best way to avoid misunderstandings and legal disputes is to ensure that all contracts are drafted correctly and that everyone understands what they are agreeing to. Here are some steps you can take to mitigate the risks of a breach of contract:

  1. Clear and robust legal agreements 
    Drafting a precise and comprehensive contract with explicit terms, conditions, obligations, and responsibilities is the best way to reduce the chances of future misunderstandings and disputes.

    So, rather than relying on DIY or off-the-shelf templates, it pays to have your contracts drafted and reviewed by legal professionals. Doing this will also ensure that the terms are legally sound and compliant with relevant laws and regulations.

    You should also include dispute resolution clauses within your contracts to establish how both parties will deal with and resolve potential conflicts or disagreements (e.g. via mediation).

  2. Establish clear expectations 
    If your contract has vague expectations, a dispute will likely arise. To prevent this from occurring, ensure you have thorough negotiations with the other party before finalising the contract, and then clearly define performance metrics, milestones, and deadlines within the agreement.

    Establishing clear objectives and performance standards not only makes it easier to monitor progress, but also ensures that everyone is on the same page.

  3. Keep tabs on contract performance 
    Once the contract is underway, maintain open and regular communication between all parties. Continuously monitoring performance against the obligations outlined in the agreement will ensure everything is on track. Remember to keep detailed records of all correspondence, changes, and actions, which can provide valuable evidence should a dispute arise.
  4. Contract reviews 
    A contract doesn’t have to be static. Allow for flexibility by including provisions that permit reasonable amendments and changes to accommodate evolving circumstances. Regularly reviewing progress, identifying any challenges, and making any necessary contract adjustments can help keep relationships on track.

What are the legal remedies for breach of contract

If you or the other party has breached the terms of an agreement, you need to know the various legal options available. In the first instance, it pays to negotiate an amicable outcome. However, court proceedings may be necessary when a contract dispute cannot be settled this way.

Rescission involves cancelling or annulling the contract as if it never existed. By voiding the agreement, recission returns both parties to their pre-contractual positions.

Rescission is only available in specific circumstances. For example, on discovering a fundamental mistake, where misrepresentation has occurred, or other valid legal grounds. Contract rescission is a complex legal process, and restoring the parties to their pre-contractual position must be possible before it will work.

Contract rectification
Contract rectification involves correcting a written contract to reflect the true intentions of all parties. Rectification is sought when there is a mistake in the written contract. If there is a dispute about the true intentions, it is up to the party seeking rectification to establish this. Legal advice and court involvement are typically necessary to pursue contract rectification.

Specific performance
Specific performance is a powerful and effective legal remedy that ensures the parties involved adhere to their contractual commitments as initially agreed upon. Specific performance is used when monetary damages are inadequate to compensate the innocent party for the loss caused by the other party’s breach.

An injunction may also be used when damages would be inadequate following a breach of contract. A powerful tool that can swiftly enforce the terms of an agreement or prevent further harm, injunctions are used to either restrain a party from taking specific actions (prohibitory injunction/restraining order) or to compel them to perform particular actions (mandatory injunction/order).

Injunctions are granted sparingly and are subject to judicial scrutiny, so legal advice is essential.

Most contract disputes require expert help to resolve. As such, you should seek legal advice as soon as possible to establish your legal position and let the other side know what you want.

In many cases, resolution can be reached early via alternative dispute resolution (ADR) methods such as negotiation and mediation, thus saving everyone time, money, and hassle.

Damages for breach of contract

You may have the right to claim monetary damages following a breach of contract. In most cases, you can claim enough damages to put you back in the same financial position you would have been if the other party had not breached the contract.

