Contracts underpin almost every business relationship and personal commercial transaction. Clear contract terms set mutual expectations and legally bind parties into an official agreement in order to clear up confusion and provide legal protection for all involved.
However, things can quickly become complicated when terms are interpreted differently or if one party fails to meet their obligations. This is where contract disputes arise. If allowed to persist for a long period of time, contractual disagreements can result in severe financial losses, operational delays, and ruined relationships.
This guide will explain what contract disputes are, how they’re caused, how to identify them, and the steps that can be taken to resolve them without a court proceeding so that you can protect your personal or business interests with confidence.
What is a contract?
A contract is a legally binding agreement between two or more parties. Contracts may be made in writing, orally or, in some circumstances, through the conduct of the parties.
For a legally enforceable contract to arise, there will ordinarily need to be:
- Offer – one party makes a sufficiently clear proposal containing terms on which they are prepared to contract.
- Acceptance – the other party accepts that offer and its terms.
- Consideration – each party provides, or promises to provide, something of value in exchange for the other party’s promise or performance.
- Intention to create legal relations – the parties intend their agreement to have legal consequences.
The terms must also be sufficiently certain for the agreement to be enforceable. Questions of capacity and any particular legal formalities may also arise depending on the nature of the contract.
What is a contract dispute?
A contract dispute is a disagreement concerning the existence, meaning, performance or breach of a contract. It may arise, for example, where the parties disagree about what was agreed, whether a binding contract was formed, how a particular term should be interpreted, or whether one party has failed to perform its contractual obligations.
A dispute can still arise even if any of the above elements are not included and, in many disputes, the main argument is whether a legally binding document was actually formed in the first place.
Common examples of contract disputes
Contractual disputes occur between businesses, business and consumer, or in personal contracts, spanning a wide variety of legal and commercial contexts. This means a multitude of different breaches can occur:
Ordinary breach
A failure to comply with a contractual obligation that is not serious enough to end the contract. This frequently includes minor financial issues (such as brief invoice delays), minor delivery or deadline issues (like non-critical milestone delays), or minor quality defects.
Repudiatory breach
A sufficiently serious breach which gives the innocent party the right to accept the breach and terminate the contract. Examples include persistent non-payment or refusal to settle balances (financial issues), total abandonment or severe poor workmanship, and complete non-delivery or critical missing of hard deadlines (delivery issues).
Termination
The exercise of a legal or contractual right to bring future obligations to an end, without extinguishing rights or liabilities that accrued prior to the end of the agreement. This is commonly triggered by severe disputes arising from misinterpretation of terms, chronic default on obligations, or major failures to meet standards or deadlines.
Damages
Financial compensation designed to place the innocent party in the position they would have been in had the contract been properly performed. These are sought to recover losses directly caused by poor workmanship (rectification costs), financial issues (unpaid sums and interest), or delivery and deadline issues (delayed performance losses).
How to identify whether a breach of contract has occurred
The logical first step to take is to review the actual document that has been agreed upon by both parties. It’s important to use this to compare the suspected breach with written clauses, schedules, Heads of Terms, and terms to pinpoint exactly where the contract hasn’t been met.
Similarly, assess the breach against implied terms and statutory rights as, sometimes, a breach of contract can occur even if it doesn’t go against what has been specifically written down.
The level at which the contract has been breached is described as either minor or major. A minor breach allows you to continue with the contract while claiming charges for smaller failures. If a contractual breach is major and completely ignores or fails to meet the core criteria of the document, you may be entitled to terminate the contract entirely.
Once you’ve found these key basics (the term in the contract that’s been breached and the severity of the incident) you can begin evidence gathering to build a solid and factual case. Collect written and digital communication, project logs, invoice summaries, images, and financial losses to showcase the impact of the breach.
Can contract disputes be resolved without going to court?
Yes, contractual disputes can be resolved without going to court and generally follow a similar process. Once the affected party raises the problem, an open discussion can be held and a private compromise can be achieved, whether that’s through compensation or another mutually agreed proposition.
Other forms of dispute resolution
Other forms of dispute resolution offer practical alternatives to formal litigation, helping parties settle disagreements efficiently while reducing stress and expenses.
