Analyzing Breach of Contract under English Law

A contract is an arrangement giving rise to obligations that are recognized by law and enforced. There are three (3) basic prerequisites to the formation of a contract:

Agreement (a), consideration (b) and contractual intention (c):

  1. Agreement: The parties should have reached a deal reached when one party makes an offer, which another party accepts. There is an offer that is the expression of willingness to contract on stated terms made with the purpose that it is to be binding once received by the individual to whom it is addressed. And there is an acceptance that is a concluding and unqualified expression of agreement to the terms of an offer.
  2. Consideration: it is considered ‘something of value’ which is prearranged for a promise and is mandatory to achieve the promise enforceable in the contract
  3. Contractual intention: a contract is binding when it is made to create legal intentions. The parties must intend their contract to be lawfully binding.

A breach of contract is carried out when a party, without lawful excuse, fails or refuses to make what is due from him under the agreement (i), performs defectively (ii), or incapacitates himself from performing (iii):

  1. Failure or refusal to perform: when performance has fallen due is prima facie a breach.
  2. Defective performance: where individual promises to do one thing but does another.
  • Incapacitating oneself: for example, a retailer commits a breach of contract for the sale of a specific article if he sells it to a third party.

In this article, we will present different topics related to damages for breach of contracts in English Common Law, such as limitation in breach of contract(I), remedies for breach of contract (II), insurance in case of breach of contract (III), differences between contractual right to terminate and legal right to terminate (IV) and implications of misrepresentation prior to effectuation of contracts (V)

  1. Limitation in Breach of Contract

This table layout the limitation periods that apply to bring a claim, and the generating events, in jurisdictions such as India, South Africa, and the United Kingdom.

Jurisdiction

What limitation periods apply to carrying a claim?

What set off a limitation period?

India

According to the Limitation Act 1963, most claims under contract have a limitation period of three (3) years. Some land disputes have a limitation period of twelve (12) or thirty (30) years.

A residuary limitation period of three (3) years is set for all disputes not otherwise explicitly covered under any law.

The limitation period begins when the source of action arises, it means when a party becomes entitled to bring a claim.

South Africa

The limitation periods for bringing a claim are as follows:

· Thirty (30) years for any debt secured by a mortgage bond; judgment debts; any debt in respect of taxation imposed or levied under any law; and any obligation allocated to the state in respect of any share of the incomes, royalties, or any similar consideration payable for the right to mine minerals or other substances.

· Fifteen (15) years concerning any debt owed to the state and arising out of an advance or loan of money or a sale of lease of land by the state to the debtor.

· Six (6) years concerning a debt arising from a bill of exchange or another negotiable instrument, or a notarial contract.

· Three (3) years in respect of any other debt.

The limitation periods start to run as soon as the debt is due when the creditor has information of the debtor’s identity and the proofs from which the obligation arises. A creditor is considered to have such knowledge if he/she could have acquired it by exercising reasonable care.

United Kingdom

· Elementary claims in Contract: six (6) years.

· Claims brought in respect of deeds: twelve (12) years.

· Tort (excluding personal injury and latent damage): six (6) years.

· Personal injury: three (3) years.

· Negligence (in respect of latent damage): three (3) years or six (6) years, subject to a supreme period of fifteen (15) years from the negligent act or omission.

· Fraud: six (6) years.

· Defamation: one (1) year.

· Straightforward claims in contract: date of breach of contract.

· Claims brought in respect of deeds: breach of the obligation contained in the act.

· Tort: date the damage is suffered.

· Personal injury: the later date the damage occurred or the claimant’s knowledge of the damage.

· Negligence: the later of six (6) years from the date the injury occurred or three (3) years from the day on which the complainant had the requisite information and the right to bring such an action.

· Fraud: when the claimant discovered the fraud, or when they could, with reasonable diligence, have discovered it.

· Defamation: date of publication of the defamatory act.

  1. Remedies for Breach of Contract

Damages are intended to indemnify the affected party for the loss he has supported due to the breach of contract. In preparation to begin an entitlement to substantial damages for breach of contract, the injured party must show that:

  • The breach has produced concrete loss;
  • the type of loss is known as giving entitlement to compensation; and
  • the loss is not too isolated.

Damages are considered to reward for an established loss and not to provide a gratuitous advantage to the aggrieved party.

When a contract is breached, exists different types of remedies that depend on the seriousness of the breach of Contract: Termination of the Contract (A), damages(B), Injunctions (C), and specific performance(D)

  1. Termination of the Contract

When the defaulting party violates the agreement, the other party may have no intention of claiming damages for him/her getting out of the contract; it will be enough.

