If you are a business owner, it is likely that you have signed dozens of contracts. However, it is unlikely that things have ever gone wrong. But what happens when they do?
Just imagine: you have hired a developer to finish a component of your revolutionary app. You agreed on a term of three months, but it has been eight. The developer is refusing to continue working on the app or release the code, saying they are too busy. You are out thousands of pounds and still do not have a finished product.
Not all business relationships turn out well, and many contracts are breached. This blog post will answer three main questions:
- When is a contract breached in English law?
- What are you entitled to recover?
- What do you need to do?
Breach of contract disputes are the most common lawsuits in today’s courts and can prove particularly harmful to SMEs. Knowing your rights, legal options and potential remedies can make all the difference.
What constitutes breach?
Before taking any legal action, you need to establish with certainty that a breach of contract has occurred. A breach of contract is the failure of any party to fulfil the terms of a contract without a lawful excuse.
Not every contract term is the same. English law provides guidance on the importance of terms in a contract. An essential term without which a contract could not continue to operate is called a condition, and breach of such a term entails repudiation of the contract – meaning that it is no longer in force.
Non-essential terms are called warranties. The breach of a warrant does not lead to repudiation, but still entitles the claimant to damages.
Returning to the app development scenario, a mutually agreed upon deadline would likely be considered a condition of the contract, especially in the case where it is missed by a significant period of time.
Different forms of breach
English law recognises two forms of breach: actual breach, and anticipatory breach. Actual breach, as the name suggests is simply failing to perform the obligations as specified in the contract.
The app development scenario, for instance, is an example of actual breach: the agreed product was not delivered on time. Anticipatory breach takes place before the performance is due either by repudiation or impossibility.
English law remedies can be divided into two broad categories: damages, and alternative remedies.
Damages are monetary compensation for loss caused by the breach and operate in one of two ways. The expectation measure seeks to put the claimant in the position they would have been had the contract been carried out. The reliance measure seeks to put the claimant in the position they would have been had the contract never existed. Which approach is more favourable will depend on the specifics of every breach of contract case.
In the example of the app developer, a solicitor would weigh the worth of the work being put into developing the finished product versus the costs you have incurred waiting for development.
Alternative remedies are rarer, but one that is worth keeping in mind is specific performance. As the name suggests, the remedy involves compelling the party in breach to follow the contract to completion. This is particularly useful in contracts involving special objects (e.g.: art) the value of which is difficult to quantify.
What are your next steps?
First, you must keep in mind that, under English law, the victim of breach has the ‘duty to mitigate loss’. In a situation where you suffer from a breach of contract, you must actively take steps to prevent the breach from getting worse.
Before suing a party in breach, you can write a formal complaint called a Letter Before Action. The letter outlines your claim and should be compiled by a solicitor.
Although it is important to know your rights, facing a breach of contract can be a difficult moment for any business. The most important thing to avoid suffering additional loss is to seek immediate legal support.