Contractual disputes

How is a contract formed?

A contract is a legally binding agreement between two or more parties, which can be made in writing, verbally or even through conduct – however, there are some situations where a written contract is required by law. A contract must comprise of each of the following key elements:

• Offer: a clear proposal made by one party.
• Acceptance: final and unqualified agreement to the terms of the offer.
• Consideration: some form of value must be exchanged between the parties, whether money, services or goods.
• Intention to create legal relations: both parties must intend for the contract to be legally binding.

A contract must also have certainty of terms – the terms must not be vague or ambiguous.

Contractual disputes

A contractual dispute is a disagreement between the parties to a contract. A contractual dispute does not necessarily involve a breach of contract and can also arise from disagreements over: validity (including, existence and interpretation), the terms (such as performance obligations), or the implementation of the contract. Contractual disputes range from minor breaches of contract to significant allegations and disputes.

Contractual disputes can arise in all types of contracts including:

• Joint ventures;
• Shareholder;
• Distribution and supply;
• Share purchase;
• Asset purchase; and
• Franchises.

Is the contract valid?

In some circumstances, a party may challenge the validity of the contract – if successful the contract may be void or voidable (depending on the grounds for challenge).

A void contract is ineffective from the moment it is created, it does not create any rights or obligations and has no legal effect.

A voidable contract is effective and binding unless it is rescinded by the wronged party (set aside). If a contract is voidable, the wronged party may rescind the contract by telling the other party the contract is rescinded and refusing further performance under the contract (or it may ask the Court to order a recission). We set out in the table below the circumstances when a contract may be void or voidable.

What is a breach of contract?

A breach of contract occurs when one party fails to fulfil their obligations as agreed by the parties under the terms of the contract. Contractual breaches come in different forms: some are significantly serious to give the wronged party the right to terminate the contract, whilst others are less significant and more easily remediable. Examples of contractual breaches include:

• Non-payment for goods or services.
• Failure to deliver goods or perform services as agreed.
• Delivering goods or services that fail to meet contractual specifications.

When a party commits a breach of contract, the options available to the wronged party depend on the severity of the breach and the terms of the contract.

When a contract is governed by the laws of England and Wales, as a general rule, a claim for breach of contract must be brought within 6 years of the breach.

Remedies for breach of contract

If a breach of contract occurs, several remedies may be available to the wronged party. If the breach is serious enough the contract can be repudiated (treated as if it had never been entered into) or terminated.

The most common remedy in a contractual dispute is payment of damages. The wronged party is compensated financially for the loss incurred that was caused by the breach. The purpose of damages is to compensate the wronged party for their loss and the general rule is that damages should place the wronged party in the same position as if the contract had been properly performed and the breach had not occurred. In some cases, the court may order the breaching party to carry out their obligations as per the contract – known as specific performance.

Resolving contractual disputes

Litigation via the courts is one way to resolve a contractual dispute, however depending on the nature of the dispute and the desired outcomes of the parties involved, there are other methods available, such as different forms of Alternative Dispute Resolution (ADR) – which can be quicker and cheaper. ADR is more flexible than resolving the dispute through the courts and allows a much higher level of control and privacy to the parties involved. There are various forms of ADR including:

• Negotiation: the parties attempt to resolve the dispute through discussions, often leading to a compromise.
• Without prejudice meetings: the parties and often their solicitors will attend a meeting in an attempt to reach a resolution.
• Mediation: a neutral third party will help facilitate an agreement between the parties by encouraging discussion and facilitating commercial solutions.

Another method to resolve disputes outside of court is arbitration. Unlike other forms of ADR, the decision of the arbitration panel is final and binding on the parties. Parties tend to use arbitration in circumstances where there is an arbitration clause within their contract, however there is nothing preventing parties from agreeing to refer a dispute to arbitration. In comparison to court proceedings, arbitration is usually quicker, more flexible, and held in private and therefore confidential.

How can Wedlake Bell help?

The Commercial Disputes team at Wedlake Bell, have extensive experience dealing with contractual disputes and can advise at any stage of a dispute on strategy and the most suitable and cost-effective route for a party to a take. The team have extensive experience advising on contractual disputes in various different sectors including: aviation, automotive, hospitality and maritime.

Meet the team:

1. 

   • Edward Starling

   • Partner
   • Commercial Disputes

   Visit Edward's profile
2. 

   • Glenn Chidgey

   • Partner
   • Commercial Disputes

   Visit Glenn's profile