Someone Has Breached My Contract. What Are My Options in England?

You are likely to enter into many business contracts when running your business. Sometimes a legally binding agreement is in written terms, such as a mobile phone agreement, and others are automatic such as paying for an item in a shop. Most contracts your business enters into will be performed by each contracting party without any problems, but in other cases, a party may breach the contractual terms. This may be a minor or fundamental breach, and you will have to decide if the contract can survive the breaching party’s action. This article will explain your options, such as taking legal action, where there has been a breach of one of your business contracts.

Do I Have to Sue?

Where there has been a breach of one of your business contracts, avoid thinking that your only option is to sue the other party. This is because legal action, which could result in a court hearing, can be:

• lengthy;
• costly; and 
• stressful.

Instead, there are a few options available for you to try before committing to a legal claim for breach of contract against another party.

1. Informal Contact 

Before taking legal action, it is helpful to try and speak with the other party to discuss the breach of contract.

An Example

Imagine you run an online business, selling greeting cards. Your customers select their card, type out their personalised text, and you print and send the card to the nominated recipient for them. Your business orders 10,000 envelopes monthly from an envelope supplier to achieve this.

However, in one month, the supplier supplied only 2,000 envelopes and did not provide a reason for the shortfall. Your business is the innocent party here: it paid for goods it did not receive. 

If you reach out to them, you may find that they are apologetic and offer reasons for their action, such as:

• their main machine caught fire and took two weeks to repair, but it is now back in action; or
• the principal site engineer could not maintain the machinery as usual because of a sudden family bereavement, so the company had to limit their production to protect against malfunctions.

In both scenarios, the reasons are relatively minor and temporary. If the owner promises to make up the difference and deliver 18,000 envelopes next month, you may treat it as a fairly innocent one-off breach and avoid taking things further.

However, suppose the owner mentioned a longer-term issue, such as a broken machine needing to be replaced by another machine that will not arrive for three months and, therefore, has limited capacity. In that case, you may prefer to negotiate a temporary or permanent change to the original contract to reflect the changed circumstances.

2. Consider Ending the Contract

Suppose a breach of contract was not incidental or temporary, and the other party is unlikely to fulfil the contract going forward. In that case, it is a relatively fundamental breach of the initial contractual terms. You may, therefore, consider terminating the contract.  

Your business contracts should provide the circumstances in which your business can terminate it. Where the other party says it cannot continue delivering the agreed goods or services as set out in the contract, you are likely to have this option.

You will generally need to confirm the termination in writing and also provide the other party with a period before termination kicks into force which is the notice period. It is best practice to draft a termination clause into your business contracts before agreeing. Otherwise, you may have limited options when trying to terminate an agreement without an agreed process in writing.

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3. Consider a Legal Claim

If you consider termination of a business contract, you should get legal advice on whether it is in your best interests.  

One of the most critical factors is how much the compensatory damages are likely to amount to and how much it may cost in legal fees to take the other party to court. Importantly, you want to estimate whether a legal claim is commercially viable, meaning it will not cost more than the financial remedy available to bring the claim. In the example given earlier, the actual loss could be the number of orders the business needs to cancel because it does not have the envelopes to fulfil those orders quickly, which would significantly affect the company’s profit margins.

Where the breach of contract causes actual financial harm to your business to the extent that it stops it from working effectively, you could gain a significant sum in damages, making legal action a beneficial option. However, where the breach results in small-scale interruption to your business, legal action is not advisable, and you should consider other alternatives explored above.

Key Takeaways

If another party breaches a contract with your business, there are steps you can take short of pursuing legal action. As a business owner, consider whether it is more valuable to keep business relationships in play and acknowledge that issues can arise rather than automatically end the contract after a breach. 

Instead of making a legal claim, your business should first speak to the other party and attempt to come to a resolution, such as an amended contract. If that is not possible, you might consider terminating the contract. Be sure to check the termination clause of your agreement for the correct process of ending a contract. If all else fails, you might consider taking formal legal action. 

While you may not expect it, many breaches of contract situations result in the contract continuing, although potentially in an amended form. This is because, as a business owner, you are likely to want to keep business relationships in play and acknowledge that, sometimes, things do not run according to plan. You may establish that this is the case by talking to the other party about the breach of contract.

If you need help with a breach of contract, our experienced commercial contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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