A compensation award following a breach of contract may include various elements (depending on the specific circumstances of the breach and the terms of the contract): 

  • General or Compensatory Damages. These compensate the innocent party for any losses resulting from the breach. A claim might include any costs incurred when engaging someone else to fulfill the contract and any loss of profit due to the breach. In the UK, you cannot claim compensation for things such as stress or inconvenience after a breach of contract.
  • Punitive or Exemplary Damages. Punitive damages punish defendants whose conduct is considered grossly negligent or intentional. In the UK, punitive damages are not awarded in breach of contract cases. 
  • Interest. Interest may be added to the damages awarded to compensate the innocent party for the time value of money lost due to the breach. 

The damages you can claim will depend on your specific circumstances. Depending on what you want to achieve, we may also seek a court order to force the other side to carry out their contractual obligations.

Time limits for breach of contract claims

You have six years from the date of the breach to bring a claim for breach of contract. This timeframe is established in the Limitation Act 1980. Early legal advice can help you use this time wisely.

  • If you are accusing another party of breaching a contract, we will look at how to resolve this dispute as quickly as possible.
  • Should you be accused of breaching the terms of a contract, we can advise you on whether we believe this is the case and what your legal options are. Where a violation has occurred, a swift settlement is often in your best interests.

Can you terminate a contract for breach of contract?

A breach of contract does not automatically terminate an agreement. However, it can allow the innocent party to initiate steps to terminate (as long as the correct legal process is followed). Not all breaches of contract warrant termination. Sometimes, it is better to address less severe violations through other remedies.

When deciding whether or not to terminate a contract due to a breach, you will need to consider the following:

  • The severity of the breach. To terminate a contract following a breach, there must be a substantial and fundamental violation of the contract’s key terms.
  • Contract terms. Many contracts contain clauses that outline the conditions and procedures for termination.
  • Legal consequences. Termination of a contract can have legal consequences, and it is important to follow proper procedures to avoid counterclaims or legal disputes.

Breach of Contract – FAQs

If you are unsure if a contract has been breached, our expert commercial solicitors will clarify the situation and advise you on the actions available. Where possible, we always recommend attempting to resolve the dispute amicably through negotiations before starting court action. This can be as simple as a meeting between the parties.
A breach of contract occurs when an obligation/contractual term in a contract is not fulfilled. Quite often, even if you think a clear violation has occurred, the other side may dispute this. A solicitor can help you to establish whether there has been a breach, the seriousness of that breach, and the potential remedies available.
Damages received as compensation for a breach of contract are not usually taxable. This is because they are awarded to reimburse a financial loss rather than being a form of income or profit. However, some exceptions exist (e.g. any interest component is usually taxable). Your solicitor will ensure you fully understand the tax implications of your situation.
A material breach happens when there has been a significant violation of the key contractual terms.
A fundamental breach is a violation so serious that it becomes impossible for the innocent party to receive the benefits they were promised when signing up to the contract.
No, a breach of contract does not automatically terminate a contract. However, a breach can provide the innocent party with the option to terminate, depending on the severity and nature of the violation.
No, a breach of contract does not automatically render a contract null and void. Whether or not you can render a contract null and void following a violation depends on the actions taken by the innocent party and the legal remedies sought. Consult with your solicitor to determine the appropriate course of action in your case.
Misrepresentation happens when one party makes a false statement or representation to encourage the other party to enter into a contract. If misrepresentation is proven, the innocent party may have the right to rescind the contract. They may also be entitled to damages for losses incurred due to the misrepresentation. Misrepresentation differs from most breach of contract claims as it does not involve a failure to perform contractual obligations. Nevertheless, misrepresentation may make a contract voidable.

Do you need legal advice from breach of contract solicitors?

While you don’t necessarily need a lawyer to make a breach of contract claim, seeking legal advice is highly beneficial and advisable.

With an expert breach of contract solicitor on your side, it may be possible to resolve contract disputes quickly and cost-effectively. And you are far more likely to achieve a favourable resolution without expensive and time-consuming court proceedings.

Here to help with all your breach of contract needs, with particular expertise around complex and high value matters, please contact our breach of contract lawyers on 020 7467 3980 or complete the enquiry form on this page.