Hayley Evans, senior associate within the JMW Commercial Litigation team, explains the four main types of breach of contract, how to navigate a claim and the legal remedies available
A breach of contract occurs when a party to a legally binding agreement fails to perform their obligations as set out in the contract, whether through the non-payment of sums due, a failure to deliver goods on time, missed project deadlines or other non-performance. Such conduct amounts to a deviation from the agreed terms and an innocent party can bring the matter before the court to seek compensatory remedies.
Common types of breach
There are four main types of breach of contract:
- Material breach is a significant breach that goes to the central purpose of the agreement, entitling the innocent party to terminate the contract and claim damages for losses suffered as a result
- Minor breach involves a breach of a contractual term that does not affect the overall performance of the contract. The main obligations of the contract are largely fulfilled, but not entirely, usually resulting in a claim for damages for any loss suffered as a result. Minor breaches do not usually warrant termination
- Anticipatory breach occurs where a party communicates, through words or actions, that they will not perform their obligations before the agreed time for performance is due. This type of non-performance can amount to repudiation. Where repudiation occurs, the innocent party must decide whether to accept it, bringing an end to the contract and the option to pursue damages, or to affirm the contract and insist on performance
- Repudiatory breach is a severe and fundamental breach that goes to the root of the contract and demonstrates an intention by one party not to be bound by the contract, allowing the innocent party the right to terminate and claim damages. For example, a service provider might inform a client that they will deliver only part of the contracted services and have no intention of completing the remainder. Such refusal amounts to a repudiatory breach
Navigating breach of contract claims
What an innocent party can do in response to a breach is often determined by a combination of both specific contractual provisions and common law. It is important to first look at the contract to identify any provisions that deal with breach for example, the service of notices of breach, remedy and termination. If these provisions exist, it is important they are followed.
It does not automatically follow that every breach of contract causes the parties to be in conflict, and while some breaches will inevitably cause tension and sometimes result in litigation, others can be discussed between the parties and a practical resolution found which helps to maintain the parties’ commercial relationship.
Where a resolution is not achievable, an innocent party who wishes to pursue a claim for breach of contract must first consider any pre-litigation steps such as sending a fully compliant Letter Before Claim to the defaulting party. The innocent party will need to demonstrate that a valid contract existed between the parties and show how the defaulting party has failed to meet their obligations.
The simplest way to prove that a contract exists is to have a written document that is signed by both parties. It is possible to enforce an oral contract, but these are inherently more difficult to prove because they rely heavily on memory and differing recollections of the terms agreed.
If litigation is commenced, a court will review the role and responsibilities of each party to determine whether a breach has occurred. The court will assess whether there was a legal reason for the breach i.e. a defendant might claim the contract was fraudulent because the claimant either misrepresented or concealed material facts. The defendant may also argue that the contract was signed under duress. In other situations, there may have been errors made by both parties that contributed to the breach, complicating the question of liability.
Damages and legal remedies
The principal remedy in English law for breach of contract is an award of damages and, in some circumstances, the innocent party may also have a right to terminate the contract. The overarching aim of any breach of contract claim is to ensure the innocent party is left in the same economic position that they would have been had no breach occurred.
Damages can take many forms such as costs the innocent party has been put to because of the other party’s non-performance, or liabilities the innocent party has incurred towards third parties (that would not otherwise occur but for the breach), and any profits or revenue that have been lost.
It is for the innocent party to prove its loss. The first step is to identify the loss suffered. Once identified, another key consideration is the date from which damages are to be calculated. The general rule is that damages are assessed at the date of the breach save where justice requires a departure from that date. This may be very simple in straight forward cases but in more complex commercial scenarios, assessment of loss can be more complicated.
When assessing the level of any damages, a court will always have regard to whether a claimant has mitigated its loss, i.e. have they sought to avoid or reduce their loss or have they acted unreasonably so as to increase their loss.
A clear understanding of these contract law principles can assist parties in navigating disputes that arise and how to resolve them. Always seek the advice of an experienced lawyer.
