A contract is an agreement between two or more parties which creates or intends to create legally binding obligations between the parties. A contract is formed when parties reach agreement on the essential terms of the contract. The agreement does not necessarily need to be in writing to be a contract with some exceptions (e.g. contracts relating to transfer of land/property must be in writing).
Scottish contract law governs every legal agreement in Scotland. It is a vast area of law and applies to a range of matters including but not limited to: commercial contracts; construction contracts; contracts to supply a service; sale and purchase of goods; online purchases.
Contracts are regulated by their own express terms and may also be subject to various implied terms which are implied into the contract by law or fact.
What is a breach?
A breach of contract occurs where one party fails to fulfil their obligations under the contract. Scots law makes a crucial distinction between a material and non-material (or minor) breach of contract.
A material breach of contract is a serious infringement on the purpose of the contract which entitles the innocent party to terminate contract. Whereas a minor breach is a less serious offence that does not entitle the innocent party to end the contract; however, still provides the innocent party with a right to seek remedy for the breach.
What are my remedies?
There are various remedies available to the innocent party. Some of the most common remedies for breach of contract are:-
1. Retention
Retention is a “self-help” remedy which is exercisable without the assistance of a court.
Under the remedy of retention the innocent party may temporarily withhold performance of their obligations under the contract until the party who is in breach performs their obligations.
2. Recission
Another “self-help” remedy is recission. Here the innocent party can terminate their future obligations under the contract.
In the event of a material breach, the innocent party can elect to terminate the contract and free themselves of their obligations under same. It is important to exercise caution when advancing this remedy, as should the innocent party treat a breach as material when it is not, they will go into breach themselves.
When exercising this remedy, it is also common for the innocent party to raise court proceedings for damages.
3. Damages
Typically in breach of contract cases the primary focus will be on economic loss, whereby damages seek to compensate the innocent party in monetary terms and restore them to the position that they would have been in but for the breach.
The innocent party will have to prove they have suffered loss or damage as a result of the breach and demonstrate a causal link between the breach and loss or damage suffered. The innocent party will be unable to recover any losses that are too remote.
4. Specific Implement
This remedy can be used by the innocent party to compel the party in breach to perform their obligations under the contract, with the exception of payment.
However, the remedy will be refused by the court in certain situations, for example when performance of an obligation would cause an inequitable hardship to the party in breach. The uncertainty as to whether or not the remedy will be granted by the court often leads litigants to go down the route of seeking damages.
5. Interdict/Interim Interdict
This a preventative remedy which prohibits a party from carrying out or continuing an action. There must be a continuing act in breach of contract or a reasonable apprehension of a future act that would lead to a breach of contract.
This remedy is a useful tool to prevent an anticipated breach of contract.
Other considerations
There are of course, other considerations to bear in mind (which may be subject of future insights):
- Implied terms
- Prescription
- Right to cure a breach
- Force majeure terms
Takeaways
Disputes around contractual terms can easily arise. There can be disagreements as to what obligations are placed on parties which can lead to contentious litigation. We can provide legal advice from the outset to ensure the terms and conditions of any contract are clearly set out and ensure payment and performance expectations are met.
We would be happy to help with any case regarding a breach of contract. Get in touch with a member of our Dispute Resolution team for further assistance here.
