Breach of Contract in English Law
Civil Liability for Failure to Undertake Contractual Duties
Oct 30, 2009
Breach of contract in England and Wales is a matter that forms the great bulk of civil law cases. As a general definition, a breach of contract is any departure from the agreed terms and conditions of a contract, from terms of employment to delivery of a parcel. Where a breach has caused one or more parties to suffer a loss, that party may find itself entitled to be compensated.
Repudiatory Breaches
The majority of breaches will not necessarily render a contract void, nor will they signal an immediate termination of a legal relationship. Minor breaches can often be repaired with damages and the contract can continue with the agreement of both parties. However, some breaches are so severe that the relationship between the contracted parties is irreparably damaged and the contract must be terminated. Such breaches are known as repudiatory breaches and in many cases, the injured party will be entitled to compensation.
The Elements of a Breach of Contract Claim
Contract law is mostly a case of strict liability, so in order to establish liability it is only necessary to show that a contractual duty has not been undertaken, or has been undertaken only partially. The sole exception to this is in cases of contractual obligation to take reasonable care, where it will be necessary to establish what “reasonable care” means in the circumstances
In order to establish that a defendant should be liable to pay damages for a breach of contract, however, three elements must be proven on the balance of probabilities.
Firstly, the claimant must be able to show that the defendant's breach caused a material loss, known as the principle of causation. In employment law, for example, unlawful dismissal leading to a loss of earnings for six months would be a material loss caused by the employer's breach of the employment contract.
The claimant must also be able to demonstrate that the loss was “not too remote”; i.e. the loss falls within the limits of the rule of remoteness, as discussed below.
Finally, the claimant must then demonstrate that they have taken “reasonable steps” to mitigate the losses they have suffered. What is reasonable will depend on the individual circumstances of the case but in breach of employment cases, amongst others, this may include taking part in any appeals processes laid out in the terms of employment, applying for unemployment benefit where available, etc.
The Rule of Remoteness
The principle behind damages as a civil remedy is to return the injured party to as close an approximation of the circumstances they would have been in had the tort (a legal term meaning “wrong”) never occurred. Therefore, in order for a claim for damages from breach of contract to be successful, there must be a loss to claim for, and it must be closely enough linked to the breach of contract for the courts to determine that the defendant would not have suffered it had the breach not occurred.
For example, the case of Boyo v. Lambeth London Borough Council [1994] established that a where a repudiatory breach of an employment contract had occurred (forcing an employee to leave work), the employer's liability for damages was limited to the amount of money the employee would have received had they been dismissed in accordance with the terms of their contract.
The case of Hadley v. Baxendale (1854) established the rule of remoteness that determines which losses can be attributed to any breach of contract. The case splits attributable losses into two “limbs”: losses which flow directly and naturally from the breach; and losses that may be reasonably supposed to have been “in the contemplation of both parties”, at the time the contract was made, as a serious possibility if a breach occurred.
For example, if a courier is employed to deliver parts for repair on a specific date (as was the case in Hadley v. Baxendale, above) but is not informed that failure to deliver on that date will incur losses for the owner's business, the courier will generally not be liable for the losses as they would likely not be seen as having been in their contemplation.
In order to sue for a breach of contract, there must be a failure to uphold a contractual duty. Where this can be proven and a loss has occurred, the injured party may be liable for compensation provided the loss is not “too remote”. The purpose of compensation is to return the injured party to the state they would have been in had the breach not occurred and where the breach is not so repudiatory that the it is terminated, the contact may continue.
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