Breach of contract
Gannons are highly experienced on breach of contract law but also the key commercial and tactical considerations when assessing the type of breach, the contractual rights associated, the remedies, risk and above all the commercial considerations and implications.
We are always happy to provide a scope and an estimate so you know where you stand.
What type of contract breach claim?
The starting point is to establish your objectives. Are you seeking to terminate the contract based on repudiatory breach? Or perhaps you want to take action to claim damages for the breach of contract or to force the other party to perform the contract as agreed? After analysing your objectives, we then advise whether these are realistic based on the terms of the contract, contract law and the facts.
Consequences of the breach
Contracts are generally drafted so that some clauses clearly state that a breach of that clause will give the other party the right to terminate the contract. Commercial contracts also often have a specific events of default and/or termination provisions.
Where such clauses exist, rights and remedies are on the face of it clear. Where a written contract is lengthy, detailed and includes clauses expressly relating to termination, this can make it harder to convince a court to imply a right to terminate for breach of a clause or defaults which are not categorised as termination events in the contract.
Where a contract does not expressly include termination rights for breach, it is generally possible to establish which are the most essential terms of the contract. Breach of such essential terms can result in the innocent party having the right to terminate for breach.
The approach used by the courts where a contract is not specific about whether the breach which has occurred results in the right to terminate is, generally, :-
• does the clause go to the root of the contract?;
• does non-compliance with the clause(s) frustrate the commercial purpose of the contract?; or
• has failure to comply with the clause deprived the other the party of substantially the whole benefit of the contract?
If the above tests are met, the innocent party is likely to have the right to terminate. Most clauses in a contract will not meet the legal threshold for termination. With those types of breach of contract the available remedy is generally the right to claim damages.
Have you waived or affirmed the breach of contract?
If you take no action or act inconsistently with an intention to enforce your legal rights after a breach of contract you may be considered to have waived the breach. The most common way this occurs is by not taking action within a reasonable period of time after the breach.
The concept of a reasonable period in turn often depends on how important the clause breached is and whether you are claiming the right to terminate the contract. If you believe you have the legal ground to terminate the contract, you may well find a court would expect you to act rapidly after finding about about the breach.
On the other hand, there are many situations where acting very hastily in seeking to terminate or claim damages for breach you may make a mistake that means you are in breach yourself.
Significance of contract variations on breach of contract situations
Contract variations can happen deliberately or almost inadvertently. This can occur in email or written communications, by alleged verbal agreements or by the conduct of the parties. Contract variations or alleged variations often arise as areas of defence or dispute with breach of contract claims.
This is why many contracts contain entire agreement clauses which state that the main written contract contains all terms agreed and any variations must be formally recorded.
So, it’s important to check whether your contract has such a clause and to consider whether any variations may have been agreed formally or informally in communications.
Breach of contract damages
For a step by step consideration of damages for breach of contract, please see our insight here.
Loss of bargain damages
It is entirely possible and in fact common for contracts to include clauses which give rights to terminate where the breach would not be significant enough to amount to a repudiatory breach at common law.
However, a common law repudiatory breach also creates the possibility to consider and possibly claim loss of bargain damages. The net effect of this is that if termination using terms of the contract is adopted rather than claiming a right to repudiate at common law, the type of damages recoverable will be more limited.
A misrepresentation is a false statement made either fraudulently, negligently or innocently which results in the other party changing it’s position as a result of the misrepresentation. The legal consequences and remedies depend on whether the misrepresentation was fraudulent, negligent or innocent. Misrepresentation claims are often difficult because of the need to demonstrate the elements described above.
Exclusion and limitation of liability clauses
The ability to limit or exclude liability in contracts depends largely on whether the contract is business to consumer, in which case there are statutory rights consumers have which will largely negate attempts to exclude or limit liability, or business to business, where there isn’t the same statutory intention.
With a detailed and comprehensive contract between businesses, it is less likely that a court will overrule exclusion or limitation of liability clauses agreed. However, this is possible, so it’s always advisable that any exclusions or limitations are proportionate and reasonable.
If you have a breach of contract claim and want to get our professional opinion on exclusion or limitation clauses, please do get in contact.
Entire agreement and non-reliance clauses
Acknowledging that the parties have not relied on representations made outside of the contract. The aim is to restrict claims to matters that have become embodied in the contract. However, for these clauses to be effective, they must be drafted carefully.
Mitigation of loss
The party bringing the claim cannot recover damages for any part of his loss which could have avoided by taking reasonable steps. This is referred to as the duty to mitigate.
The duty to mitigate – impact on claims
There are 2 aspects to the duty to mitigate, which arise after the breach has occurred. The party claiming breach of contract must take reasonable steps to minimise loss (expenses in taking these steps can also be recovered) and must not take unreasonable steps to increase the loss incurred.
Breach of contract claim? How we can help
Breach of contract claims are extremely common and unfortunately, so are expensive mistakes in dealing with them. Please do contact us if :-
- You need legal advice on whether you have a valid breach of contract claim.
- You are unsure of your legal position and want to decide on the best options following a breach of contract.
- You need lawyers for advice on the consequences of terminating a business contract.
- You need to understand your rights to claim damages or other contract breach remedies available.
- You are in a breach of contract dispute, whether as claimant or defendant.