Dealing with a breach of contract

If you manage or own a small business, you will be no stranger to the various types of contract that you engage in. They sometimes seem like a lot of hassle, but they set out the terms and obligations of your business relationship, so everyone knows where they stand. The good thing is that once you’ve agreed all the terms and signed on the dotted line, you can pretty much file the contract away and get on with life, right?

In an ideal world, that sounds great, and in the majority of cases, that’s what happens. But what if things go wrong and the other party doesn’t fulfil their part of the deal? For example, a developer agreed to have your great new business website fully functional in three months, and eight months later you’re still waiting. Let’s look into the murky world of contract breaches.

Types of Contract Breach

Lawyers consider four categories of contract breach:

• Minor – this is typically a partial breach. In the example above, the website might be up and running, but it is still buggy. You can’t sue them for failure to fulfil their part of the deal per se, but you can seek damages or force them to undertake corrective actions.
• Fundamental – this is a breach that makes it impossible to fulfil the contract. For example, the web developer turns out to have neither the knowledge or resources to create your website.
• Material – this is a flat failure to meet the contractual obligations. So to turn our example on its head, if the website is running perfectly in the stipulated timeframe but you don’t pay the web developer the agreed amount, you are in material breach.
• Anticipatory – this is the situation in which it is clear that a breach is going to occur. If eleven weeks have gone by and the developer has not even started on your website, then it’s clearly not going to be done within the agreed three months.

Proving a breach of contract

Contract law is highly procedural and logical, so to prove a breach, you need to demonstrate four fundamental things:

• There was a contract between you and the other party.
• That contract was broken.
• You suffered losses.
• The other party was responsible for those losses.

Letter before action

Before you start taking formal legal action, you need to write a letter before action. The letter needs to be professional, accurate and thorough.

Include full details of the claim, summarising the contractual agreement that exists or existed, the nature of the breach and the damages that you suffered as a result. You should also include details of any interest you are seeking.

You must provide the other party with a reasonable period of time in which to remedy the breach – 14 days is normal. Also, highlight the fact that a failure to respond or remedy the breach will mean the commencement of legal proceedings.

A well-presented letter before action can resolve a contractual dispute before anyone needs to start incurring legal costs, so it is worth taking time to get it absolutely right.