Almost all of us will have been affected by some kind of material shortage in recent months – whether that be fresh fruit in your local supermarket or building materials for a garden renovation. What about parties who have been unable to perform their contractual obligations as a result of these shortages? How can things be put right?
A contract between two (or more) parties will (i) impose certain rights and obligations on the parties and often (ii) contain provisions in respect of consequences of potential breaches of the contract. A breach of contract occurs where one party has failed to fulfil (or intimates that it does not intend to fulfil, without a lawful excuse), an obligation under the contract. However, not all breaches are created equal.
Material breaches (i.e. ones which go to the heart of the contract) may be treated as repudiatory breaches by the innocent (i.e. non-breaching) party, meaning that the innocent party can terminate the contract and sue the breaching party for damages. Immaterial breaches may entitle the innocent party to claim damages but will not entitle them to terminate the contract.
The remedies available to the innocent party will either be available at law or under the contract. Some of the most common remedies for breach of contract include:-
- Termination – the innocent party may wish to consider bringing the contract to an end. A decision to exercise this remedy should be considered carefully, to avoid a situation where the party in breach asserts wrongful termination.
- Damages – these arise where the innocent party can demonstrate that it has suffered loss or damage as a result of the breach. Damages are intended to compensate the innocent party and restore them to the position that they would be in but for the breach. Where an innocent party seeks to rely on one of these remedies (or, indeed, any other remedy for breach of contract), that party must be able to demonstrate a causal connection between the breach of contract and the loss suffered.
- Liquidated Damages – this is a creature of contract whereby parties agree to a fixed sum or formula for calculation of damages in the event of a breach. It removes some of the uncertainty that might otherwise arise were a court asked to determine both issues of causation and value of damages.
- Interdict/Interim Interdict – this remedy has a narrower application and can only be relied upon where the breach is a continuing act or there is reasonable apprehension of a future act in breach of contract. An example would be where A and B enter into a contract of employment which prevents B from contacting A's customers for a period of six months from the end of his employment. In circumstances where B's employment is brought to an end and B contacts A's customers within that six month period, A could apply to the court for an interdict, to prevent B making any further contact with these customers.
There are, of course, other considerations to bear in mind where non-performance is due to circumstances beyond a party's control. Parties should consider any force majeure provisions within the contract, or whether the doctrine of frustration could be said to apply. Further information on these concepts can be found at https://brodies.com/insights/commercial-contracts-.... Parties should be mindful of any limitation of liability in the contract, as this may limit recovery of damages. The passage of time since the breach occurred should also be borne in mind – try to avoid a situation where it can be said that the innocent party "acquiesced" or in some way accepted the breach.