It is always important to have the right contract in place for any transaction. However, no matter how good the relationship between the parties or the preparation of the paperwork, sometimes you simply cannot stop a breach of contract by the other party in the agreement.
What is a breach of contract?
A “contract” does not have to be a written document in order for it to be breached. A breach can be of a verbal, written (express) or an ‘implied’ term of a contract. A breach can occur:
- If a party refuses to perform their duties set out in the contract
- If the work carried out is defective
- Due to not paying for a service or not paying within the limits specified
- From a failure to deliver goods or services
- From being late with services without a reasonable excuse
The breaches in contract normally fall into any of four categories: minor, material, fundamental (repudiatory), and anticipatory.
A minor breach of contract
A minor (or partial) breach of contract is where, for example, a builder substitutes a part (specified within the contract) for a different part that may work just as well.
A material breach of contract
A material breach of contract is where the breach has serious consequences on the outcome of the project where a party would not have entered into the contract if they could not have guaranteed this term. For example, a builder substitutes a specified part (within the contract) for a different part that is of lesser quality and will not last as long as the part specified within the contract.
A fundamental breach of contract
A fundamental or repudiatory breach of contract (see repudiation below) is where the severity is such that the contract can be terminated instead of the innocent party seeking damages. For example, if a builder were to abandon the site where the work was to be carried out the innocent party would have to terminate the contract.
An anticipatory breach of contract
This type of breach is one where a party expressly communicates that they will not be carrying out a term or condition of the contract.
What are the remedies from a breach of contract?
If a condition of your contract has been breached, you may be able to terminate the contract by ‘repudiation’ and claim compensation for the loss you have suffered. If the breach of contract is a breach of a warranty, compensation is by damages alone.
Damages are used to put the claimant back in the position they would have been if the terms of the contract had been met as agreed.
You will be entitled to ‘liquidated damages’ if the contract specifies that an amount should be paid if the one side breaks the contract. These clauses are often found in manufacturing and building contracts, which often include penalty clauses for late completion of work.
There are two types of damages:
- Special damages – Awarded for quantifiable losses, such as loss of profits
- General damages – Awarded for unquantifiable losses, such as physical inconvenience and loss of amenity
There is no concept of ‘punitive’ damages in the UK, so compensation will only reflect the actual loss you have incurred.
A less common option for breach of contract is ‘specific performance’, in which you can obtain a Court order for the other side to carry out their contractual obligations.
How to prove a breach of contract
To sue for breach of contract, you must be able to show:
- Prove that there was a contract in existence – It would need to be proven that a legally binding contract was in place and that it had been breached.
- Prove that the other party did not perform their part of the contract satisfactorily – The terms and conditions of the contract need to be clarified and compared to what actually took place.
- Prove that you suffered a loss as a result – The innocent party must prove there was a loss because of the breach and this loss requires compensation.
It will also be expected that you have taken reasonable steps to ‘mitigate your losses’ to reduce the impact of the breach of contract. This is expressed as a ‘Duty to Mitigate’ and losses cannot be recovered if they could have been reasonably avoided. The party in breach may argue that the innocent party has failed to mitigate their loss in order to reduce damages received.
In terms of legal costs, the loser normally pays the reasonable costs of the winner, and most cases settle before they get to Court. It may also be possible to make a claim on a ‘no win, no fee’ basis.
There is a six-year limitation period for bringing a claim.
How can Nelsons help?
If you are considering taking Court action due to a breach of contract the legal costs should be weighed against the amount likely to be received in damages. If you need advice about enforcing your contractual rights, please contact Jon or another member of our expert team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form to discuss how we can help you.