Insights

Breach of Contract

Managing your company’s contracts is often difficult, so it is possible to breach a contract without realizing it. Contracts are growing more complex, leading to accidental breaches, such as missing a deadline, sending the wrong product, sending a damaged product, or submitting the incorrect payment.

When a contracting party fails to perform without a lawful excuse a contractual obligation under a valid and legally binding contract, a breach of contract occurs.

 

Types of Breach of Contract

Failure of a contracting party to perform their contractual obligation can take place in several forms. Examples include:

  • Late performance
  • Non-performance
  • Defective performance
  • Anticipatory breach (contracting party repudiates the contract before the obligation is due

If the defaulting party has no lawful excuse (either provided in the contract or in law) to default on his obligations, the contractual breach of the defaulting party will entitle the innocent party to remedies against the defaulting party.

 

What are the remedies for Breach of Contract?

There are three (3) primary remedies that are available to an innocent party who has suffered a contractual breach by the defaulting party. They are:

 

Damages

This is the principal remedy for breach of contract where the innocent party is entitled to make a claim for monetary compensation against the defaulting party. The monetary compensation that is being sought must not exceed the losses (expected or actual) that stem from the contractual breach.

Furthermore, the innocent party is required to take reasonable steps to mitigate i.e., minimise his losses.

 

Specific Performance

An order of specific performance will compel the defaulting party to perform the contractual obligation that he has defaulted on.

However, do note that specific performance is only awarded in exceptional cases, typically when damages are deemed to be inadequate or unjust at compensating the loss suffered by the innocent party. Furthermore, there is a high threshold to be proved before the Court shall be willing to award an order for specific performance.

 

Injunctions

An injunction is a useful remedy to ensure that the defaulting party is prevented from doing something he promised to refrain from doing.

Similar to specific performance, injunctions are awarded at the discretion of the Courts and will generally not be granted if it causes undue hardship on the defaulting party.

 

How to reduce your risk?

When you enter a contract there is no way to prevent a breach altogether because you cannot control the actions of the other party. But this doesn’t mean you can’t mitigate your risks.

One way you can reduce your risk of contract breaches is by drafting the best possible agreements. Analysing past agreements – both those that were successful and those that did not deliver as expected – can also help you to identify the terms and clauses that best reduce vulnerabilities.

 

Is breaching a contract a crime?

Breaching a contract is not, in general, a crime as defined by criminal statutes. A contract is a civil transaction between two or more people. Entering a Contract by dubious means, on the other hand, can lead to criminal charges. Contracts entered, for example, as a result of fraud, force, threat, bodily damage, ransom, or other criminal conduct as defined by criminal statutes will result in criminal charges.

 

Where to resolve a contractual breach?

If the sum in dispute falls below $20,000 (or up to $30,000 if both parties agree), you can file a claim with the Small Claims Tribunals (“SCT”). Do note that lawyers are not allowed to represent parties in an SCT claim.

Alternatively, if the sum in dispute is large and exceeds $20,000, you can choose to initiate legal proceedings against the defaulting party.

Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact us at:  info@silvesterlegal.com.

 

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