Breach of contract
- John Deane
- Updated: Sun, 18th Dec 2016
Our focus is on complex commercial business contracts giving rise to substantial damages. We deal with a range of business contracts such as supply or service agreements, distribution agreements, agency agreements, personal guarantees and other high value business contracts.
We handle both bringing commercial claims and defending claims.
Our breach of business contract services include:
Analysis of the case
Your chances of settlement are stronger if we are focused. Focussed means picking out the key points that will achieve success.
Wide range of business contract expertise
We handle a wide range of business contract breaches including:
- Agency agreements;
- Franchise agreements;
- Framework agreements;
- Investment agreements;
- Joint ventures;
- Licence agreements;
- Partnerships; and
- Shareholders’ agreements.
The areas we distil include:
- Establishing the facts that count and dismissing irrelevancies.
- Analysis of the categories of damages open to you.
- Obligation to mitigate the loss.
- Recovering damages.
- Opportunities for settlement out of court with a view to preserving your costs.
Establishing the facts of the business contract breach
If there has been a breach of a business contract, the first practical steps we will establish are:-
- If there is a written commercial contract what does it say?
- Is your contract a business to business arrangement or business to consumer? If the latter, whatever the contract may stipulate, it may well be overruled by statute or have terms implied into it.
- We check for evidence of any alterations to the written terms in subsequent emails, correspondence or otherwise. Everyone should be as clear as possible as to the latest agreed terms.
Variations to the business contract terms
It is not uncommon for businesses to vary the terms of a written contract. This is particularly the case for parties contracting over a period of time, e.g. licensor and licensee, and agent and distributor. We collate the email chain to see if there have been any variations to the business contract agreed or imposed during the business relationship.
Waiver of business contract
We warn you to be alive to the possibility that if you take no action you may be considered to have waived the breach. On the other hand, don’t act too hastily as you may make a mistake that means you are in breach yourself.
Fundamental breach of business contract
Different contract clauses have different implications – is the breach a fundamental breach? Does it go the very essence of the bargain? If not, your options and remedies may be different. If yes, then the remedies open to you are vast. We interpret and advise accordingly.
Chances of success in a breach of business contract claim
Whether we are acting for the business that has caused a breach of a business contract or is alleging a breach of a business contract we will need to assess the size of the claim.
Usually not black and white
In our experience most breach of business contract cases are never black and white which is why a business dispute has arisen. We apply our objective judgment to provide an honest opinion on your chances of success.
Different categories of damages
There are different categories of damages whether you are making or defending a claim for breach of business contract. The main ones are:
Which are awarded by the court to compensate for the loss suffered.
Where there may be a breach of business contract but with no loss suffered and the damages are nominal, although costs may still be awarded.
Account of profits
Here the court may award damages of profits enjoyed as a result of the breach. This remedy is only available if compensatory damages are inadequate.
In cases concerning consumer contracts, contractual claims for damages for distress, anxiety, disappointment and inconvenience have been successful, where the object of the contract was the provision of a non-monetary benefit. For example, a commercial marketing event was not up to the standard expected, and the customer, i.e. the contracting business, has suffered damage to reputation, and lost client opportunities.
This is where the parties agree the level of damages for a business contract breach and include it in the business contract agreement. Important to be aware that if a liquidated damages clause constitutes a “penalty clause”, it may be unenforceable.
The use of liquidated damages clauses in business contracts
There are various conditions to meet such as the amount of the liquidated damages must be a genuine pre-estimate of loss. A further condition is that the purpose of the liquidated damages clause should be compensatory and not a deterrent. The benefit of liquidated damages is providing a level of certainty from the outset of the commercial relationship. Liquidated damages can also be combined with default interest provisions to provide a contractual sanction against non-payment.
Calculation of the loss
We see it as important to establish at the earliest stage the likely losses recoverable if the breach of business contract claim is successful. The legal system requires proportionality in terms of legal fees. The management of the case should therefore take proportionality into context. It is likely we will need to consider whether you are better claiming for expectation loss or restitutionary loss. Our advice helps you manage your business’s cash flow.
This is the usual way to assess loss. It aims to put the party who has suffered a loss following a breach of business contract back in the position it would have been in had the contract been performed satisfactorily. On this basis there may be a claim for loss of profits, e.g. where a supplier does not provide goods on time and the consumer cannot distribute those goods to its own clients.
Damages calculated in this way are designed to put the party who has suffered loss back in the position it would have been in had the contract never been performed. These damages can only be claimed if there is good reason not to pursue a claim for expectation loss. There are bars to this relief, such as where a third party has acquired rights. The conditions are complex.
