Life Cycle of a Claim for Breach of Contract - Article One - Pre Action

Contracts are the foundation of all business transactions. They formulate agreements with customers, suppliers, and other third parties. Ideally, a contract would be properly drafted and will clearly identify the terms and what is expected from each party, for the contract to be performed. Many contracts in business are vague and, in some instances, agreements are not written down. Inevitably when in business there will be contract disputes, particularly with regard to alleged breach of contracts. You may well be contemplating bringing court proceedings because of this breach of contract.

In advance of issuing a claim, there are certain steps parties must take that are known as "Pre-Action Steps".

Pre Action Steps

Step One - Client objectives

It is of key importance to identify your ultimate objective and what you are seeking to achieve both legally and commercially. Do you want or need a swift conclusion to matter over the highest possible financial return? Is the dispute damaging your business? Is it important to resolve the dispute in a way you can still maintain a business relationship with the other side? Your objectives will inform the advice given to you.

Step Two - Prospective parties

It is vital to ensure you know who the potential parties to a claim are. Businesses can be complex with various subsidiaries. A claim can default further down the line if you engage with the wrong subsidiary of a business. Additionally, it is important to investigate the viability of the business you are considering suing, i.e., do they have any money?

Step Three - Evidence

The burden of proof is on the claimant, which means if you are issuing a claim you will need to prove your case. You will need to collate evidence. Examples of key evidence would be, ideally, a written contract to view. A contract however can be established without an expressly written contract, through email correspondence, invoices, and purchase orders, and simply the exchange of goods and money.

Step Four - Limitation

In a breach of contract, the claim is only actionable if the breach has occurred within the last 6 years. However, some contracts may include terms which reduce the limitation period.

Step Five - Costs

At Forbes we are transparent with clients about costs that may be incurred and what is required to move forward in a commercially viable way. The value of the claim will affect the recoverability of costs at trial, and so in some instances it is not commercially viable to pursue a claim through the courts as the costs with exceed the amount recoverable. If a claim is not commercially viable in the courts, there are still legal tactics that can be used to recover losses.

Step Six - Dispute Resolution

A client should not always launch into litigation, which should be considered as last resort. There a various way of resolving a dispute without entering litigation. This could be negotiations between both parties' solicitors, mediation, or adjudication.

Step Seven - Pre Action Protocol

There are certain protocols which govern what steps parties must take before issuing a claim with the courts. The protocols are in place to allow the parties to establish the issues that are in dispute, share information that is available regarding those issues, and endeavour to resolve the matter without issuing proceedings. For a breach of contract, a Letter of Claim will be sent, which includes the background of the matter, details of the agreement, the breach of the express and implied terms of the contract, the losses, and proposed resolution. A well drafted Letter of Claim will let the other side know that you are serious and ready to issue proceedings. You must allow the other side time to respond to the letter and the letter of response should address the issues in dispute, and then state whether liability is admitted or denied.

Step Nine - issue proceedings.

If you have not managed to settle the dispute and you have established and/or exhausted all the previous steps, the next step would be to issue proceedings. Without prejudice negotiations and other alternative dispute resolution can continue throughout the litigation process to settle the matter before it reaches Trial.

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If you are contemplating bringing forward legal proceedings in relation to a breach of contract, or if you believe a party may potentially bring proceedings against you, it is imperative you seek legal advice at the Pre-Action stage.