Contract Disputes

Not all agreements are contracts. An agreement is simply that…an agreement, understanding or arrangement. It is not legally binding.

But a contract is different – it can be legally enforced by a court, provided that (in England) the five key elements are in place. Buyer (and seller) beware! The terms of the deal are your responsibility. It is not up to the law to safeguard you from agreeing to a bad (but legally enforceable) deal.

Offer – a statement of terms. The person making the offer is legally obliged to abide by the terms of that offer if it is accepted. Do not confuse an offer with an ‘invitation to treat’.

• An invitation to treat invites a prospective buyer to make an offer of purchase – examples of this include adverts or listings in a catalogue. To accept an invitation to treat is to make an offer. The distinction between offer and invitation is important because it allows sellers to refuse to sell at the advertised price (for example, where a seller has made an error in the advert or catalogue).

Acceptance – this must be unconditional. If you wish to suggest conditions you are making a counter-offer (which must then be accepted unconditionally for the contract to be legal). The person accepting the offer must have the capacity to do so. This will exclude:

• anyone aged under seven
• most people aged under 18
• people who lack mental capacity
• those under the influence of alcohol or drugs (if it affects their ability to understand the transaction, or if the other party is aware of their condition).

Consideration – payment or something of value in exchange. This is why you sometimes see debt-stricken companies changing hands for £1 – there must be a consideration/payment to make the agreement a legal contract. Not all payments qualify as consideration for contract purposes. The rules exclude:

• payments made before the contract became legal
• items of sentimental value only
• anything illegal
• services rendered as part of another contract.

Consideration is not needed if the contract is executed as a deed. This is because a deed is regarded as a solemn promise rather than a bargain between parties. 

Willingness/Intention To Enter Into A Contract – both parties must be aware they are entering a legally binding contract. In commercial circumstances it is presumed that the parties intend their agreement to be legally binding.

Certainty of terms – unless all the material terms of a contract are agreed, there is no binding obligation.

You must prove four things if your claim is to succeed:

1. There was a contract in place and it was legally enforceable.
2. The defendant has breached the terms of the contract.
3. You have adhered to the terms of the contract (or can justify why you have not).
4. You have suffered loss as a direct result of the breach by the defendant.

Failure to prove any one of the four could result in the failure of your claim.

Each contract must be considered in its own right. In some cases there may be no written contract but you may have statutory rights.

We aim to deal with the breach as early as possible by exchanging information and highlighting issues (especially where there is clear-cut evidence of a failure by the other party). By nipping the problem in the bud we can help you to avoid the expense and inconvenience of going to court.

Alternative dispute resolution is one option. This can take the form of:

• Mediation – an impartial third party works with the two sides to help them reach an agreement. Neither side has to agree to the outcome. Either side can reject the proposed solution(s).
• Arbitration – again, a neutral third party helps both sides to reach a compromise. You are legally bound to abide by the arbitrator’s decision. You can appeal the decision if you don’t like it.

How much did you lose as a result of the breach?

This is important because damages are not usually punitive. In most cases they exist only to compensate the victim(s) – not to punish the perpetrator(s).

The general rule is that the damages should reflect the cost of what would have happened had the contract run its course without a breach.

The claimant should be left as if the contract had been performed. 

But sometimes damages can vary from this rule. In some cases the court can award:

• nominal damages – an award that acknowledges that the claimant was in the right but that results in very little real compensation for them. It may not cover their court costs – resulting in an expensive pyrrhic victory for them.
• restitutionary damages – based on the gains of the defendant, not on the losses of the claimant.
• account of profits – recovering profits from the defendant after they breached a fiduciary duty (failed in their legal obligation to act in the best interests of the claimant).

Damages are usually subject to three principles:

• remoteness – a set of rules which limits the damages (was the loss too remote?)
• causation – the defendant was to blame
• mitigation – the claimant must have taken reasonable action to minimise the loss they suffered.

Our commercial litigation solicitors pursue and defend claims on behalf of clients all over the country. Cases usually fall into three areas:

• Consumer contracts relating to the sale and supply of goods and services
  - the seller has provided a poor quality product or service
  - the seller has failed to meet warranty terms or honour other post-sale contract terms
   
• Commercial Contracts
  - business sale and purchase agreements
  - shareholder agreements
  - franchise agreements
  - contracts relating to the sale and supply of goods and services
  - breaches of employment contracts
   
• Landlord and Tenant
  - recovery of rent arrears
  - dilapidations
  - lease renewals
  - breach of lease covenants
  - termination of leases (forfeiture, surrender)

Find out more here about evicting tenants, assured shorthold tenancy agreements, Section 8 and Section 21 notices. 

These vary significantly depending on the contract but they can include:

• penalty clauses take effect, often involving payment(s) being withheld
• a reduction in the price of the contract
• being obliged to remedy the failure
• compensation and interest payments for delays
• loss of business reputation, negative media coverage (if the contract is a matter of public interest) – with the possible loss of future business and market share.