An example of a restitutionary loss would be where it is not possible to say with any certainty what the profits would have been had the contract been performed, but it is possible to say what expenditure has been incurred since the business contract was entered into.
Time of assessment of damages for breach of business contract
The general rule is that damages are assessed at the date of breach of contract. However, there are some exceptions and timing can make a big difference. We will work through timing with you.
Recovery of damages
There are many principles involved in determining what alleged losses may or may not be recoverable for breach of business contract. The approach we will take depends upon who we are acting for.
Some of the key areas we will consider include:
Remoteness and breach of contract
The loss must not be too remote to be recovered. In other words, losses must arise according to the normal events arising from the breach of contract itself or as may reasonably be supposed to have been in the contemplation of the parties at the time they made the business contract. Frustrating events do not qualify, e.g. fire, flood, explosion, or a change in the law making performance illegal. These events make performance of the contract impossible.
Causation for breach of business contract
The party bringing the claim must prove on a balance of probabilities that the breach of business contract caused the loss. The court will usually first consider what would have happened “but for” the breach. Alternatively, a court may consider the “lost chance” approach which looks at the chances of what might have happened.
Mitigation following breach of business contract
The party bringing the claim cannot recover damages for any part of his loss which he could have avoided by taking reasonable steps. This is referred to as the duty to mitigate.
The duty to mitigate following breach of business contract
There are two limbs to the duty to mitigate, which arise after the breach has occurred. The party claiming breach of contract must take reasonable steps to minimise his loss (expenses in taking these steps can also be recovered) and he must not take unreasonable steps to increase the loss incurred.
Bringing and defending claims for breach of business contract
Most businesses do not want to take the risk and costs of litigation. We help businesses in a number of ways work towards settlement of their business contract disputes. It may be necessary to proceed as if the case were heading for trial but run parallel without prejudice discussions.
In practice, most breach of contract claims are resolved out of court. But, we do have the expertise to litigate and prepare cases for trial. Showing the other side you are prepared to litigate can in itself accelerate settlement.
Bringing a claim for breach of a business contract
Depending on whether the innocent party wishes to preserve the business relationship, the first step is to issue a letter before claim. This often causes the defaulting party to listen to sensible settlement offers if its defence is weak. We calculate losses for the innocent party to ensure that the letter before claim is watertight. Once the letter before claim is issued, the defaulting party will have to reply within a set time limit. Failing a response, court action can be pursued.
Defending a claim
If you have received a letter before claim there will usually be a tight time scale for a response. We will work with you to evaluate the merits and deal with a response and defence.
We will outline the likely costs at each stage of litigation. You will know where you stand, and we do not incur costs without express approval.
Tactics for settlement of a business contract dispute
We review the business contract agreement to see if the dispute resolution provisions (if any) can work for you. We commence discussions with a view to sensible resolution usually paving the way first for negotiations to be fruitful.
Preparation for resolution – mediation
We help you prepare for resolution. Resolution can be via the parties or by way of mediation meetings. We tell you what evidence to produce, how to produce it, and provide tips on the key points to make. We advise on the use of experts and review of instructions to ensure their advice is focused. We quantify the range of offers that would be agreeable. An offer to mediate shows a willingness to preserve the business relationship, which can be commercially invaluable.
Track record in resolving breach of business contract claims
We work to avoid issues arising at all stages from drafting the business contract, negotiation of terms through to bringing and defending breach of business contract claims. Making the wrong move or decision can result in your position being prejudiced and possibly even mean that you end up in breach yourself.
Recent matters include:
- Drafting sub-contracts for a governmental body framework agreement;
- Dealing with an outsourcing agreement relating to energy supplies where allegations involving the quality of service arose;
- Settlement of damages payable under a franchising agreement for a leading retail brand where the franchisee did not abide by the contractual terms;
- Review of damages payable under a share option agreement where it was alleged the valuation of the business followed the wrong method to produce a misleading valuation and thus incurred the acquirer loss;
- Litigation against a major bank for attempting to avoid a bonus payment to one of its key traders in the OTC derivatives team who maximised returns on commodity markets;
- Claiming on behalf of a large London recruitment firm against a consultancy business who failed to deliver to the specification on time and on budget.
If there has been or is likely to be a breach of a business contract it pays to run it by us to see if we can prevent escalation. We know that any breach can be disruptive and will tell you how the disruption can be brought to an end. Once the dispute is resolved, we often work with businesses to prevent similar issues in the future. Often a quick review will save you money.
We help you at all stages from effective contractual drafting through to management of any claims arising. We offer you the experience of having acted for claimants and defendants.