What to Do When a Contract is Breached
When another business fails to honour its contractual obligations, it can be both frustrating and potentially damaging to your business. We understand that discovering a breach of agreement can feel like a betrayal of trust, especially when you’ve invested time, resources and capital into building a business relationship.
Understanding your rights and the appropriate steps to take is essential for protecting your interests and resolving the situation effectively, while maintaining your professional composure throughout the process.
Understanding What Constitutes a Breach
Identifying exactly what qualifies as a breach of agreement is the first step in addressing the situation. While some breaches may be obvious, others might fall into grey areas that require careful consideration. It’s important to approach this assessment methodically and without letting emotions cloud your judgment. Even though the situation may feel personally challenging.
A breach of agreement occurs when one party fails to fulfil their contractual obligations, and this can manifest in several ways:
- Breaking confidentiality clauses by sharing sensitive information with third parties, potentially compromising your competitive advantage.
- Using intellectual property without proper authorisation, which could damage your brand and market position.
- Failure to deliver goods or services within the agreed timeframe, potentially causing significant disruption to your business operations and affecting your ability to serve your own customers.
- Non-payment or late payment for goods or services provided, which can impact your cash flow and financial stability.
Initial Steps to Take
The moments after discovering a breach can be overwhelming, and it’s natural to feel a sense of urgency to act. Seeking expert legal advice as soon as possible is crucial to ensuring you take the right steps to protect your business.
While legal guidance is essential, there are also several important steps you can take to safeguard your position and potentially resolve the issue while keeping your business operations stable:
- Document everything meticulously, including all communications, missed deadlines, and attempts to resolve the situation. Keep copies of emails, letters, and notes from phone conversations.
- Review your contract thoroughly to understand the specific terms that have been breached and any clauses that outline dispute resolution procedures.
- Gather evidence of any losses or damages your business has suffered as a result of the breach, including financial records and correspondence with affected customers.
- Consider whether there might be any valid reasons for the breach, such as force majeure events or misunderstandings about contract terms.
Attempting Resolution Through Discussion
While it’s understandable to feel frustrated or angry when another business breaches an agreement, maintaining professionalism during initial resolution attempts often yields the best results.
Professional relationships are valuable, and litigation should typically be a last resort – not just because it can be financially costly, but also because it can permanently damage your business relationship. Seeking legal advice as early as possible will help you understand your options. In many cases, there may still be ways to resolve the issue constructively. Depending on your circumstances, we can support with the following steps:
- Schedule a formal meeting to discuss the breach and potential solutions, ensuring you have all relevant documentation at hand.
- Listen to the other party’s perspective and try to understand any underlying issues that may have contributed to the breach.
- Document any agreements reached during these discussions in writing, including specific actions to be taken and timelines.
- Consider whether a compromise might be possible that could preserve the business relationship while protecting your interests.
Formal Notice and Legal Options
If initial discussions prove unsuccessful, you may need to take more formal steps. This can feel like a significant escalation, but it’s often necessary to protect your business interests and can help bring clarity to the situation for all parties involved.
Remember that taking formal action doesn’t necessarily mean the end of a business relationship – it can sometimes lead to better understanding and stronger agreements moving forward:
Serving a Formal Notice
The formal notice stage represents a crucial escalation in addressing the breach. It demonstrates your serious intention to protect your rights while still potentially allowing for resolution before court proceedings. This step requires careful consideration and precise execution:
- Draft and send a formal breach notice that clearly outlines the nature of the breach, refers to specific contract terms, and demands remedy within a reasonable timeframe.
- Ensure the notice is sent via recorded delivery and keep proof of postage.
- Include specific details of what actions you require to remedy the breach.
- State clearly what further action you may take if the breach is not remedied.
Alternative Dispute Resolution
Give consideration to alternative dispute resolution methods. These approaches often provide a more collaborative environment for resolving disputes while maintaining professional relationships. They can also offer significant cost and time savings compared to traditional litigation:
- Mediation involves an independent third party helping both sides reach an agreement.
- Arbitration provides a more formal process where an arbitrator makes a binding decision
Legal Proceedings
You may need to consider proceedings through the courts. While this can seem daunting, sometimes it’s the necessary step to protect your business interests. Understanding what’s involved can help you make an informed decision about proceeding:
- Consult with a solicitor to understand the strength of your case and potential outcomes.
- Consider whether you wish to terminate the contract or seek specific performance as remedies in legal proceedings.
- Be prepared for the time and costs involved in litigation.
- Understand the various remedies available, including damages, injunctions, or specific performance orders.
Protecting Your Business Going Forward
Every challenging situation presents an opportunity for learning and improvement. Use this experience to strengthen your business practices and protect your interests in future relationships.
Taking proactive steps now can help prevent similar situations from arising or ensure you’re better prepared if they do:
- Consider including stronger dispute resolution clauses in future contracts.
- Implement better systems for monitoring contract compliance.
- Maintain detailed records of all business relationships and agreements.
- Consider requiring personal guarantees for high-value contracts.
Get Expert Legal Support
At RLK, we understand that dealing with a breach of agreement can be one of the most challenging situations a business owner faces. Our experienced commercial dispute resolution and litigation team has guided countless clients through similar situations, providing both the legal expertise and practical support needed to achieve positive outcomes.
We’re here to help you navigate this challenging time with confidence and clarity.
Contact us today for a confidential consultation about your case. We’ll get you speaking with one of our specialist commercial dispute solicitors.
Let us help you protect your business interests while exploring all available options for resolution.
This article does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to provide information on issues that may be of interest. Specialist legal advice should always be sought in any particular case.
Chris Guy is the Head of the Business Interruption Litigation department and has recently been made a Director. Chris is primarily from an insurance based civil litigation background, having trained at Legal 500 firm Berrymans Lace Mawer (now Clyde & Co).
Chris has an astute commercial mindset, having worked within the legal team at a major insurer and was previously seconded to assist in-house with FTSE 250 companies and international insurers. Chris was listed in the Legal 500 for his civil litigation expertise. Chris assists clients with his attention to detail, commitment and user-friendly service.