Direct negotiation involves open and informal discussion between parties to explore a quick commercial compromise. This is generally the outcome for minor breaches of contracts and it’s a perfectly effective way of resolving a dispute while maintaining a positive relationship with the other party.
Initiating third-party mediation is regarded as a step up from negotiation. It brings an unbiased middle ground into the discussion who can support parties in reaching an agreement that they can both agree on.
Provided the breach is more severe, the best course of action may be to send a formal letter before action. Written and sent by a solicitor using the evidence you’ve previously gathered, this document usually prompts the receiver to prioritise sorting a settlement before formal action is initiated.
The importance of taking the right steps
Courts expect all parties to act reasonably from the beginning of a contractual dispute. this means that the affected party must escalate matters fairly and, if applicable, give the other party a fair chance to resolve the issue at a lower level. Failure to send a formal letter before action prior to filing an official claim can result in financial penalties.
Business professionals reviewing important contract documents.
Where court proceedings may be appropriate
In the event that less formal methods of dispute resolution fail, the affected party can escalate the issue by filing an official claim.
Firstly, in cases where the party at fault completely ignores formal letters before action and fails to respond within the designated timeframe (usually 14 – 30 days) the affected party’s only feasible route forward is to file a claim.
Disputes that could not be resolved through mediation or negotiation, because they hinge on a disputation of key term or point of law, require an official ruling from a judge.
Furthermore, time-sensitive cases as defined by the Limitation Act 1980, require immediate court proceedings in order to protect the legal rights of the affected party. Otherwise, issues may persist over the standard 14 – 30 day waiting period and could leave individuals or businesses in unfair positions.
Similarly, certain disputes require immediate attention in order to support individuals or businesses who are suffering the effects of an ongoing breach. Courts must be brought in to intervene and bring a stop to a persistent violation of contract.
Tips for reducing the risk of future contract disputes
Taking proactive steps during the drafting stages is the most effective way to protect your interests when entering into a legally binding agreement.
1. Draft clear and unambiguous terms
First and foremost, contractual disputes can be avoided so long as every single term, clause, and its wording is agreed upon by both parties. You cannot rely on assumptions that others will infer written communications the same way that you do.
Instead, it’s ideal to run through proposed contracts with both parties present for complete clarity.
2. Define schedules and milestones
Where applicable, exact project deliverables and schedules should be outlined in the contract to set realistic expectations from the beginning of a project or partnership.
This gives one side of the project strict timelines to abide by and allows the other side to make reasonable requirements.
3. Include thorough dispute resolution and termination clauses
This is an effective fallback in the event that a dispute does arise, as it provides a detailed, agreed-upon mechanism that specifies exactly how a dispute should be handled.
It’s also helpful to include exact grounds on which an early termination is feasible, ensuring both parties have a clear and mutually agreed exit strategy if obligations can no longer be met.
4. Schedule contract reviews
Sometimes, plans change, and with a relatively frequent routine of reviewing and updating terms and conditions within a document, these changes can be mutually adhered to and benefit both parties involved.
This doesn’t need to be a strictly regular monthly check-in like it would be for a project or short-term agreement. Instead, maintaining clear communication between parties and requesting a discussion when necessary can work perfectly well.
5. Seek professional advice early
A solicitor will be able to draft up or review standard contracts, more complicated deals, and especially high-value agreements to identify hidden liabilities or enforceability gaps before any proposal or signing of the contract.
Supporting businesses and individuals with contract disputes
Proposing or signing a contract where all disputative eventualities are covered is easier said than done, especially without another pair of eyes going over the document or adding extra detail to an unclear term. Equally, going through the process of tackling unpaid invoices or an unresponsive counterparty is stressful and time-consuming, especially when the matter must be taken through a formal proceeding.
Our team at Cooklaw Solicitors provides expert support with contracts including reviews of existing agreements and the drafting up of contractual documents to make sure you don’t have to face a dispute further down the line. Those dealing with an ongoing dispute can also seek support in our litigation team, who can help individuals or businesses carry out the necessary steps to reach an amiable resolution without having to take matters to court.
Facing a contract dispute or trying to avoid it? Simplify the process by getting in touch today for guidance tailored to your needs.
