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Breach of contract B2B

When dealing with another business, it's always good practice to set out key terms in a written contract. This ensures that both parties are clear about each other's expectations and obligations. However, disputes occasionally arise if any of the terms of a contract are broken.
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If any of the terms of a contract between two businesses are ignored, incorrectly performed, entirely broken or only partially fulfilled, this may constitute a breach of contract. Common examples include failure to provide services or goods paid for and non-payment of invoices relating to work that has been carried out or goods that have been delivered. There are different types of breach of contract, including:

  • minor - if the breach results in a relatively small consequence (eg a website design firm has delivered a website that works in most respects but has some problems with formatting, the wrong shade of colour and a couple of broken links)
  • material - a breach that is ‘serious in the wide sense of having a serious effect on the benefit which the innocent party would otherwise derive’. This means that the breach of contract is so serious that a party to the contract can't benefit from what was originally agreed in the contract (eg the website navigation is broken, text is illegible and does not work on smartphones - so therefore many potential customers are unable to use it and the business doesn't benefit from what was agreed)
  • fundamental -  the breach is so severe that the contract can be terminated instead of the innocent party seeking damages (eg a builder abandons a worksite allowing the innocent party to end the contract) 
  • anticipatory - if it becomes clear and anticipates that one party will not fulfil their duties under a contract (eg there has not even been a mock-up of the website design by the time of the agreed go-live date)

It is possible that a series of minor breaches can constitute a material breach.

It’s often best to first try and come to an agreement or resolve a dispute without taking formal action. Try and use methods of Alternative Dispute Resolution (ADR) such as mediation or arbitration which is more cost-effective than litigation. For further information read Alternatives to legal action if the breach concerns non-payment of money owed. If you are located in England and Wales and the sum is less than £100,000 you may be able to use the Money Claim Online service. In other cases, you should Ask a lawyer for advice; but the first step will often be to issue a Letter before action.

Some of the potential defences to a breach of contract claim include:

  • the term which is used as the basis of the claim is vague or unclear
  • the claim is unfounded or incorrect
  • losses being claimed for were not reasonably foreseeable - or the claimant has not attempted to mitigate their losses
  • the contract does not apply (eg it relates to a different party) or was not correctly formed
  • the other party has accepted the breach of contract

It's always best to try and resolve a dispute before resorting to litigation. However, the main remedies for breach of contract are:

  • repudiation - it is possible to cancel or terminate the contract altogether if a term is breached, and claim compensation for any loss suffered
  • damages - these can be awarded for both quantifiable losses (eg loss of profits) and unquantifiable losses (eg inconvenience suffered) resulting from the breach
  • specific performance - this is a less common remedy that requires a party to carry out certain obligations under a contract (ie the court forces the party to fulfil their obligations)
  • adherence - in Scotland, the innocent party may also require the other party to adhere to their contractual obligations
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