How to deal with breach of contract - remedies and risks

A contract is a binding agreement between two or more parties outlining respective rights and obligations. When one party fails to fulfill their contractual duties, this is a breach of contract, potentially leading to legal consequences.

It is always important to check the terms of any written agreement in place. Many contracts have clear provisions about the consequences of specific breaches and often also include processes to be followed in the event of breach.

 It is entirely possible to have a situation where 1 party is in breach of contract but the other party then responds in the wrong way and ends up in breach of contract themselves.

Types of breach of contract

• Minor breach – a breach which is not sufficient to give the other party the right to terminate, but instead will generally result in a demand for the breach to be remedied, and potentially claim damages (see below)

• Material, fundamental or repudiatory breach - significantly impacts the contract's purpose or sometimes described as going to then heart of the contract, leading to the party not in breach having the option but not the obligation, to terminate the agreement.

• Anticipatory breach - occurs when a party declares beforehand their intention to not perform their obligations.

Remedies for breach of contract

• Termination - where the breach is a fundamental breach, the option You can terminate the contract and walk away from it.

• Specific performance -  seeking a court order demanding the other party fulfill their contractual obligations. This is not a standard remedy and is an equitable remedy, meaning it is in the court’s discretion as to whether the remedy is practicable, fair or appropriate.

• Damages – claiming compensation for the losses you have suffered due to the breach. Under English law the standard measure of damages is proven financial losses.  Claiming for emotional distress and lost opportunities is extremely difficult under English law.

• Injunction - a court order preventing the other party from continuing their breach or compelling them to take action. Injunctions are not a standard remedy, are difficult to obtain and expensive applications.

English law approach to damages

In English law, the purpose of damages is to put the innocent party in the same position they would have been in if the contract had been properly performed. The injured party must demonstrate a clear causal link between the breach and the loss suffered. Damages can only be awarded for losses that directly stemmed from the breach.

This often involves calculating the difference between the value of the promised performance and the actual value received.

In some cases where the expectation measure does not adequately compensate the injured party, the reliance measure can be used. This measures the wasted expenditure incurred by the innocent party in reliance on the contract being performed.

The injured party has a duty to take reasonable steps to minimise their losses, this is known as mitigation of loss. Failure to do so may reduce the amount of damages awarded.

Legal and Practical Considerations with breach of contract

• Evidence - gather strong evidence to support your claim, including the contract itself, communication records, and witness statements.

• Costs and time - litigation can be expensive and time-consuming. Consider alternative dispute resolution methods like mediation or arbitration for faster and potentially cheaper solutions.

• Negotiation - attempting to negotiate a settlement with the breaching party can be a cost-effective and efficient way to resolve the issue.

• Relationship – with long term or important contracts, rather than take court action after a breach, it may be better to reserve your rights and take steps to ensure that the breach does not happen in the future. In other words, preserve the ongoing contractual relationship.

Every breach of contract situation is unique, and the most suitable approach will depend on the specific circumstances. Early action, strong evidence, and seeking legal guidance can significantly impact the outcome of the situation.

Please do get in contact to discuss your contract breach situation and how we can help.