What Are My Options if Another Party is in Breach of Contract in the UK?

Unfortunately, business disputes are all too common. As a business owner, there is a good chance you will face a dispute with another person, which most commonly is a breach of contract. Following a contractual breach, your business might suffer loss. Where you find another party in breach of contract, you may feel that your only option is to sue the other party in court. There are, however, other options. This article will evaluate the options available to you if another party is in breach of contract. 

What is a Breach of Contract?

Most business relations arise because the parties have entered into a contract. Common examples include:

• agreements to supply goods; 
• loans; 
• brand licensing agreements; and 
• lease agreements.

Agreements contain terms that specify the obligations each party owes the other. For instance, in an agreement to supply goods, one party pays the other in exchange for delivering products. In a loan agreement, one party gives the other a sum of cash in exchange for the other paying back the sum in the future. 

A party is in breach of contract if they do not perform their obligations under the agreement. If the other party has breached the terms of the contract, you have a legal right to enforce their obligations. 

Understanding Your Options 

If the other party is in breach of contract, the nuclear option is to go to court. This is because a court has the inherent power to order the party to pay you for the loss you suffered. Alternatively, they can require the party to honour their obligations, such as by forcing a sale of the property if the sale was part of a contract. 

Depending on the consequence of the breach, taking the party to court may be your only option. However, the courts prefer for parties to work out disputes themselves. Therefore, you should consider your alternatives before initiating court proceedings. 

It is usually a good idea to pursue other avenues before considering suing the other party. This is for a number of reasons:

• court is expensive — you will assume significant legal fees and even if you win, you may not be able to recover the fees; and
• court is time-consuming  — the court system moves slowly meaning that it often takes years to resolve your dispute in court. 

Thankfully, there are alternatives to court. The three most common alternatives are:

• informal negotiations; 
• mediation; and
• arbitration.

We will consider these in more detail. 

Informal Negotiations

Just because your counterparty has breached its obligations does not mean it may not want to fix it. Your first port of call should almost always be to reach out and ask them to fix the breach. 

They may not have intended the breach or even been aware that they were in breach. Alternatively, they may not have honoured their obligations because they felt you did not honour yours. 

By trying to establish communication upfront, you may be able to come to an understanding. 

If the consequence of the breach is minor, you may not need to seek legal advice. For instance, say you have a supply of goods agreement and your supplier notifies you they will deliver it a month late. You explain this delay will cost you £10,000 but you will accept the late delivery if they discount the price you pay accordingly. They agree. 

However, sometimes contractual obligations are complicated. A lease agreement may obligate you to keep certain parts of the building in repair (the interior) and the landlord to keep other parts in repair (the exterior). A leaky roof would imply that the landlord failed to honour its obligation, but the leak may damage the interior. By agreeing to split the costs, you may inadvertently alter the terms of the agreement, which can create future legal problems. A solicitor can advise you on the consequences of any informal negotiations. 

Mediation

Mediation is similar to simple negotiation, but it also involves hiring an independent mediator who will talk to both parties to understand where both are coming from, and in turn, help them reach a mutually agreeable settlement. It is a good way of dealing with a counterparty who is in principle open to resolution, but will not budge on their position. 

A mediator is more cost and time effective than going to court. In fact, a court will likely ask you to attempt mediation before allowing you to bring a claim. If mediation also does not work, you may want to try arbitration.

Importantly, any resolution is not legally binding. This means you may reach an agreement, but the counterparty refuses to honour it. In this case, you would need to consider alternatives. 

Arbitration

Arbitration is similar to a court in that you and your counterparty present their cases to an independent party. The independent party, called the arbitrator, makes a decision, which is binding (unlike mediation). An arbitrator is usually a specialist in their field, which makes it a great way to resolve technically complex disputes. 

Arbitration is typically more cost-effective than going to court. It also offers more privacy, as the arbitration process is not as public as a court case is. It can be more cost-effective as well, as the proceeding rules are more flexible than in court. 

Many contracts require any dispute to be settled through arbitration. If your contract has an arbitration clause, one party can compel the other to join the arbitration. If your counterparty refuses, you can ask a court to order them into arbitration. In this case, while you have involved the court, they are not ruling on the actual contract dispute. They are instead enforcing a term in the contract requiring arbitration.

That said, the initial contract does not need to have an arbitration clause for the parties to go to arbitration. You can both voluntarily agree. Likewise, if there is an arbitration clause, both parties can agree not to require the other to honour the clause. For instance, you both may opt for mediation. 

If none of these options resolves the breach of contract, you may need to consider a court claim. The court will not look favourably upon any party that does not try and engage in alternatives. Therefore, you should make a good-faith effort to pursue these alternatives. At the very least, if the other party refuses to budge, it will improve your standing when the dispute goes to court. 

If you need help with your business, our experienced dispute 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 at 0808 196 8584 or visit our membership page.

Key Takeaways

As a business owner dealing with a dispute, you may have the right to sue another party because they have breached a contract term. However, you are not obligated to do so, nor is court always the best option. Most parties resolve their disputes outside of court through various alternatives, including informal negotiations, mediation, and arbitration. These alternatives often save both parties considerable time and expenses. Likewise, the court strongly encourages parties to pursue alternatives to court proceedings. If you do not, a judge may take adverse action against you, such as lowering the amount of damages it awards. 

Frequently Asked Questions