Friday December 2, 2022
Breach of Contract Claims
When one party to a valid contract is not complying with a particular term, its conduct may amount to a breach of the contract. When such a breach occurs, the innocent party is entitled to bring a claim in relation to the breach and seek compensation – usually in the form of damages.
The burden is on the claimant to show, on the balance of probabilities, that there has been a breach of the contract that the breach has caused the claimant loss. Before bringing a breach of contract claim, the claimant should comply with the applicable pre-action protocols, annexed to the CPR.
Termination for breach
A breach of contract does not automatically entitle the non-breaching party to terminate the contract. A repudiatory breach however, is a breach of contract that allows the non-breaching party to treat the contract as having come to at an end. Parties are also entitled to explicitly state that breach of a term results in termination, even if that right would not be provided under common law.
It is for the non-breaching party to elect whether it will accept the breach and treat the contract as terminated or affirm the contract and require continued performance.
Although the right to terminate a contract is not generally subject to a duty of good faith, the Courts have recently indicated that it may be arguable in certain cases that a termination right is subject to such an implied limit. It has been held by the Courts that a commercial contract for services that governed a relationship akin to employment was subject to an implied general duty of good faith, which affected the exercise of all termination rights.
An anticipatory breach is where one party indicates, either by words or conduct, that it will not perform all or some of its obligations under the contract, such that the result of its performance will be substantially different from the requirements of the contract. If the anticipated breach would be a repudiatory breach (and it would be for the claimant to prove this), the non-breaching party is immediately entitled to terminate – without waiting for actual performance or breach.
The aggrieved party does not automatically have to terminate the contract; it is also entitled to wait until the time fixed for performance in the hope that the other party will perform their contractual obligations or affirm the contract, if possible performing its own part of the contract and thereby claiming the contract price from the other party.
To bring a breach of contract claim, the non-breaching party must show that there is sufficient causation between the breach and the loss it has suffered. The breach must be the effective or dominant cause of a loss.
Causation may be complicated by a third party’s intervening act or other event. If there is such an act or event between the breach of contract and the harm suffered that ‘breaks the chain of causation’, the Court may hold the party in breach not liable for the loss.