How to Avoid a Breach of Contract and Protect your Position
What is a breach of contract?
A breach of contract is when the terms and conditions in a binding contract have been violated. Examples might include late or non-payment, a faulty end product or service, or failure to deliver a particular asset.
Avoiding a breach at the earliest stage is usually the best strategy
When entering into a contract, parties should ensure they understand the terms they are required to comply with.
Generally, early-stage contract compliance can be split into four main strategies:
- Clarity – ensure the wording of the language used in the contract is clear and not misleading.
- Due diligence – knowing who you are entering into a contract with is important. Running checks on the other party, appropriate to your sector and the contract at hand, can be instrumental.
- Consistent legal advice – instructing a solicitor that you can trust is imperative; a trusted legal advisor can help avoid breaches at the earliest stages.
- Realistic expectations – in a world emerging from a pandemic, we are perhaps more prepared than ever before to enter into contracts that are realistic, and can stand to hold up against external factors.
- Legality – last but not least, a contract cannot include responsibilities that are illegal. If you have to formally resolve the dispute later down the line, a court or tribunal will not uphold terms that are found to be illegal.
Tips for protecting your position in the event of a breach of contract
In the event of a breach, protecting your position is also important. The following six tips are intended as a guide for general breaches of contract – get in touch for legal advice about a specific matter.
1. Ensure that what you put in writing will not work against your interests
It might go without saying, but parties should agree to the terms that will govern their contractual relationship. In many ways, that is really the fundamental point of a contract.
It is important to ensure all the relevant terms are written down, for the best interest of both parties. In fact, there is rarely a circumstance where a party would not be in a better position than by having their relevant obligations in writing.
Note: When communicating with another party about a potential breach of contract, however, be careful when putting any admissions or concessions in writing. Anything in writing could be used as evidence by the opposing party at a later date, especially if more formal dispute resolution methods such as litigation or arbitration become necessary.
2. Be clear about what is (and what is not) legally binding
During any contract negotiations, make sure you’re clear on what exactly you and the other party are legally bound to do (or not do!).
Equally, if you are agreeing to waive a certain breach of the contract, or make a temporary change, make sure that the specifics of that agreement are clear. For example, ensure both parties are aware that a certain change is permanent, a one-off or time-limited.
Certain clauses in your contract may also be considered binding by a court even if you had not intended them as such.
For example, an agreement or clause in which you agree to arbitrate disputes (should they arise) will need to be drafted properly to ensure there is no ambiguity. This might include clarity on important aspects such as the governing law, the seat of the arbitration or the right to appeal.
3. Make sure to uphold your side of the contract
Even in the event of a breach by another party, make sure you do not give any reason for the other party to allege wrongdoing on your part!
If you cannot be alleged to be in the wrong, it might strengthen your case later down the line, making the dispute easier to resolve in your own interests.
4. Always attempt to minimise losses and keep records
The English courts do not technically impose binding obligations that require you to minimise your own losses in the event of another party’s breach. However, without doing so, you might struggle to claim your losses back at a later date.
In legal terms, this can be referred to as the duty to mitigate. Keeping organised records of losses caused by the action (or inaction) of the other party can also strengthen your claim for damages quite considerably.
It’s always worth taking legal advice in order to make informed mitigation decisions.
5. Ensure informal discussions and/or mediation are expressed ‘without prejudice’
Whilst this is an aspect of negotiation that your legal counsel will likely take care of and provide advice on, any communications to do with settling out of court should be expressed without prejudice.
As long as the court finds that the attempt to settle was genuine, communications expressed as without prejudice cannot later be relied on by the other party to weaken your case.
The idea is that parties are free to discuss settlement options in order to avoid the higher costs of litigation or arbitration. It aims to reduce the fear of any admissions being used against their own interests at a later date, should initial negotiations fail.
6. Make sure you don’t run out of time to bring a claim
Time limitations to commence dispute resolution proceedings can be listed as specific deadlines within the contract itself, or applicable statutory limitation periods (see the Limitation Act 1980). For most breaches of contract, parties typically have six years from the date of the breach in which to commence formal proceedings.
The 6-year time limitation generally applies to both litigation and arbitration proceedings. However, particularly in arbitration, time limitations can be less than six years depending on individual matters. For example, Gafta’s arbitration rules allow only a year for a claimant to serve notice to commence proceedings.
For legal advice regarding any aspect of contracts, from drafting to disputes, get in touch with Carlsons Solicitors. We have an experienced team of solicitors based in London who are ready to advise with any private or commercial contracting needs.