Almost all of us will have been affected by material shortages, but what about parties who have been unable to perform their contractual obligations because of these shortages?
A contract between two (or more) parties will
- impose certain rights and obligations on the parties and
- often contain provisions in respect of consequences of potential breaches of the contract.
A breach of contract occurs where one party has failed to fulfil (or intimates that it does not intend to fulfil, without a lawful excuse), an obligation under the contract.
There are two types of breaches:
- Material breaches (i.e., ones which go to the heart of the contract) are breaches which may be treated as repudiatory breaches by the non-breaching party, meaning that the innocent party can terminate the contract and sue the breaching party for damages.
- Immaterial breaches, although may entitle the non-breaching party to claim damages, it will not entitle them to terminate the contract.
The remedies available to the non-breaching party will either be available under contract law or under the contract agreement between those parties. Some of the most common remedies for breach of contract include: –
- Damages – these arise where the non-breaching party can demonstrate that it has suffered loss or damage because of the breach. Damages are intended to compensate the non-breaching party and restore them to the position that they would be in if it wasn’t for the breach. Where an innocent party seeks to rely on one of these remedies that party must be able to demonstrate a causal connection between the breach of contract and the loss suffered.
- Liquidated Damages – this is when parties agree to a fixed sum or formula for calculation of damages in the event of a breach. It removes some of the uncertainty that might otherwise arise if a court was asked to determine both issues of causation and value of damages.
- Interdict/Interim Interdict – this remedy has a narrower application and can only be relied upon where the breach is a continuing act or there is reasonable concern of a future breach. An example would be where two parties enter a contract of employment which prevents party 1 from contacting the employers’ customers for a period of six months from the termination date. But Party 1 contacts the ex-employers’ customers within that six-month period. In this case, the ex-employer can apply to the court for an interdict, to prevent any further contact with these customers.
- Termination – the non-breaching party may wish to consider bringing the contract to an end. A decision to exercise this remedy should be considered carefully, to avoid a situation where the party in breach asserts wrongful termination.
There are, of course, other factors to consider where non-performance is due to circumstances beyond a party’s control. In this case, parties should take into consideration any force majeure provisions within the contract, or whether the doctrine of frustration could apply.
If you have been subject to a breach of contract, or have been put on notice for a breach, then call us today on 0121 268 3208 or send us an email at email@example.com with your query and we will get back to you. We’re here to guide you through the process and help you come to a decision best suitable for your business needs.