When a contract is breached, one party fails to fulfil their obligations as outlined in the legally binding agreement. Breach of contract consequences can have both legal and costly implications for both individuals and businesses.
However, a lot of businesses aren't clear on what happens if a contract is breached in the UK and the steps to take. In this article, we'll deep dive into the full process with insight into the legal remedies for breach of contract. We'll cover:
How to prove a breach of contract
The different types of breaches
The legal consequences
The remedies available to the injured party
The obligations the party must follow
What is a Breach of Contract?
A breach of contract occurs when two parties have legally agreed to a particular obligation and one then does not fulfil their part of the agreement. If the individual or business does not undertake their obligations as specified in the agreement without a legitimate legal excuse, this could be classed as a breach of contract.
Common examples of breach of contract include:
Not completing a job that was legally agreed to in the contract
Failing to deliver goods as agreed in the contract within the set terms
Producing agreed work at a low-quality standard
Not performing the agreed work in the set timescales
Refusing to pay for services that have been undertaken
Breaking a clause in the contract
Terminating the contract such as a dismissal
Why Are Contracts Important?
Contracts are an important part of business transactions and personal agreements. They help outline exactly what is expected of each party in a written format. Plus, they help to minimise risks by offering trust, financial security and legal protection. During contract drafting, you should ensure that all contracts clearly state the responsibilities of each party including the terms of the agreement.
Types of Contract Breaches in the UK
In the UK, there are four key types of contract breaches. These include:
1. Minor Breach
A minor breach is where one party fails to deliver their part of their obligations. With a minor breach, most of the core elements are undertaken. However, there will be an obligation they have not fully met.
2. Material Breach
A material breach is a more serious breach where one party fails in their agreement which affects the contract’s outcome. The party may not complete the specific task or offer the correct value. These can lead to a breach of contract consequences with legal remedies needed to take place.
3. Fundamental Breach
A fundamental breach is where one of the parties makes a severe breach of contract. It may undermine the entire purpose of the contract such as the work is not completed at all. Its severity will mean that no solution can be had to resolve the problem. The contract will be legally terminated and the party will seek legal advice.
4. Anticipatory Breach
An anticipatory breach is when one of the parties informs the other that they will not be able to deliver on their terms of the contract. This tends to be before the deadline and could be part or all of the contract.
What Are The Consequences of a Breach of Contract in the UK?
The consequences of a contract breach will depend on the severity of the breach. These might include:
Termination of the Contract
The injured party may decide to terminate the contract. Here are some of the reasons in which they can terminate the contract:
If the breach is severe, this can release them from their obligations under the agreement.
If the contract has clear terms on termination and the conditions have been met
If the termination is protected legally and will not cause counterclaims.
Damages
The injured party can take the steps of claiming damages when a breach of contract does occur:
They can claim compensatory damages which can help to cover financial losses if the other party has not fulfilled their contract and it’s caused a loss of profit.
They can also claim consequential damages for any indirect losses that may have occurred which have caused them a loss of profit.
They also can claim liquidated damages if this was specified in the contract. This would be a particular amount of compensation money that was agreed upon by both parties.
Specific Performance
The court may order the party that has breached the contract to fulfil their obligations under the contract. This would be instead of paying the damages and occurs if monetary compensation is insufficient.
Injunctions
The injured party may seek an injunction to prevent the breaching party from continuing their actions. An injunction will enforce the terms of the agreement and will prevent the party from taking particular actions.
It can also force them to comply with the terms of the contract and can stop contract breach damages UK.
How to Prove a Breach of Contract
Proving a breach of contract typically includes three key elements: proving the existence of the contract, how it was breached, and the loss suffered as a result of the breach.
1. Proof of a Valid Contract
To prove that the contract has been breached, you need to first prove the existence of a valid, written commercial contract:
Prove the offer between one party to another.
Show acceptance from both parties.
You need to show that both parties have provided consideration.
Both parties need to show they have the legal capacity
2. Proof of Breach of Obligation
You will need to prove that the other party failed to fulfil their contractual obligations:
Look at the terms that were in the contract including any obligations that should have been met.
Gather any evidence including documents and correspondence between both parties.
Clearly show that part of the contract was breached
A written statement from witnesses who can give testimony on what was breached
You may need to bring in experts in that field who can support the claim.
3. Proof of Damages or Harm
You will need to prove that damages or harm have taken place to prove a breach of contract. The injured party will have to prove any financial harm they have incurred. They need direct damage from the breach of contract and evidence of the losses financially.
