Contract Disputes

Commerical contracts form the backbone of your business dealings, they are what all of your commercial relationships are based on. Having a clear insight into how your contracts will promote and protect your interests is invaluable in helping your business thrive.

What Are Commercial Contracts?

A commercial contract is a legally binding agreement between two or more parties that outlines the rights and obligations related to the supply of goods, services, or other business activities. These contracts are essential for defining responsibilities, payment terms, delivery schedules, and what happens if something goes wrong.

These contracts include:

Written contracts: The most common and recommended type, written documents clearly set out the agreed terms.
Verbal contracts: Agreements made through spoken communication, which can be legally binding but are harder to prove.
Agreements reached through the course of business dealings: Agreements where terms are not explicitly stated but established through repeated transactions.
Standard form contracts: Pre-prepared documents often used by larger businesses to standardise terms.

Are Verbal Contracts Enforceable?

Yes, verbal contracts can be enforceable if they meet the basic requirements of contract law which is offer, acceptance, consideration (something of value exchanged), and intention to create legal relations. However, proving the existence and terms of a verbal contract, if a dispute arises, can be difficult.

Evidence to prove a verbal contract may include:

Witness testimony.
Correspondence or emails referencing the agreement.
Payment records or invoices.
Conduct of the parties showing they acted as if a contract existed.

What Happens When Contract Terms Are Breached?

When contract terms are breached, i.e. an obligation not fulfilled, it can have serious consequences for the other party, disrupting business operations and likely causing financial loss.

The injured party is entitled to respond in different ways, depending on the severity and nature of the breach:

They may seek to renegotiate or amend the terms, to find a mutually agreeable solution and maintain the business relationship.
If the breach is serious enough, it can entitle them to terminate the contract altogether.
In some circumstances, they can claim that the contract should be considered as never having been in place.
They could claim damages to compensate for losses, including consequential losses, suffered as a result of the breach.

Understanding Consequential Damages

Consequential damages refer to losses that don’t happen immediately or directly from a breach of contract but occur as a secondary, foreseeable consequence of that breach. Unlike direct damages, which cover the immediate financial impact such as the cost of replacing faulty goods or unpaid invoices, consequential damages extend to other types of harm that the breaching party could reasonably have anticipated at the time the contract was formed. 

For example, if a supplier delivers goods late, causing a business to miss a critical deadline on a major project, losses arising; such as penalties, or a cancellation of the contract, could be reclaimed as consequential damages. 

How Are Damages Calculated?

Damages in commercial contract disputes are calculated with the primary aim of putting the injured party in the position they would have been in had the contract been properly performed. This means assessing the actual financial loss suffered because of the breach.

The calculation typically starts with direct or actual losses, such as costs incurred to remedy the breach. Beyond these immediate losses, damages may also include loss of profit, which accounts for earnings the business would have made if the contract had been fulfilled on time and as specified.

It is important to note that damages do not cover speculative or remote losses that cannot be proven with reasonable certainty, as courts require a clear causal connection between the breach and the loss claimed.

Read this article for more information on Understanding How Damages for Breach of Contract Are Calculated.

Drafting of Contracts

A well-drafted contract should provide a precise and comprehensive framework that outlines each party’s rights, obligations, and expectations, reducing the risk of misunderstandings or disputes. Key elements to include are clear definitions of the subject matter, payment terms, delivery deadlines, quality standards, and conditions for termination or renewal. It is equally important to incorporate clauses addressing potential risks, such as liability limitations, indemnities, confidentiality, and dispute resolution mechanisms.

Good contract drafting also anticipates possible scenarios, including breach of contract and remedies available, so parties have a clear roadmap to follow if problems arise. Using plain, unambiguous language and avoiding overly complex legal jargon makes the contract more accessible to all parties, reducing potential confusion. 

Let’s Talk

If you would like to make sure that a business relationship is governed by a properly drafted contract or you have a contract which has been breached, please get in touch.