Understanding Breaches of Contracts

What is a breach of contract?

A breach of contract occurs when a party to a contract fails to comply with an obligation placed upon it under the contact (i.e. it is in breach of a contractual term of the contract) which may be a written contract, a verbal contract or a contract by conduct.

There are many examples of contractual terms being breached resulting in legal claims. Some of the most common are:

1. Late delivery of a product/service;
2. Defective workmanship;
3. Failure to make payment;
4. Breach of restrictive covenants;
5. Wrongful termination of a contract;
6. Breach of terms implied into a contract by statute; and
7. Breach of confidentiality.

As an example, a term within a written contract states:

“Party A must make payment of £100 to Party B by 4pm on 1 September 2024”.

If Party A fails to make payment to Party B by 4pm on 1 September 2024, Party A would likely be in breach of the aforementioned contractual term.

Types of breach

Not all terms of a contract have ubiquitous importance and not all breaches of contract have the same level of severity. As a result, a party may have different remedies available to it depending on which term of the contract is breached.

Typically the types of breach of contract are:

1. Minor breach of contract – a minor (or partial) breach of contract does not damage the contract beyond repair and is usually straightforward to remedy. As an example, if Party C agreed to supply a delivery to Party D at 9am and instead delivered at 9:01am, although Party C is likely in breach of contract, it is unlikely to cause any loss to Party B;

2. Material breach of contract – a material breach of contract may occur when there is a breach of a contractual term jeopardising the core purpose of the contract. Such a breach may lead to damages and, in some cases, the termination of the contract;

3. Fundamental/repudiatory breach of contract – a fundamental breach or repudiatory breach of contract is where the severity of the breach is of such significance that it impacts the root of the contract. Such a breach may enable the innocent party to claim damages and/or terminate the contract. As an example, if Party E promised to deliver equipment to Party F on a particular date with time being of the essence but then failed to deliver at all, that may constitute a fundamental breach of contract entitling Party F to, inter alia, claim damages and/or terminate the contract; and

4. Anticipatory breach of contract – this type of breach occurs where one party to a contract clearly demonstrates or communicates that it will not fulfil its contractual obligation(s) to the other. As a result, an innocent party may be able to claim for damages and/or terminate the contract.

Remedies for breach of contract

The common remedies for breach of contract are:

1. Damages – generally, if a breach of contract causes loss to the innocent party, the innocent party may be entitled to claim damages for those losses from the defaulting party. Damages are complex and can also include damages for loss of bargain/profits. A party that sustains losses is usually expected to mitigate its losses (i.e. if losses are being incurred that party ought to take action to stem/reduce those losses rather than allowing those losses compound);
2. Termination of the contract – an innocent party may have the right to terminate the contract following a breach of contract by the other party. Such a step must be exercised carefully. Not all breaches of contract enable the innocent party to unilaterally terminate the contract;
3. Injunctions – an injunction is an equitable remedy. It may be awarded where monetary compensation is inadequate. An injunction usually permits or prohibits a party from doing something to prevent its breach of contract or its continuing breach of contract; and
4. Specific performance – specific performance is an equitable remedy and may be used by an innocent party to compel the defaulting party to perform its contractual obligation(s) under the contract. Specific performance is typically awarded when monetary compensation is inadequate.

Steps you can take to minimise your risk

In order to take precautions and protect yourself and/or your company, legal advice should be obtained before entering into contracts (particularly those of significance). The professional drafting of a contract may protect you and/or your company against a catastrophic claim.

If a dispute has already emerged under a contract, you should seek expert legal advice immediately.

For further information on contract disputes or contracts in general, please contact me.

Disclaimer

The above is not legal advice. It is intended only as general information. Contract disputes are complex. Should you be involved in a contractual dispute it is recommended that you obtain legal advice immediately.