Legal Remedies for Breach of Contract
The legal remedies for breach of contract will depend on the severity of the breach. Awarding damages is one of the most common remedies, and these can be split into different categories:
Compensatory Damages
Compensatory damages can help to clear any losses that have been caused because of the breach. They aim to put the business or individual in the position they would have been in if the breach had not occurred. Proof does need to be shown in this instance.
Consequential Damages
Consequential damages are a good idea to help cover losses that may have been incurred because of the breach. They may not have been directly caused by the breach, but have resulted in losses that can be proved.
Liquidated Damages
When a contract is drawn, there may be clauses in the contract which are agreed by both parties. This fixed amount of damages would then need to be paid if a breach did occur.
Nominal Damages
Nominal damages occur when a breach of contract has occurred but no significant financial loss has been suffered. These damages occur when the proof of breach of contract is in place but no financial loss has been incurred.
Challenging a Breach of Contract Claim
You can challenge a breach of contract claim as well as make a dispute.
Defences Against Breach Claims
The party that has breached the contract may claim the following:
The contract was not valid and no claim can be taken.
The breach was immaterial and it is easily fixed or not significant.
Down to unforeseen circumstances which made it impossible to fulfil the contract.
Mitigation of Damages
Your contract dispute solicitor will be able to help guide on mitigating damages. Typically, the injured party must mitigate their losses by taking these reasonable steps to reduce the financial impact of the breach:
Find alternative ways to receive the goods or complete the required action.
They should take steps to try and find a replacement contractor to cut down the loss including alternative suppliers, contractors or employees.
They should prove to the court they have acted in good faith to reduce financial impact.
Steps to Take If a Contract Is Breached
You should take the following steps if a contract is breached:
Review the contract that is in place for both parties. Both businesses and individuals should understand their rights and obligations. They should know if there is anything in the contract such as liquidated damages that they can claim. They should also look at any way to dispute resolution that is already in the contract.
They should seek legal advice to see what available options there are in place for resolving the breach. You could talk to legal advisors who can help discuss negotiation and mediation. If not, they can advise you on the legal action required.
You can consider negotiation or meditation to find a resolution with the breaching party. If it’s a minor breach, they may find a route to fix the issue. This can help to avoid costs and delays in court proceedings.
Legal and Regulatory Considerations
UK Contract Law Compliance
Both the parties involved in the contract need to comply with UK contract law. They need to legally follow the terms of the contract and ensure it stays within UK Law.
Whether it’s an employment contract or a contract between businesses, the contract has to be compliant with the law. All contracts need to consider statutory obligations which are required by law.
Court Remedies
You may decide to take legal action through the court if negotiations fail between both parties. In the case you do want to go down this route, you can file a claim in the county court of the High Court.
You will need to provide all the evidence you have gathered and proof there was a written contract, proof of the breach and the financial damages. Legal advisors can help you when it comes to taking court action under common law.
Seeking Legal Advice
You should consult with a contract law solicitor who will help to ensure that the injured party’s rights are protected by the law. They can help you with consulting about a breach of contract and will discuss you with the best course of action for recovering damages.
FAQs
What happens if someone breaches a contract in the UK?
You need to first prove that the breach has taken place. You can look at the contract to work out exactly where the breach has occurred and find the evidence required. You then can work with the other party to resolve the issue or take further legal action.
What are the legal consequences of breaching a contract?
Damages can be claimed if a breach of contract has occurred and can be proved. Legal action may take place to force the party to resolve the contract or even pay damages to the other party.
Can I terminate a contract if the other party breaches it?
If the contract has been breached significantly, the other party can request to terminate the contract.
What types of damages can I claim for a breach of contract?
You can claim compensation damages, liquidation damages or nominal damages, depending on the contract and type of contract that has been incurred.
How do I prove that a contract has been breached?
You will need to show the written contract and which part or all has been directly breached with evidence such as proof of communication.
Conclusion
Contract breaches can cause several consequences for both the breaching party and the injured party in the situation. It can be costly, especially if legal consequences do take place. In some cases, the party that has breached the contract will have to rectify the matter and undertake what was promised. In other cases, they will have to pay for any financial losses that have occurred.
You can always speak to Lawhive’s contract law experts and commercial solicitors who will give personalised advice on handling breaches. They are experts on corporate legal matters and can help both parties handle breaches and pursue legal remedies in the UK.