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With the current extraordinary circumstances brought about as a result of Coronavirus, some business are finding it difficult to fulfil their obligations under various contracts. Now more than ever, it is vital that parties understand their rights under the contract and the remedies available to them. Parties need to be aware of whether their actions or omissions have given rise to a contract being terminated (which will likely result in a financial penalty or damages being payable by the breaching party) or whether they are able to remedy a breach and get the business relationship back on track.

When does a contract end?

Under UK contract law, a contract between parties naturally comes to an end when the contract is fulfilled. Alternatively, the parties may decide to end the contract by mutual consent or, when one party has breached its obligations under the contract, the non-breaching party may choose to exercise its rights under the contract and terminate it.  Once a party has validly exercised its right to terminate the contract it comes to an end and the parties no longer need to carry out their primary obligations. However, obligations such as payment for goods already provided or payment of damages for the breach by the defaulting party remain.

Although contractual documents set out the parties’ rights to terminate the contract, it is important to remember the commercial reality that sometimes things can go wrong and fulfilment of a contract may be delayed. This is why it is vital for a party to be aware of its rights to remedy a breach.

How do you remedy a breach?

A breach of contract can often be remedied by the party carrying out the obligation at a later date. For example, a failure to pay an invoice on time can often be remedied by late payment plus interest or a breach of delivering goods on time can be remedied by their late delivery and acceptance by the aggrieved party. However, at common law, even in extraordinary circumstances such as the current Coronavirus pandemic, there is no obligation for an aggrieved party to allow the breaching party to a remedy the breach before terminating the contract. Therefore, subject to the terms of the contract, an aggrieved party can currently terminate a contract if say the goods ordered are not delivered on time.  This is why it is important for parties to consider incorporating contractual clauses affording the breaching party an opportunity and time to remedy a breach. For instance, a clause can be incorporated into the contract which can give the breaching party a 14 day buffer period to make payment of an outstanding invoice as long as late payment interest is paid on top. Having said that, not all breaches of contract are remediable. For instance, a breach of confidentially cannot usually be remedied.

Does future work carried out remedy a breach?

It is also important to remember that a promise to carry out work in the future does not automatically qualify as a remedy to a breach of contract. This was reiterated in the recent case of Bains v Arunvill Capital Ltd [2020] EWCA Civ 545. In that case, the Court of Appeal upheld the decision of the High Court that a letter from a consultant stating that he would perform his contractual obligations was insufficient to remedy a material breach for his refusal to provide the services in the first place. The contract between the parties provided that the contract can be terminated by either party in the event that a breach was not remedied within 21 days.  After refusing to carry out the consultancy work, the Claimant sent a letter to the Defendant notifying him of the breach and requiring performance of the contract within 21 days. The Defendant responded advising that he intended to carry out the work and that any breach had therefore been remedied. The Court found that a promise to carry out the work in the future was insufficient to remedy the breach. The correct remedy would have been for the Defendant to provide the services within the 21 day period. The Contract was therefore correctly terminated by the Claimant.

Although an unsurprising decision, the case highlights the importance for parties to understand their termination rights and ability to remedy a breach of contract. Although a party may consider an action to constitute a remedy from a practical point of view, from a legal standpoint this is not always the case. It is important that a legal professional reviews the contractual documentation before any action is taken in relation to a purported breach.

At DTM Legal, our specialist Dispute Resolution department is on hand to assist in resolving a variety of disputes, whether a party has breached a contract or otherwise against you or you are being accused of committing the breach.

Should you require any assistance or further information about anything contained with this article, please do not hesitate to contact Duncan McAllister on 01244 354813.

 

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