Commercial Contract Disputes

A contract can be written or spoken. It forms a binding agreement between parties.

The majority, if not all the transactions we enter daily involve a contract. It is, therefore, no surprise that disputes arise in relation to the correct interpretation of a contract or an allegation that a term has been breached. This is more complicated when the contract is oral and normally the evidence of any agreed terms can only be ascertained from the conduct of the parties and any performance of the contract to date.

Whether a contract is oral or written, the courts are reluctant to imply terms into a contract, although if there is evidence supporting such a term the court may do so. This may also depend on the relative bargaining position of the parties.

There are instances where a term of a contract is open to alternative interpretations. The usual rule is that the drafter of the contract cannot seek to re-interpret or argue that a different effect was meant. This is known as the ‘Contra Preferentum’ rule.

Where there is a dispute or even the potential for a dispute it is important to seek advice at an early stage. Our team is partner led and are experienced in both bringing and defending a broad range of commercial contract disputes. We can advise on:-

  • Misrepresentation/omission – This is where a party enters into a contract in reliance of a false representation or where an important fact has been omitted, which had it been disclosed would have led to a party not entering into the contract or entering it on different terms
  • Fraud
  • Breach of contract – where a party fails to honour the binding terms of an agreement
  • Differences on the application of terms
  • Differences in the interpretation of terms
  • The sale of good or services
  • Distribution agreement
  • Construction contracts
  • Franchising agreements
  • Licensing agreements
  • Corporate contracts

Our solicitors are pragmatic in their approach, and we seek to ensure your objectives are met in a cost-efficient way with minimal disruption to your business.

Remedies

Remedies in contractual disputes include:

  • Damages
  • An order for specific performance of a contract
  • Injunctive relief
  • Repudiation
  • Recission

The most common remedy for breach of contract claims is damages. Contrary to common belief the purpose of damages is to compensate a party for its loss rather than punish the wrongdoer. Accordingly, the objective is to put a Claimant in the position it would have been prior to the breach. It is on the Claimant to prove its loss.

To avoid issues on costs when pursuing a claim, it is important to carry out a detailed analysis in respect of the quantum of damages at an early stage. In doing so, a Claimant must also ensure that the losses sought are not too remote and that steps have been taken to mitigate any loss. Remoteness of damage relates to the assessment of whether the losses suffered are within the Defendant’s responsibility once the breach has been established. In that regard there may be alternative claims in Negligence and Contract and in such cases, there is merit in making a claim on both basis in the alternative.

An alternative to damages is an order for specific performance. This is an order of the court requiring a party to perform its obligations under the terms of a contract. Specific performance is a discretionary remedy and is only granted once (i) it has been established that there was a valid contract that has been breached,(ii) it is possible for the Defendant to perform the acts or obligations concerned and (iii) damages would not be an appropriate remedy.

Where there has been a breach by one party, the other party can potentially accept the breach and repudiate the contract. This effectively releases the party from complying with its terms. This does not prevent a party from pursuing a claim for damages. However, not all contract breaches are repudiatory. A repudiatory breach must go to the core of the contract and, in turn, deprive the innocent party of the benefits the contract was intended to provide.

In some cases, it is possible to Rescind a contract. Recission is where the contract is set aside, and the parties are put back into the position in which they were before the contract was made. It is one of the remedies available for misrepresentation. Rescission is an equitable remedy and will not be available if one of the bars to rescission is present (such as affirmation of the contract or lapse of time).

In some circumstances, injunctive relief may be an appropriate remedy. There are two forms of injunctions: Prohibitory injunctions and Mandatory injunctions.

A Prohibitory injunction is an order that prevents a party from carrying out an act. For example, you may apply for a Prohibitory injunction to prevent someone developing a property in breach of your rights to light, or in breach of planning or if the development is causing immediate physical damage to your property.

A Mandatory injunction is an order which requires a party to carry out an act. For example, a contract may provide that a person is to do something by a particular date but refuses to do so (and damages would not be an adequate remedy.

Injunctive relief is a draconian remedy, and it is not one that the court will grant lightly. Further, when applying for an injunction the applicant must give an undertaking in damages to compensate the other party for any losses it suffers as a result of the injunction if it later transpires the injunction should not have been granted.

Note on the Corporate Insolvency and Governance Act 2020

On 26 June 2020, the Corporate Insolvency and Governance Act 2020 (‘the Act’) came into force which has placed restrictions on suppliers terminating contracts.

Whilst contracts for the supply of good and services usually contain provision allowing a party to terminate the agreement if the other does not pay for supplies or services or a party becomes insolvent, the Act now prevents this. Unless the supply contract falls into the category of exempt suppliers a party will be required to continue providing goods and services even if the customer is subject to a “relevant insolvency procedure“.

The definition of a “relevant insolvency procedure” is set out in section 14(1) of the Act which includes: the new moratorium, administration, administrative receivership, voluntary arrangements, the appointment of a liquidator or a court order under section 901(C)(1) of the Companies Act 2006.

Under the Act suppliers are prevented from terminating the contract or supply, where the customer is subject to a relevant insolvency procedure; or the breaches occurred prior to the relevant insolvency procedure. Nor can the supplier insist on supply continuing subject to the pre-insolvency arrears being paid.

The restrictions under the Act do not prevent a supplier from terminating a contract for new breaches that take place after the relevant insolvency procedure. The supplier can also seek the permission of the insolvency office holder to terminate the agreement or seek an order where the continued supply is likely to cause hardship.

Our Insolvency team can assist you in these situations, but we advise that in order to avoid such problems, it is important at present to ensure that any new contracts provide for specific services or supplies on a single transaction basis rather than a continuing basis. Paul Nathan can advise you on the drafting of such contracts and allied terms and conditions of business.

 

Poor advice in connection with a contractual dispute will not only lead to further financial loss but it can also cause irreparable damage to your business relationships and reputation. To prevent this, where possible the team at Fletcher Day tend to adopt an approach of seeking to resolve the disputes at an early stage through negotiation and various forms of Alternative Dispute Resolution.

If you have a contractual dispute, please send an enquiry to our commercial dispute resolution team.

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