In the case, C&S Associates Ltd vs. Enterprise Insurance Company Plc (2015) EWHC 3757, the Royal Courts of Justice Strand (London) explains when it is justifiable to terminate contracts immediately without notice. In this case, a business held motor insurance claims for an insurance establishment client. It is unsuccessful in handing over files for audit by the insurance establishment. The insurance establishment treated this as a repudiatory breach and immediately ended the contract between them. The business demanded compensation for illegal termination. One of its arguments was that the agreement required the insurance establishment to give thirty (30) days’ notice of any material breach, to permit the business time to resolve it. The High Court said it was conceivable to expressly say in an agreement that some violations would not be considered as repudiatory, and the courts would take note of this. But it ruled that the provision in this contract notice to be given before terminating for a material breach did not expressly say certain violations were not repudiatory. They did not prevent the insurance establishment from completing on the grounds of a material breach instantly if the breach was grave enough.

  1. Damages

The elemental remedy for breach of contract is an award of indemnities.  It is the most usual legal remedy for breach of contract. Damages are the lawful right replaced for performance when the defaulting party fails to complete the agreementIt is a right; it is not an optional remedy. On the other hand, damages are principally a compensatory remedy, and they are not a punitive remedy.

In the case Axa Insurance UK Plc vs. Financial Claims Solutions Ltd (2018) EWCA Civ 1330, The offenders committed serious fraud by supplying two sets of fictitious personal injury claims based on false documents to the insurance establishments. The plaintiff’s insurance company conducted an examination, revealed the plaintiff’s fake conduct, and brought claims against the perpetrators seeking compensatory and exemplary damages. The lower court gave compensatory damages to cover the cost suffered in unraveling the fraud but excluded the respondent’s right for moral damages. The court’s reason was that the scam was exposed to the defendants who previously made any profits and, consequently, the second category of Rookes v. Barnard did not apply.

Then, the Court of Appeal apprehended that the lower court incorrectly applied the decision in the Rookes case. The court clarified that the second category of Rookes concerns cases where ‘the defendant’s behavior has been designed to make a profit for himself which may well surpass the compensation payable to the claimant.’ In this case, the compensatory damages decided were limited to the cost of the examination, which was a much lesser amount than the profit the perpetrators would have made had the fraud been successfully performed.

  1. Injunctions

The injunction is a remedy that prohibits a party from a particular act. We can think that injunctions and specific performance are the same. Still, the critical difference is that injunctions order a party not to do something, and detailed performance orders a party to do something. It is possible to find prohibitory injunctions to stop, restrain behavior, or mandatory injunctions force or compel behavior.

Frequently, courts choose to make prohibitory injunctions. It leaves minor doubt about what the person requests to do to obey the terms of the court order.  The non-compliance with the court instruction may lead to a sanction such as sequestration of property, fines, custodial sentences, etc.

In the case Duro Felguera vs. Samsung (2016) WASC 119, Duro required an injunction restraining Samsung from taking steps to get paid under a performance bond provided in the context of the Roy Hill Project. The court apprehended that on its proper construction, the objective of the performance bond was risk allocation. That commercial purpose would be overcome if an injunction was decided. The court alleged the purpose of the bond changed the background in which the court shall apply its discretion whether to grant an injunction “by changing the complexion of the status quo and raising the view of substantial injustice if the determination of the provision is defeated. That is, the status quo converts what the parties had agreed to as to which of them should accept the financial risk pending final determination …”, the law court apprehended an injunction should not be decided unless the applicant establishes a “strong case, and not just a doubtful case” that the other party did not study, acting bona fide, that it is or will be permitted to recover from the party seeking the injunction.

  1. Specific performance

Specific performance is a type of compulsory injunction. Specific performance induces a person to do the acts specified in the court instruction. This is a “discretionary” remedy, and it is a court order, usually endorsed with a penal notice.

The court will consider this remedy when money damages will not give and adequate compensation for the breach of the contract. In the case Evans vs. Robocorp (2014) QSC 26, the plaintiff was agreed on the sale of land to the defendant. The defendant then became impoverished and was incompetent to finish the business. The question for determination was whether specific performance should be ordered in conditions where it would cause great adversity to the other party. The court apprehended that exercising its equitable jurisdiction; it would not demand specific performance if the act in question cannot be completed – the court will not order the defendant to do what cannot be ended, even if the respondent’s acts or omissions created the obstacles to performance.

