Everyone can fall victim to a breach of contract – you could be a commercial entity or an employer whose employees choose to watch the FIFA world cup instead of turning up to work!

Unfortunately, breaches of contract are commonplace in the commercial sphere. However, with the right knowledge and professional support, breach of contract, such as the non-payment of an invoice, can quickly be dealt with, protecting your cash flow and ensuring projects are not delayed.

Fashionista twins told to pay up

Last month, identical twins Tamara and Natasha Surguladze, who have dressed the likes of Cameron Diaz and Sarah Jessica Parker, were told to pay fellow designer, Jane McMillan for consultancy work she had carried out during London Fashion Week. Ms McMillian claimed for £1,761 that the Surguladze sisters had failed to pay.

Central London County Court in May ordered that the sisters’ firm, World of Taka-Naka Ltd, pay Ms Mcmillan the money owed and also cover her legal costs incurred while pursuing the debt. District Judge Worthington, ruling in Ms McMillan’s favour, said: “In the absence of any evidence from them refuting your claim, there is no reason why I shouldn’t conclude that what you are claiming for is work you have actually done and should have been paid for”.

Contractual damages

In the real world, faulty service, goods which are not delivered on time and non-payment of invoices are too often common occurrences. Often the question is not so much whether a breach of contract has occurred, but whether pursuing damages for the breach is commercially viable.

An award of damages arising out of breach of contract is designed to put the claimant back in the position they would have been had the breach not occurred. A simple example of this is illustrated by the Fashionista twins case – the damages awarded to Miss McMillan made it as though the invoices for her services had been paid.

There are six main types of damages, which may be recoverable by a claimant because of a breach of contract:

  • Damages – the majority of contract damages awards compensate financial loss suffered by the breach e.g. the sum outstanding on the invoice, costs incurred by engaging a third party or profits that the claimant has not earned
  • Repudiation – this involves bringing an end to a contract where there has been a breach of a condition
  • Rescission – this would put parties back into the position they were prior to the formation of the contract
  • Specific performance – this is an order of the court on the party to perform their contract obligation
  • Injunctions – these are court orders that a party must or must no do something
  • Restitutionary awards – awarded in exceptional circumstances and which aim to obtain from the defendant gains made by breaching the contract

The court has the discretion to award interest at such a rate that it thinks fit.

When does a breach of contract occur?

The starting point when establishing if a breach of contract has occurred is discovering whether a legally valid contract existed in the first place.

Contrary to popular belief, a valid contract does not need to be in writing. However, it is notoriously difficult to establish the agreed terms of a verbal contract. Therefore, getting a contract in writing is always considered best practice.

There are five elements to a legally valid contract; offer, acceptance, consideration, intention to create legal relations and a certainty of terms. Intention to create legal relations is generally assumed in the case of commercial agreements but not where contracts are made between family members, so this needs to be made clear at the outset.

To establish a breach of contract, the claimant must prove on the balance of probabilities that the other party failed to perform their obligations under the agreement.

If one party is relying on its standard terms and conditions, they must prove these were incorporated into the contract. This is usually done by providing evidence the other party was aware of them.

Even if a breach of contract is established, a claimant must still prove the defendant’s breach caused them to suffer damage and that the damage suffered was not too remote from the cause.

Summing up

Breaches of contract may be a normal part of business, but this does not mean you cannot recoup any losses you have suffered.

Saracens Solicitors is a multi-service law firm based in London’s West End. We have dedicated and highly experienced civil litigation team who can advise and represent you on breach of contract matters. For more information, please call our office on 020 3588 3500.

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