Commercial relationships often depend on contracts that set out what each party has agreed to do. When one side fails to meet those obligations, the business on the receiving end can face financial loss and operational disruption.
This situation is commonly referred to as a breach of contract. When it happens, the affected party will often want to know whether the contract can be enforced and what remedies may be available.
The appropriate response will depend on the terms of the agreement, the seriousness of the breach and the commercial objectives of the parties involved.
What counts as a breach of contract?
A breach of contract occurs when one party fails to perform its obligations under the agreement.
This might involve failing to deliver goods, refusing to pay for services, missing contractual deadlines or providing work that does not meet the agreed standard.
Some breaches are relatively minor and may simply require correction. Others are more serious and can undermine the entire purpose of the agreement.
The wording of the contract is often critical in determining how serious the breach is and what remedies may be available.
Can the problem be resolved without court action?
In many cases, yes.
Commercial disputes are often resolved through negotiation once the parties understand the legal position. Sometimes the issue arises from a misunderstanding or a disagreement about how the contract should be interpreted.
A carefully drafted letter before action can often clarify the position and encourage the other party to resolve the matter.
Resolving disputes in this way can save time, legal costs and disruption to the business relationship.
What remedies are available for breach of contract?
If the dispute cannot be resolved informally, legal remedies may be available.
The most common remedy is a claim for damages, which aims to compensate the innocent party for the financial loss caused by the breach.
In some situations the court may also grant other forms of relief, depending on the nature of the dispute and the terms of the contract.
The appropriate remedy will depend on the specific circumstances and the objectives of the business bringing the claim.
When should legal action be considered?
Court proceedings are usually considered when negotiation has failed or when the breach has caused significant financial harm.
Before starting proceedings, it is important to assess the strength of the claim, the available evidence and the likely commercial outcome.
Many businesses find that taking early advice helps them decide whether litigation is the right approach or whether a negotiated settlement would be more effective.