  • Insurance in case of breach of contract

In the case Crum and Forster Specialty Insurance Co. vs. DVO, Inc. The case is about coverage for a breach of contract claim carried against a corporate policyholder, DVO, by one of its clients, WTE. DVO designs and shapes anaerobic digesters, which implement microorganisms to break down biodegradable materials to generate biogas. DVO entered into an agreement with WTE to design and shape one of these digesters. WTE later charged DVO for breach of this contract, claiming that DVO failed to properly design substantial portions of the operational, structural, and mechanical systems of the digester and seeking more than $2 million in indemnities.

DVO’s E&O insurer, Crum & Forster, declined to defend DVO in the litigation, mentioning the breach of contract exclusion. This exclusion laid down that the policy did not afford coverage, “based upon or arising out of: … breach of contract, whether express or oral, nor any ‘claim’ for breach of an implied in law or an implied in fact contracts, regardless of whether ‘bodily injury, ‘property damage,’ ‘personal and advertising injury or a ‘wrongful act’ is assumed.”

Crum & Forster said, and the trial court approved, that the exclusion was enforceable and that the policy successfully provided coverage only for third-party claims. DVO argued that this broad exclusion accepted the coverage granted by the policy, such that the policy provided false coverage.

The appellate court approved with DVO. It noted, “There is … no motive to believe that DVO in acquiring Errors and Omissions coverage to provide insurance against professional negligence claims had a rational hope that it was obtaining insurance only for claims of professional malpractice carried by third parties.” The law court, therefore, reversed the trial court and lined that the policy must be changed “with the purpose to meet the rational expectations of DVO as to the E&O policy’s coverage for responsibility arising out of omissions, negligence, mistakes, and errors inherent in the practice of the occupation.”

In the case Baylor Heating & Air Conditioning, Inc. vs. Federated Mut. Ins. Co., the similar court that decided Crum & Forster measured coverage for a claim brought against a policyholder, Baylor, for illegally failing to make payments to a pension fund in breach of a collective bargaining contract. Baylor had a general commercial liability (CGL) coverage policy with Federated that supplied coverage for “compensations arising out of any prerogative … for injury or damage produced by any negligent performance, mistake or omission in the ‘administration’ of your ‘employee advantage programs’….”

Baylor claimed that this language provided coverage for its responsibility for negligently failing to make payments mandatory by the collective bargaining contract. The court disagreed, presiding that Baylor was liable for “sums owed pursuant to the collective bargaining contract, not … for negligence, and these costs are not enclosed by Baylor’s policy.” Nevertheless, the court admitted that there might be circumstances where Baylor’s breach of a contractual responsibility could amount to negligence covered by its policy. In an annotation, the court noted, “If, for example, Baylor had negligently unsuccessful in registering an employee in the pension plan and was then litigated by that employee for his pension profits, there might be a dispute that Baylor had hurt damage resulting from negligence.”

On the other hand, the Case Touchette Corp. vs. Merchants Mutual Insurance Co. involved a breach of contract prerogative against a data processing corporation declaring that the company had unsuccessful in preserving an accurate data list as requested by its agreement with another party. The company’s E&O policy supplied coverage for prerogatives declaring “any negligent act, error or omission.”

The court laid down, “If the proof founds that the breach was occasioned by a negligent failure to act, the mistakes and omissions policy incontestably provides coverage.” The conclusion clarified that it is the “gist” of the claim against the policyholder and the nature of the policyholder’s behavior, not the form of the claim, which decides coverage. Even if the policy comprises a breach of contract exclusion, coverage may be presented, depending on the situation and applicable law.

  1. Differences between contractual right to terminate and legal right to terminate

Some contracts will explicitly come to an end later a fixed period of time. Others will involve some positive step to be engaged by one or both parties to carry about termination.

Contractual termination rights will function in addition to common law rights to terminate unless they are explicitly or impliedly excluded. Contracts frequently make direct provision for the termination in specified situations and the steps that should be followed in order to result in termination. The situations specified may include, for example, certain types of a breach ( ‘material’ breaches), change of control of a party to the agreement, or actual or vulnerable bankruptcy of a party to the agreement. If the contract comprises no express provision on termination, a term permitting termination on the realistic notice may sometimes be implied.

Concerning the legal right to terminate, the following breaches explain termination at common law: breach of a condition of the agreement, a party’s absolute refusal to perform all or the significant part of its obligations under an agreement (‘anticipatory breach’ or ‘renunciation’), repudiatory breach of an ‘intermediate’ or ‘innominate’ term of the contract or where one party makes it unbearable (by act or omission) to perform the contract.

Contract terminations are often filled with legal risk, and consequently, parties often rely upon as many grounds as possible to validate a termination. The case Imperial Chemical Industries Ltd vs. Merit Merrell Technology Ltd (2017) EWHC 1763 (TCC) MMT underline the risks associated with ending solely on the basis of a common-law right, where a contractual right to terminate may also occur.

