When someone fails to honour an agreement, the consequences can be expensive. A business might lose a valuable customer because a supplier fails to deliver, or a contractor might leave work unfinished despite having been paid. If another party has failed to meet their contractual obligations, you may be entitled to claim compensation for the losses you have suffered.
At AFG Law, our Dispute Resolution solicitors advise individuals and businesses on contractual disagreements, financial losses and potential legal claims.
However, not every breach of contract automatically entitles you to compensation. Whether you can make a successful claim depends on the terms of the agreement, what went wrong and whether the breach caused you a recoverable loss.
What is a breach of contract?
A breach of contract occurs when one party fails to fulfil an obligation under a legally binding agreement without a lawful justification. Contracts can be written, verbal or formed through the conduct of the parties, although proving the terms of an unwritten agreement can be more difficult.
Common examples include:
- A supplier failing to deliver goods as agreed
- A contractor abandoning work before completion
- A customer refusing to pay for services provided
- A business failing to meet an agreed deadline
- A party supplying goods or services that do not meet contractual requirements
- A company terminating an agreement without the contractual right to do so
The seriousness of the breach and the terms of the agreement will influence what remedies are available.
Can you claim compensation for breach of contract?
Yes, where a breach has caused a legally recoverable loss, you may be able to claim compensation through a claim for damages. The purpose of contractual damages is generally to put the innocent party, so far as money can do so, in the financial position they would have been in had the contract been properly performed.
For example, if a supplier fails to deliver materials and you have to purchase replacements at a higher price, you may be able to recover the additional reasonable cost.
However, you must usually establish that:
- A legally binding contract existed.
- The other party breached its terms.
- You suffered a loss caused by that breach.
- The loss is legally recoverable and has been properly evidenced.
Some claims may also involve nominal damages where a breach is established but no substantial financial loss is proved. Our dispute resolution solicitors can assess the agreement and advise whether pursuing a claim is worthwhile.
What compensation can you recover?
The amount recoverable depends on the nature of the agreement, the breach and the resulting loss.
Direct financial losses
These are losses arising directly from the failure to perform the contract. For example, if a contractor leaves work unfinished, you may be able to recover reasonable additional costs of completing or correcting the work.
Loss of profits
In some circumstances, businesses can recover profits they would have earned if the contract had been performed. However, lost profits must be supported by evidence and must not be too remote.
A business cannot simply claim an estimated amount without demonstrating how the breach caused the loss.
Additional expenses
You may also be able to recover reasonable expenditure incurred because of the breach, such as the cost of obtaining replacement goods or services. The recoverability of each expense will depend on the circumstances.
How are damages calculated in breach of contract claims?
How damages are calculated depends on the type of claim and the financial position the claimant would have been in had the agreement been performed.
Consider a business that agrees to purchase specialist equipment for £20,000. The supplier fails to deliver, and the business reasonably purchases equivalent equipment elsewhere for £24,000. The additional £4,000 may form the basis of a damages claim, provided the relevant legal requirements are satisfied. The calculation may also need to account for costs saved, contractual limitations and other relevant factors. Importantly, compensation is not intended to provide a financial windfall.
The court will consider whether the loss was caused by the breach, whether it was sufficiently foreseeable when the contract was made and whether reasonable steps were taken to minimise it.
Do you have to minimise your losses?
Generally, yes. A person bringing a claim is expected to take reasonable steps to mitigate losses arising from a breach. For example, if a supplier fails to deliver essential materials, a business may be expected to explore reasonable alternatives rather than allow avoidable losses to increase unnecessarily.
This does not mean accepting an unreasonable substitute or taking excessive financial risks. However, losses that could reasonably have been avoided may not be recoverable. Keeping records of the steps you took following the breach can help support your claim.
Can you claim compensation if the contract limits liability?
Some contracts contain clauses that limit or exclude liability for particular losses. For example, an agreement may cap compensation at a specified amount or exclude certain categories of loss.
Whether these clauses are enforceable depends on their wording, the nature of the contract and applicable legislation, including the Unfair Contract Terms Act 1977 and, for consumer contracts, the Consumer Rights Act 2015.
A limitation clause does not automatically prevent a claim. Obtaining legal advice can help establish whether the clause applies and whether it can be relied upon.
How long do you have to bring a breach of contract claim?
In England and Wales, the usual limitation period for a straightforward contract claim is six years from when the cause of action accrues. For contracts executed as deeds, the period is generally twelve years.
However, exceptions and different rules can apply, and the limitation period does not necessarily begin when you discover the problem. It is therefore important not to delay seeking advice.
Do you have to go to court to claim compensation?
Not necessarily. Many breach of contract claims are resolved through negotiation before court proceedings become necessary.
The first step may involve reviewing the agreement, gathering evidence and sending a formal letter of claim explaining the breach and the compensation sought. The parties may then explore settlement or alternative dispute resolution, including mediation. Where an agreement cannot be reached, court proceedings may be appropriate.
The best approach depends on the value of the claim, the available evidence, the defendant’s financial position and the likely costs of pursuing it.
How can AFG Law help with a breach of contract claim?
A breach of contract can affect cash flow, commercial relationships and future business plans. However, pursuing compensation without first understanding the legal position can lead to unnecessary expense.
AFG Law’s Dispute Resolution team advises on contractual disagreements, debt recovery and other commercial dispute matters. We can review the contract, assess the alleged breach, consider the financial loss and advise on the options available.
Where appropriate, we can assist with negotiations, settlement discussions and court proceedings.
Our aim is to help clients make informed decisions about whether a claim is commercially worthwhile, taking account of the potential recovery, costs and risks.
If you believe another party has breached an agreement and caused you financial loss, contact AFG Law to discuss your circumstances and the options for recovering compensation.