Contractual disputes can sometimes arise in transactions between two or more businesses; contracts between businesses and consumers; or agreements between friends and family members. Contract law is a vast area, and each case will depend on its own facts.
While this article seeks to give a very basic summary of the key elements in contractual claims. It is important that you seek legal advice if you are unsure about any part of a contract which you are considering entering into; one which has already been agreed upon; or one which has been varied, breached or terminated, as there will different options available to you depending on the circumstances.
(For information regarding claims for breaches of employment contracts (some of which can be brought as civil claims in the County Court, rather than in the Employment Tribunal), please refer to our Employment Law pages which can be found here.)
Contract Terms
A contract can comprise both express and implied terms.
Express terms:
Are those which have been expressly agreed between the parties, whether orally, in writing, or as a mixture of both.
Implied terms:
Are those implied into the contract by a court?
When will a court intervene in Contractual Disputes?
While a court will generally not interfere with the express terms agreed, it is sometimes necessary for it to do so, in order to fill gaps in a contract where the true intentions of the parties are not reflected in the drafting. This can be done by reference to a particular custom or practice, for example for a specific trade; a previous course of dealings between the parties; the intention of the parties at the time the contract was entered into; common law (historical precedent); or statute. An example of terms implied by statute can be found in Consumer Protection legislation, which incorporates terms into contracts between commercial entities and consumers, providing the consumer with additional rights when purchasing goods or services.
Legislation such as the Unfair Contract Terms Act 1977 (“UCTA”), can prevent a party from enforcing certain unreasonable terms, particularly those which purport to exclude a party’s liability. A term purporting to exclude liability for death or personal injury due to negligence, for example, would be rendered unenforceable under UCTA.
How can T G Baynes help?
It is important when negotiating a contract to ensure that the intentions of both parties are clearly set out, to avoid disputes arising. Sometimes problems can occur between parties, to commercial contracts, for example, when each party seeks to rely upon a conflicting set of standard terms of business. This is often referred to as the “battle of the forms” and can result in one party being unable to enforce its own standard business terms. In such situation, the technicalities of how the contract was formed will be a factor in determining the position. It is therefore important that care is taken from the outset. If you have any concerns over the terms of a contract you have entered into or are about to enter into then, please contact us and one of our solicitors will be happy to help. For company’s we can also advise on the types of procedures you may wish to adopt to limit contractual disputes. We can also assist with drafting your business terms and conditions to ensure that maximum protection is afforded to you and your business, whilst at the same time ensuring compatibility with relevant legislation, for example, the Late Payment of Commercial Debts (Interest) Act 1998. For individuals, we can advise on your consumer rights and also the validity or not of agreements entered into between friends and family members.
Breach of Contract
Breach of contract is a cause of action which arises when either one or several parties to a contract fail to perform their obligations under it.
Certain terms in a contract will be deemed more important than others and the options available to a non-breaching party will vary depending on the type of term that has been breached. The level of importance to a term may be expressly defined in the contract, or if not it will be determined by a court on the facts of each case.
Generally, breach of terms defined as, or determined by the court to be “conditions” will usually give the non-breaching party the right to either terminate the contract (thus ending the future obligations of all parties) or the right to affirm it, in other words to accept the breach and to continue with the contract anyway. On the other hand, the breach of a term defined as, or determined by the court to be a “warranty”, will not entitle the non-breaching party to terminate. Generally, minor breaches of contract, in which no losses are suffered, are unlikely to result in an award being available to the non-breaching party.
If a party elects to affirm a contract, which has been breached, it may then lose its right to terminate so care should be taken before any decision is made. Affirmation can be conveyed in writing; by words spoken; by a party’s actions; or even by a failure to act or terminate within a reasonable period of time. If a party elects to terminate a contract, then it is important first of all to consult the original contract to see if there are any specific termination provisions, in order to ensure that the right to terminate has in fact arisen. In all cases, the non-breaching party will need to consider which option is more practical or cost-effective in their particular circumstances.
As an alternative to affirmation or termination, the parties might agree to vary the contract in order to reflect any change in circumstances. The original contract might contain a variation clause setting out the circumstances in which it can be varied. In any event, any variation should be agreed and documented in writing.
In every case, care should be taken before any step is taken and advice should be sought on your individual circumstances. If you think that you have breached the terms of a contract, or are likely to, or if you believe another party to the contract has done so, then please contact us for further advice.
Remedies
There are various options available to parties when a contract is breached and not all need to result in court action. However, if a resolution cannot be reached and a successful claim is brought then there are various remedies available to the successful party.
In all cases it is necessary for the non-breaching party to show that the breach of contract is the reason for the loss suffered and that such loss is not “too remote” or in other words, too far removed from the breaching party’s action(s) or omission(s).
Damages
This is the primary remedy available to a party in breach of contract claims.
The general purpose of damages is to compensate the non-breaching party and to place them into the position they would have been had the contract been performed.
In most cases, damages are awarded to compensate for financial loss and are not available for loss of amenity or enjoyment, or distress caused. There are however some exceptions to the general rule and in certain cases, such as certain holiday claims, damages for distress and/or loss of enjoyment (non-pecuniary damages) have been recovered. It is rare for non-pecuniary damages to be available in commercial contracts.
In some contracts, damages can be agreed between the parties in advance and will be specifically set out in the contract. These are known as liquidated damages. This is sometimes favoured in commercial contracts as an attempt to limit future disputes. Care should be taken in the drafting of a liquidated damages clause, however, to ensure that the provision does not amount to a penalty, which would generally not be enforceable.
Non liquidated damages, in other words, all damages other than liquidated damages will be determined by the court on an assessment of the facts of each case. In all cases, it is for the Claimant to prove the losses they have suffered and that those have been caused by the Defendant’s breach of contract.
There are various factors that will affect a party’s claim for damages and so it is important that you seek legal advice upon the facts specific to you.
Specific Performance
In certain circumstances, a monetary award is simply not a sufficient remedy. If that is the case, the court has the power to grant an award of specific performance. Essentially this is an order compelling a party to perform its contractual obligations. Such an award is at the discretion of the court and is not a remedy automatically available to a party. It is unlikely to be granted if to do so would create a great hardship to a party or would require constant monitoring by the court. An award of specific performance is not generally allowed in relation to personal services.
Injunctions
Injunctions can be both mandatory (ie compelling a party to do something) or prohibitory (preventing a party from doing something). They are usually only available where no other form of remedy is suitable.
They may be used for example to protect the confidential information of a business or perhaps to enforce a restrictive covenant.
Rescission
Rescission is a remedy which provides for the contract to be set aside, the purpose being to restore the parties to their pre-contractual positions (as if the contract had never existed). It is generally only available if there has been a misrepresentation, undue influence, duress or mental incapacity by one or more parties at the time the contract was entered into, so it is necessary in such cases to look right back to the formation of the contract itself. Rescission has the effect of reversing whatever performance has taken place by any party, so as to restore the parties to their pre-contractual positions.
Factors affecting a party’s right to a remedy
In all cases, a delay in seeking a remedy could prejudice a party’s prospects and so it is important to seek legal advice immediately if you think there has been a breach of contract. In any event, the Limitation Act 1980 stipulates that any breach of contract claim must be brought within 6 years of the date that the breach occurred. This limit is extended to 12 years in the case of deeds.
Mitigation is also a factor which a court will consider when assessing a party’s award and generally, a non-breaching party will not be able to recover losses which he might have avoided by taking reasonable steps.