How to Deal with a Breach of Contract Dispute

Key Points

Breach of contract disputes in business commonly involve missed payments, delivery failures, or poor performance, and they can drastically disrupt commercial operations and impact revenue.
The first step is to review the contract carefully and gather evidence to confirm the nature of the breach.
Clear communication, often through a letter of claim, is essential before escalation.
Alternative Dispute Resolution (ADR) methods such as negotiation, mediation, or arbitration are often faster and cheaper than litigation.
Strong contract drafting, dispute resolution clauses, and effective contract management help businesses prevent future disputes.

Whether it is a supply agreement, a services contract, or a complex commercial/joint venture, the business world is built on contracts. Each side depends on the other to meet its obligations, so when one party fails to perform, a breach of contract dispute can quickly develop.

Breach of contract disputes can cause cashflow issues, damage customer relationships, and interrupt operations. Knowing how to respond quickly and effectively is essential. This guide explains the steps businesses should take when a contract is broken, from confirming the breach to pursuing remedies and avoiding future disputes.

What Counts as a Breach of Contract?

A breach of contract occurs when one party does not fulfil obligations set out in a legally binding agreement. In a business context, this often means:

Failure to deliver goods on time or of the required quality.
Non-payment for goods or services supplied.
Breach of exclusivity or confidentiality clauses.
Subcontractors failing to perform obligations.
Contractors failing to complete construction work by an agreed date.

Not every breach has the same impact. A minor breach of contract might involve the late delivery of goods that are still usable. A material breach of contract goes to the heart of the agreement, such as a supplier failing to deliver goods at all, leaving the buyer unable to meet commitments to its customers.

Distinguishing between these categories is important for deciding whether to terminate a contract or pursue damages.

Confirming the Breach

Before escalating, you should be certain that a breach has actually occurred.

Review the contract by checking its terms, deadlines, performance standards, and breach clauses. Many contracts contain notice provisions that must be followed strictly.
Consider remedies provided by the contract, as some agreements include liquidated damages clauses or set out cure periods for defects or late payment.
Gather invoices, delivery notes, correspondence, and internal records to show what was agreed and how performance fell short.

Knowing what constitutes a breach of contract and having solid evidence strengthens your position in any negotiations or proceedings.

Communicate with the Other Party

Once confident of a breach, communication is the next step.

Always start with a friendly phone call or email. There may have been a simple misunderstanding or some personal circumstance that led to the breach.
If informal methods lead to nothing, you can send a letter of claim. This formal notice sets out the breach, the evidence, and the remedy sought. Many businesses use breach of contract letter templates adapted to the circumstances.
Give the other party a reasonable time to remedy the breach or respond.
Mark communications ‘without prejudice at the negotiating stage, as this means any admissions made cannot be used against you in court.

In many cases, a clear and professional letter triggers resolution.

Seeking an Amicable Resolution

Commercial disputes are expensive and time-consuming when litigated, so businesses should consider settlement options first.

Negotiation: Direct business-to-business discussions can resolve disputes quickly while preserving relationships.
Mediation: A neutral mediator facilitates agreement. This is often effective where parties want to preserve ongoing supply chains or partnerships.
Arbitration: Particularly common in international contracts due to the ability for them to be enforced in multiple jurisdictions as per the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), arbitration provides a binding, confidential decision, often delivered faster than formal court litigation.

Many commercial contracts require parties to attempt ADR before issuing proceedings. These clauses are increasingly enforced by courts.

Legal Remedies for Breach of Contract

If amicable resolution fails, businesses can seek legal remedies. Options include:

Damages: Financial compensation for losses caused by the breach. For example, a buyer may recover the additional cost of sourcing replacement goods.
Specific performance: An order requiring a supplier or contractor to perform obligations. This is rare in business disputes, but may be used in unique goods or property transactions.
Injunctions: Preventing a party from breaching confidentiality or intellectual property restrictions.
Rescission: Cancelling the contract and restoring the parties to their pre-contract positions.

Courts choose remedies based on the circumstances. Businesses should consider which remedy best protects commercial interests.

The Litigation Process

When ADR fails, litigation may be the only option. The breach of contract litigation process for businesses includes:

Pre-action protocol: Exchanging letters of claim and responses, exploring settlement.
Issuing proceedings: Filing a claim form and particulars of claim in the appropriate court.
Defence and reply: The other party sets out their case, possibly alleging your business also breached the contract.
Case management: The court sets deadlines for disclosure, witness statements, and expert reports.
Trial: Both parties present evidence. The judge makes a decision and may award damages or other remedies.
Enforcement: If the losing party does not comply, businesses may use enforcement measures such as charging orders, winding-up petitions, or seizure of assets.

Commercial litigation is risky, as if you lose your case, it is likely you will have to pay a proportion of the other side’s legal costs. Therefore, we do everything possible to reach a resolution through non-court methods.

How to Prevent Future Disputes

Businesses can reduce the risk of future disputes by strengthening their contract management. Considerations include:

Clear drafting that specifies obligations, deadlines, quality standards, and consequences of a breach.
Adding dispute resolution clauses with an emphasis on using ADR.
Regularly reviewing your commercial contracts as relationships evolve.
Maintaining organised files of correspondence, invoices, and delivery records

Wrapping up

A breach of contract dispute can disrupt business operations and damage commercial relationships. Swift action is essential: confirm the breach, communicate formally, seek a settlement if possible, and use litigation only when necessary.

Businesses that invest in well-drafted commercial contracts, effective contract management, and early legal advice are best placed to resolve disputes efficiently and avoid repeating them. Contract dispute resolution is not just about fixing problems but about building a more resilient commercial future.

FAQs

Can I claim for breach of an oral business contract?
Yes, oral contracts can be enforceable in business disputes, but proving terms is harder without written evidence. Supporting documentation strengthens the claim.

What if the other business claims we breached first?
Courts will assess performance on both sides. If both parties are in breach, remedies may be limited, so legal advice is crucial.

How quickly must my business act after a breach?
Act promptly. Delay weakens your position and can be taken as acceptance of the breach. Contract claims usually have a six-year limitation period.

Can I recover legal costs in a business contract dispute?
If you succeed in litigation, the court may order the other party to pay a proportion of your costs. In ADR, costs are usually shared unless otherwise agreed.

Should I involve solicitors early in a contract dispute?
Yes. Early legal advice helps assess the strength of your case, prepare formal communication, and choose the right remedy. It can also prevent escalation.

If you are unsure how to begin or need help evaluating your case, please call (0115) 955 6555 or fill in our contact form.