When Contracts Go Wrong: How to Handle a Breach

When one party fails to meet their contractual obligations, it can cause serious financial and operational disruption to your business. Knowing how to identify, respond to and resolve a breach of contract is essential for protecting your commercial interests.

A breach of contract occurs when one party fails to perform a term of the agreement without lawful excuse. This may include:

Not every breach is the same. The consequences depend on which type of term has been breached.

A condition is a fundamental term that goes to the heart of the contract. If a condition is breached, the innocent party can:

For example, if a supplier fails to deliver goods at all, this is likely a breach of condition.

A warranty is a less important term. If a warranty is breached, the innocent party can claim damages but cannot terminate the contract.

For example, minor defects in goods that do not prevent their use may constitute a breach of warranty only.

This is a serious breach that deprives the innocent party of substantially the whole benefit of the contract. It entitles the innocent party to treat the contract as at an end and claim damages for both the breach and the early termination.

Care must be taken before terminating. If you wrongly terminate a contract, you may be in breach yourself and face a claim for damages.

The remedies available depend on the nature of the breach and its impact.

Yes. The courts have power to remove a PR under section 50 of the Administration of Justice Act 1985. The key consideration is always the interests of the beneficiaries and the proper administration of the estate.

Damages are financial compensation for losses suffered. The aim is to put the innocent party in the position they would have been in had the contract been properly performed.

There are two main types of damages:

Some contracts include liquidated damages clauses, which specify the amount payable for certain breaches (typically late completion). These are common in construction and manufacturing contracts.

Liquidated damages clauses are enforceable if they represent a genuine pre-estimate of loss. If the clause is a penalty (designed to punish rather than compensate), the court will not enforce it.

Specific performance is a court order requiring the breaching party to fulfil their contractual obligations. This remedy is only available where damages would be inadequate compensation.

Specific performance is most commonly ordered in contracts for the sale of land or unique goods. It is rarely available for contracts for personal services or where supervision of performance would be required.

An injunction is a court order either preventing a party from doing something (prohibitory injunction) or requiring them to do something (mandatory injunction).

Injunctions are commonly used to prevent:

Like specific performance, injunctions are equitable remedies granted at the court’s discretion.

If the breach is sufficiently serious (breach of condition or repudiatory breach), the innocent party may be entitled to terminate the contract.

Termination releases both parties from future performance but does not affect rights and obligations that have already accrued. The innocent party can still claim damages for losses suffered up to the date of termination and for loss of future performance.

Rescission cancels the contract and returns both parties to their pre-contractual positions. This remedy is available for misrepresentation or where the contract was entered into by mistake or duress.

Rescission is different from termination. It treats the contract as if it never existed, whereas termination recognises the contract existed but ends it going forward.

The innocent party has a duty to take reasonable steps to mitigate (reduce) their loss. Failure to mitigate can reduce the damages recoverable.

For example, if a supplier fails to deliver goods, the buyer should attempt to source alternative goods elsewhere rather than sit back and claim for all consequential losses.

The duty to mitigate does not require the innocent party to take extraordinary steps or incur significant expense. Reasonableness is assessed based on the circumstances.

Many commercial contracts include limitation of liability clauses that cap or exclude certain types of damages. Common limitations include:

These clauses are subject to the Unfair Contract Terms Act 1977 and must satisfy a test of reasonableness. Certain liabilities (such as fraud, death or personal injury) cannot be excluded.

If you suspect a breach of contract, these steps can help protect your position:

Check the relevant clauses, including:

Retain all relevant documentation, including:

Delays can weaken your ability to enforce rights. Some contracts impose strict time limits for giving notice of breach or making claims.

Decide whether your priority is to:

The right advice can preserve business relationships and avoid costly escalation. A solicitor can advise on:

Not every breach leads to litigation. Alternative dispute resolution can often resolve disputes more quickly and cost-effectively.

Direct discussions between the parties, with or without legal representatives. This is often the fastest and cheapest route.

A neutral mediator helps the parties reach a negotiated settlement. Mediation is non-binding unless a settlement is reached.

Common in construction contracts, adjudication provides a quick interim decision that is binding until the dispute is resolved through arbitration or litigation.

If the contract includes an arbitration clause, disputes must be referred to arbitration rather than court. Arbitration provides a private, binding decision.

Court proceedings may be necessary where other methods fail. Litigation provides a binding judgment but is typically the most expensive and time-consuming option.

Contract claims are subject to limitation periods under the Limitation Act 1980:

Once the limitation period expires, you lose the right to bring a claim. It is important to seek advice promptly to avoid missing deadlines.

Probate disputes involving the removal of a PR can be highly sensitive and emotionally charged, especially when family members are involved. They often overlap with other inheritance disputes, such as claims under the Inheritance (Provision for Family and Dependants) Act 1975 or challenges to the validity of the will.

If a breach of contract is disrupting your business, our contract disputes team can help you assess your position, understand your remedies, and take effective steps to protect your interests.

Contact us on 01604 344562 (Northampton) or 01908 916096 (Milton Keynes), or email [email protected].