Common Commercial Contract Disputes
Damages for Breach of Contract
- The expectation measure — the primary measure of contractual damages puts the claimant in the position they would have been in had the contract been performed (Robinson v Harman [1848]). This recovers the value of the promised performance — for example, the profit lost as a result of the breach.
- The reliance measure — where expectation losses are too uncertain to quantify, the claimant can instead recover wasted expenditure incurred in reliance on the contract that has been rendered futile by the breach.
- Remoteness — Hadley v Baxendale [1854] — damages are only recoverable for losses that arise naturally from the breach (limb 1), or that were within the reasonable contemplation of both parties as a probable result of the breach at the time of contracting (limb 2). Unusual or exceptional losses that were not within the parties' reasonable contemplation are irrecoverable.
- Duty to mitigate — the innocent party must take reasonable steps to mitigate their loss. Failure to do so reduces the recoverable damages by the amount that reasonable mitigation would have avoided. A solicitor advises on what steps constitute reasonable mitigation in each case.
- Penalty clauses — a liquidated damages clause (a genuine pre-estimate of loss) is enforceable. A clause that imposes a penalty disproportionate to the legitimate interest being protected is unenforceable as a penalty clause (Cavendish Square Holding BV v Talal El Makdessi [2015], Supreme Court).
Frequently Asked Questions
The contract has a dispute resolution clause requiring mediation first — is that binding?
A contractual obligation to mediate before commencing court proceedings is binding and enforceable — courts will stay proceedings commenced in breach of a dispute resolution clause (Holloway v Chancery Mead Ltd [2007]). However, the clause must be sufficiently certain to be enforceable — a mere obligation to "try to resolve the dispute" may not be. A solicitor reviews the dispute resolution clause at the outset, complies with it (which often results in settlement), and advises on the correct process if mediation does not resolve the matter.
Can I terminate the contract and sue for all future losses?
You can terminate a contract and claim damages for your loss of the benefit of the whole contract where the other party has committed a repudiatory breach — a breach that goes to the root of the contract, depriving the innocent party of substantially the whole benefit they were to receive. Whether a breach is repudiatory depends on the seriousness of the breach and its consequences. Minor breaches do not entitle termination; treating a minor breach as repudiatory and purporting to terminate may itself constitute repudiatory breach by the innocent party. A solicitor advises carefully on whether a breach is repudiatory before any termination notice is sent.
The contract has a limitation of liability clause — is the other party protected?
In a B2B contract, limitation of liability clauses are subject to the reasonableness test under the Unfair Contract Terms Act 1977 (UCTA). A clause limiting liability to the contract value or a nominal cap is potentially unenforceable if it leaves the innocent party with no meaningful remedy for the breach. Exclusions of liability for death or personal injury caused by negligence are void outright (UCTA s.2(1)). A solicitor analyses whether the limitation clause satisfies the UCTA reasonableness test and advises on whether it applies to the specific head of loss in question.
What is a Part 36 offer and how does it affect costs?
A Part 36 offer (CPR Part 36) is a formal settlement offer made in specified form that has automatic costs consequences if not beaten at trial. Where a defendant's Part 36 offer is not beaten by the claimant at trial, the claimant pays the defendant's costs from the date the offer expired, plus interest on those costs. Where a claimant's Part 36 offer is not beaten by the defendant at trial, the defendant pays indemnity costs from the expiry date, plus enhanced interest on the damages (up to 10% above base rate) and on costs, plus an additional award of up to 10% of the damages. A solicitor uses Part 36 strategically throughout the litigation to manage costs risk and incentivise settlement.
Can I get an injunction to stop the other party breaching the contract?
Yes — an injunction can be granted to restrain an actual or threatened breach of contract (a prohibitory injunction) or to compel performance of a specific contractual obligation (a mandatory injunction — granted more sparingly). Urgent injunctions are available on an interim basis (American Cyanamid [1975] test: serious question to be tried; balance of convenience favours an injunction; adequacy of damages as an alternative). Where a breach is threatened imminently, a solicitor applies for an emergency injunction on notice or (in extreme urgency) without notice. Speed is essential — delay can defeat an injunction application on balance of convenience grounds.