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Markel Insurances

06 Aug 2020

Dealing with breach of contract claims in uncertain times

In 2016, Michael Gove infamously said that Britain had “had enough of experts”.  Whether you have had enough of them or not, economic experts are almost unanimous that the UK is heading for a recession – brought on by the combination of Covid-19 and the forthcoming end of the Brexit transition period.

Individuals and companies are more likely to breach their contractual obligations during a recession for a variety of reasons.  Whilst it is difficult to distil the law relating to breach of contract claims into anything shorter than a lengthy book, what are the key things to look out for if you think that someone has breached their contract with you? Or if you are being accused of being in breach of contract yourself?

Bringing a breach of contract claim

The starting point is always the terms of the contract itself. 

Look at this very carefully, because it is likely to be determinative of whether you have a claim and, if so, what for and how it could be pursued:

  • Who are the parties?

  • What did they agree to each do, when and how?

  • Is the contract for a fixed period?

  • Is there a form of dispute resolution specified?

  • Are there any terms limiting either or both parties’ liability?

  • Are there any particularly helpful or unhelpful terms? 

  • Could there be uncertainty about how the terms of the contract might be interpreted?

It is surprisingly common for business relationships to proceed without any written contract at all.  Even that does not necessarily prevent a breach of contract claim (although it does make it less certain), since contracts do not have to be in writing.  As long as all of the following elements are present, a contract exists:

  • Offer -  A promise by one party (the ‘offeror’) to another (the offeree) to enter into a contract on certain terms

  • Acceptance of that offer

  • Consideration - What the offeree gives in exchange for the offeror’s promise and sometimes this is nominal (e.g. £1)

  • Intention to create legal relations which is presumed in a commercial setting

  • Certainty of terms - The agreement should not lack any essential terms or be too vague for the courts to enforce

There are also other potential sources of contractual terms – whether your contract is written or not.  One of the main sources of these implied terms is statute.  For example, the Supply of Goods and Services Act 1982 implies terms into some contracts that goods will be fit for purpose and services will be supplied with reasonable care and skill.

The main remedy for a breach of contract is damages.  The aim of the courts will be to award a sum of damages that puts the ‘victim’ of the breach in the position it would have been in had the breach not occurred.  So, for example, if a homeowner and a builder contracted for an extension and the extension leaked, the homeowner would look to claim the costs of stopping the leak and repairing any damage.

Other remedies can include specific performance, where the court orders a party to fulfil its contractual promise.  The contract may also provide for certain remedies.  One common example would be liquidated damages – where parties of a (usually construction) contract agree a set weekly sum for any delay in completing a project. 

Any party considering bringing a claim for breach of contract should also consider the following practical points:

  • Has my claim expired?  Parties generally have six years to bring a claim for breach of contract, starting from the date of breach

  • Who am I claiming from?  Will they be good for the money if I successfully sue?  There may be little point suing a company in such financial difficulty that it would be unable to pay any damages awarded.  That is part of the reason why it is also important to consider whether the opponent is likely to have insurance, or whether they were any guarantees included (for example, a parent company guaranteeing the obligations of its subsidiary)

  • How?  Parties should generally follow any contractual dispute resolution mechanisms or, if none, whichever of the pre-action protocols are best suited to their dispute before going to court

  • Finally, do I have any other causes of action?  Breach of contract claims are often, for example, accompanied by a claim for negligence.

Defending a breach of contract claim

Many of the above principles and considerations are just as relevant if you are facing a breach of contract claim – they just need to be considered from the opposite perspective.

Key points for defendants will include:

  • Can the existence or terms of a contract on which the claimant is attempting to rely on be challenged?

  • Do I have a counterclaim?  For example, it is quite common for a claimant to refuse to pay invoices rendered, on the basis that the services offered were not carried out with reasonable care and skill.  If the defendant considers its services were carried out with reasonable care and skill and that it should be paid accordingly, it may be worth making a counterclaim for those unpaid fees

  • Are the losses the claimant is seeking recoverable and properly calculated?  Are they too remote (for example, a property surveyor would not be liable for all losses suffered due to a property market crash)

  • Has the claimant contributed to their losses, or failed to take steps to mitigate the loss suffered?

  • Is anyone else to blame?  For example, were the obligations allegedly breached sub-contracted to another party?

For further advice on contract claims, or disputes generally, contact Chris Burns or call us on 0371 705 4006.

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