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Have you ever entered into an agreement with another party, for example for delivery of goods, provision of services or regulating business relations? If so, you will appreciate how important it is to ensure that the contractual obligations of the parties are clear, precise, and fully understood.
If unfortunately you have been a party to a contract where the other party breached the terms, you will know from experience how important it is to identify the terms breached, the extent of such breach and the particular losses that have been suffered.
Breach of contract claims can be costly, frustrating, and far from straightforward. That is why, when drafting a contract, it is so important to ensure that the terms are comprehensive and, so far as is possible, cater for all eventualities. For example, is performance of a particular obligation time critical, such as a delivery date, or just meant to be an estimated guideline?
Breach of contract claims often involve construction of words so as to give effect to their true meaning, within the context of the term that is being interpreted. The parties’ intention at the time that the contract was made is often of no relevance. The important issue will be what the contractual words actually say, and the meaning they import.
At BBS Law we can help you consider the relevant issues, and possible scenarios, that may arise when drafting a contract. We can also ensure that the wording of the contract reflects the intention of the parties, so there is no ambiguity as to what is meant should it later come to interpreting the contract following a breach. This will place you in a strong position should you need to enforce your contractual rights against the other party, and assist in enforcing the terms of the contract or claiming damages for loss suffered.
There are various forms of breach of contract including;
This is the most serious type of breach, where one party fails to perform a significant and essential obligation under the terms of the contract. The other party can then seek to terminate the contract and seek damages. For example where a party fails to supply a product that is fit for the purpose or within a specified time critical period.
In such case one party will invariably fail to comply with some of the contract terms, but without fundamentally undermining the entire contract. For example, a specified product may be supplied by a manufacturer to a retailer with a slightly different modification or packaging. Whilst this may not materially affect the use of the product it may have a bearing on marketing/sales. Whilst the other party may be able to sue for damages, they are not necessarily entitled to terminate the contract.
This will arise in a situation where one party to the contract clearly communicates through words or actions that they will not fulfil their contractual obligations in the future. The other party can then often treat the contract as breached and seek remedies.
Breaches of contract can vary in severity. At BBS Law we can advise on the appropriate legal response whilst also taking commerciality into account, for example preservation of business relationships or early resolution without excessive costs being incurred.
There are various remedies that an aggrieved party may seek following a breach of contract which can include.
This is the most common remedy for breach of contract. The damages claimed relate to the losses suffered. Such loss has to be quantified and proved. Compensatory Damages are intended to compensate the innocent party for the actual financial loss sustained and arising directly from the breach. In some cases it may be possible to claim for Consequential Damages, being damages that it was foreseeable a party would incur at the time the contract was made should there be a breach. This may not be a direct result of the breach.
If the subject matter of the contract is unique or irreplaceable, such as a rare antique or artwork, the court can be asked to order the party in breach to perform their obligations under the contract.
This remedy enables the innocent party to seek a cancellation of the contract, including their own contractual obligations, and to put the parties back into their pre contract positions.
The contract may provide a specific sum to be paid by the party in breach, which the innocent party can claim if such sum is deemed reasonable and is not in reality what is known as a penalty.
At BBS Law we can advise you of the appropriate remedies to claim in the circumstances of any particular case, or that can be claimed against you, depending on whether you are the breaching or innocent party.
We have recently successfully dealt with a breach of contract claim involving a pharmaceutical company that lost their manufacturing licence during the development of our client’s drug product. The issue was whether the pharmaceutical company had completed the product development, under the specific terms of the development contract, at the time it lost its manufacturing licence. Our client claimed damages, based on the fact that it had to employ an alternative manufacturer to complete the development of the drug product in order to obtain a Marketing Licence for the drug product. The pharmaceutical company argued that their obligation under the contract, to manufacture a specified number of batches of the drug product, had been fulfilled. The Judge, after considering lengthy arguments on behalf of both parties over the course of a 5 day trial, came to the emphatic conclusion that the pharmaceutical company had failed to complete the development and was in breach of their contractual obligations on losing their manufacturing licence. This case illustrated the importance of having contractual terms and the difficulties that can arise in constructing the contextual meaning of the actual words used.
Our commercial litigation solicitors specialise in dealing with many contractual disputes including director disputes, commercial disputes, partnership disputes and day to day disputes that arise in various circumstances involving businesses and/or individuals. These can include claims arising from breaches of employment or other contracts by directors, and possible removal of directors. We deal with contract claims involving allegations of unfair prejudice against shareholders, particularly minority shareholders. When company directors or business partners have a dispute the shareholders agreement, board minutes and partnership agreement will often be of vital importance in determining a party’s rights. The interpretation of wording used will be fundamental to resolving a dispute. At BBS Law we can assist in drafting such documents to ensure the meaning is clear and to cover potential disputes that may arise.