Commercial contract disputes are a common issue for businesses of all sizes. When one party fails to meet its contractual obligations, it can disrupt operations, damage relationships and lead to financial loss. Knowing how to respond after a breach is essential to protecting your position and limiting further risk.
In this article, we explain what a breach of contract is, the most common causes of commercial contract disputes and the steps businesses should take once a breach occurs. We also outline how to access a free 30 minute consultation with a solicitor if you need advice tailored to your circumstances.
What is a breach of contract?
A breach of contract occurs when one party fails to perform its obligations under a legally binding agreement. This can involve failing to pay on time, not delivering goods or services as agreed or failing to meet required standards.
Not all breaches are treated the same. Some breaches are minor and can be remedied, while others are more serious and may allow the innocent party to terminate the contract. Understanding the nature of the breach is important, as it affects the remedies available.
In some cases, a breach may be so serious that it goes to the heart of the contract. This is often referred to as a repudiatory breach and can justify immediate termination, provided the correct steps are taken.
Common causes of commercial contract disputes
Many commercial contract disputes arise from payment issues. Late payment, non payment or disputes over invoicing can quickly escalate, particularly where cash flow is critical.
Disputes also commonly arise where goods or services aren’t delivered on time or don’t meet the agreed specification. Poor performance, delays or defective work can all give rise to breach of contract claims.
Another frequent source of dispute is disagreement over the interpretation of contract terms. Ambiguous wording or poorly drafted clauses can lead to different expectations about obligations, pricing or termination rights.
Termination itself can also be a cause of dispute. One party may believe it’s entitled to terminate, while the other argues that termination was wrongful, leading to further claims.
First steps after a breach
If you believe a contract has been breached, the first step is to review the contract carefully. This includes checking the relevant obligations, any notice requirements and clauses dealing with breach or termination.
It’s also important to gather evidence. This may include contracts, correspondence, invoices, delivery records or other documents showing what was agreed and how the breach occurred.
Businesses should act cautiously at this stage. Taking the wrong step, such as terminating without proper grounds or failing to follow notice provisions, can weaken your position or expose you to counterclaims.
Legal rights following a breach of contract
Where a breach has occurred, the innocent party may have several legal remedies available. The most common remedy is a claim for damages, which aims to compensate for losses suffered as a result of the breach.
In certain cases, a party may also have the right to terminate the contract. This usually applies where the breach is serious or where the contract expressly allows termination for specific breaches. Termination must be handled carefully to avoid allegations of wrongful termination.
Other remedies may include seeking an injunction to prevent further breaches or applying for specific performance, which requires the other party to fulfil their contractual obligations. These remedies are less common but may be appropriate in certain circumstances.
Time limits also apply to contract claims. Failing to act within the relevant limitation period can result in a claim being barred, so timing is an important consideration.
Resolving disputes without court action
Court proceedings aren’t always the best way to resolve a commercial contract dispute. Negotiation can often lead to a quicker and more cost effective outcome, particularly where both parties have an interest in preserving the business relationship.
Mediation is another common option. It involves an independent mediator helping the parties reach a settlement and can be particularly effective where communication has broken down.
Courts increasingly expect parties to consider alternative dispute resolution before issuing proceedings and unreasonable refusal to engage can have cost consequences later.
When formal action may be necessary
If informal resolution isn’t possible, formal action may be required. Where a contract contains an arbitration clause, disputes will usually need to be resolved through arbitration rather than the courts.
If there is no arbitration agreement, litigation may be pursued through the courts. Court proceedings can be time consuming and expensive, so it’s important to assess the risks and likely outcomes before proceeding.
Legal advice can help determine whether formal action is justified and how best to protect your position.
Protecting your commercial position
Throughout a contract dispute, it’s important to take steps to protect your commercial position. This includes mitigating losses where possible, preserving evidence and avoiding actions that could escalate the dispute unnecessarily.
Careful communication and strategic decision making can help reduce risk and improve the chances of a favourable outcome.
Managing contract disputes effectively
Commercial contract disputes can be disruptive, but they can often be managed successfully with the right approach. Understanding your rights, acting promptly and seeking advice from commercial property solicitors can help businesses navigate breaches and move forward with confidence.
Please note that this article is for informational purposes only and isn’t a substitute for legal advice. We encourage readers to contact Osbourne Pinner for case specific guidance.
Start with a free 30 minute consultation at our offices or remotely. You can speak to us on a video call or visit our offices. We are based in Harrow, Canary Wharf and Piccadilly Circus – serving clients from Hackney and Islington to Chelsea and Stratford. And if you are based in Manchester, our new North based office is close by too. Arrange your consultation by calling 0203 983 5080, emailing [email protected] or using the form below.
