UK: Breach of Contract - What Next?

Last Updated: 20 October 1999

By Charles Lloyd

One of the questions most commonly asked by our clients is what steps they are entitled to take when they discover a breach of contract.

In some situations, the answer to that question may give rise to complex questions of law. However, I attempt below to simplify the answer and highlight some of the general principles which are often applied.

To decide what options are open to you as an innocent party whose contract has been breached, first consider which terms of the contract have been broken and the gravity/seriousness of those breaches in the context of the contract as a whole. The nature of the breach is of crucial importance and will determine the remedies available to you.

If the breach is extremely serious and goes to the very root of the contract (for example, total non-delivery of contract goods) the law allows the innocent party either to bring the whole contract to an end or to affirm the whole contract so that both sides may carry on with further performance. (This second option is of limited importance, as in practice it is only in rare situations that the innocent party will be able to insist on further performance by the contract breaker). In both situations the innocent party will also be entitled to claim damages for breach.

If the breach is less serious (for example, delivery of contract goods, only a small number of which are damaged) the law does not allow the innocent party to bring the contract to an early end. Instead, the innocent party's remedy will be limited to claiming damages.

In some circumstances it may be possible to seek an order from the court for specific performance of the contract compelling the party at fault to comply with the contract/ perform his part of the contract (for example, when the subject matter of the contract is unique, such as the purchase of a particular house).

The next stage is usually to quantify the amount you will be entitled to recover as damages. Damages are awarded by the court to compensate you for your loss - no more and no less. The general principle for assessing damages for a breach of contract is that the innocent party will be awarded the sum of money which will put him into the same position he would have been in "if the contract had been performed".

There are a number of rules which limit the amount recoverable as damages. All of those rules are aimed at reaching the amount which fulfils the general principle referred to above. The rules which are commonly applied to limit the amount of damages claimed are the following:-

  • Causation: The breach of contract must have "caused" the loss for which damages are claimed.
  • Remoteness: The losses claimed must not be too remote from the breach. In practical terms this means that the losses must arise naturally from the breach or be in the contemplation of the parties at the time the contract is made.
  • Mitigation: Damages will not be awarded for losses which the innocent party could have avoided by taking reasonable steps. The innocent party is under a duty to mitigate its loss.

It is of course necessary to be able to produce evidence to prove the losses which the innocent party has suffered. In the case of a claim for loss of profits this evidence may take the form of projections and forecasts produced by an accountant.

For more information about remedies for breach of contract and the quantification of damages please contact Charles Lloyd.

This note is intended to provide general information about a recent development which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.

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