In Imperial Chemical Industries Ltd vs. Merit Merrell Technology Ltd (2017), a specialist engineering piping manufacturer was hired by ICI by way of an amended NEC3 contract. MMT was to deliver piping works associated with the construction of a new paint manufacturing facility for ICI in Northumberland. In February 2015, ICI sent MMT a termination notice, accepting what it said was a disclaimer of the Contract by MMT and telling MMT to leave the place. MMT replied by disputing the factual and legal basis upon which ICI’s claimed termination had been based and assumed repudiation by ICI itself. The court absolute that none of the breaches relied upon by ICI were, really, repudiatory breaches of the agreement. The concurrent evidence supported MMT’s case that ICI had no correct grounds for making an allegation of the repudiatory breach and that ICI was just trying to use repudiation as a device designed to eliminate MMT from the construction. ICI is required to characterize its termination letter as being mainly a contractual termination, looking to avoid being found in repudiatory breach itself. The court detained that the termination letter could not be interpreted as the exercise of a contractual prerogative to terminate and was not drafted as such. Consequently, having found that MMT had not performed any breaches of the contract which could be contemplated repudiatory and that ICI had not terminated under the terms of the agreement, the court detained that the sending of the termination letter telling MMT to leave site was itself a repudiation of the agreement. Finally, ICI was accountable to MMT for damages arising from that breach. On a construction project, the employer may wish to bring the relationship with the other party to a conclusion due to any variety of motives such as financial, a breakdown in the relationship between the parties, or a disagreement as to the quality of works being completed.

If rights to terminate exist under the contract and at common law, they can be exercised, but this frequently needs that the contractual right to end should be count on as the main basis for termination, with common law rights as the option. For example, a party looking for termination using the contractual termination requirements who issues what is found later to be an imperfect termination notice may declare that one or more of the breaches count on was a repudiatory breach, such that the contractual notice conditions need not be followed. By way of explanation, a common law right to terminate may be employed as a contingency in the event that a contractual termination goes wrong. In this case, ICI’s try to reframe the supposed termination as contractual in nature was not a justifiable argument. Mainly when seeing the practical implications, such an explanation would have. The party claiming to terminate could just allege a repudiatory breach and avoid all notice and form considerations under the contract and then say it was, really, a contractual termination should its grounds of repudiatory breach go wrong.

ICI had a contractual right to finish the contract for convenience, but by looking to evade the financial consequences this would have and seeking to rely on an accusation of a repudiatory breach that was unsupported, ICI found itself in repudiatory breach. This case underlines the tension between rights to terminate under a contract and rights to terminate at common law.

  1. Implications of misrepresentation prior to effectuation of contracts

Many declarations can be made in the course of trying to win work, and there can be an attraction to exaggerate facts whether this could result in misrepresentation. Representations are statements of fact, and misrepresentations are false representations. To be able to prosecute concerning a misrepresentation, the injured party shall show the statement persuaded it to launch into a contract and that it would not have complete so but for the misrepresentation. If it knew the declaration was false or only realized about the declaration after making the agreement, no action could be taken.

Misrepresentations can be untrue, negligent, or innocent. A fraudulent misrepresentation is completed when the individual making it knows or believes it to be false. Negligent misrepresentation is completed when the individual is making it is uncaring as to whether it is true or untrue. Innocent misrepresentation is made when the individual is making it honestly believes it to be correct. The difference is vital because the remedies and the level of compensation will depend on the type of misrepresentation. For fraudulent misrepresentation, the damaged party can claim a reward for all fatalities resulting from the misrepresentation, whereas fatalities resulting from a negligent misrepresentation will frequently be limited to those reasonably foreseeable. As regards the contract itself, the consequence of misrepresentation is to make it voidable by the damaged party, who can then choose whether to set it apart and treat it as if it had never been made (rescission) or to continue with it. In common law, the remedy for innocent misrepresentation is rescission of the agreement with no damages being given, but under the 1967 Misrepresentation Act, the court has the power to reward compensations in lieu of rescission.

The BSkyB vs. EDS case on 26 January 2010 is a valuable reminder of the effects of making a fraudulent misrepresentation. The court found that EDS had completed fraudulent misrepresentations as to its aptitude to bring a project within a certain schedule and, in particular, that it had carried out a good analysis to allow it to make this declaration. The court also found that it was a consequence of these misrepresentations that BSkyB had been persuaded to enter into the Agreement with EDS. The compensations that could be allocated as a consequence have been projected at £200 million or more. There was a limit of responsibility in the agreement to £30 million, but both parties have recognized that such a limit is not active to limit liability for fraudulent misrepresentation.

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