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Commercial Contract Disputes: Frequently Asked Questions

09 Oct 2019

1. My contract has no express termination provisions, how can I bring it to an end?

Contracts usually have clauses allowing the parties to terminate in certain circumstances, such as if one party enters insolvency, or by giving a period of notice. If no such express provision is made, the following grounds for termination are implied:

  • Breach of a term within the contract which means the innocent party is deprived of the benefit of the contract;
  • Repudiation (for more details see FAQ 3).

A right to terminate on “reasonable notice” may also be implied where it is obvious or necessary to make the contract ”work” in practice, such as where it is clear the parties don’t intend it to last forever.

What “reasonable notice” actually is based around when notice is given, not when the contract was made, and taking into account many factors:

  • How long the terminated party would need to replace the lost contract;
  • How much the terminated party depends financially on it;
  • The parties’ commitments when the notice is given;
  • Whether the relationship was formal or informal;
  • Any notice periods which were discussed or suggested, even if they were not agreed;
  • Any notice period in a previous agreement over the same subject matter;
  • Whether notice was unexpected or there had been some prior warning.

 2. The goods I have purchased for my business are not up to scratch – does the law provide any remedy for me if the contract does not provide for a refund?

The Sale of Goods Act 1979 (“SGA”), implies various terms into contracts for the sale of goods which provide buyers with recourse against sellers where their goods aren’t up to scratch.

Section 14(2) SGA provides that where goods are sold within the course of a business, they are to be of a “satisfactory quality” – and determining whether they are needs to take the following into account:

  • the description of the goods (see Section 13 SGA);
  • the price paid;
  • the appearance and finish of the goods; and
  • whether the goods are reasonably fit for purpose

Goods are considered to be of satisfactory quality if they meet the standard which a “reasonable person” would regard as such.  If they don’t, you would be able to pursue a claim for breach of the implied term that they would do.

There are also implied terms for fitness for purpose and correspondence with description which could also be relevant in a breach of contract claim.

3. My contract says that I have no right to reject the goods and claim a refund – does this mean I have to accept the goods and pay for them?

Repudiation

Every party to a contract has the right to terminate a contract on the grounds of the most serious breach, called repudiation. The following amount to repudiatory breaches:

  • breach of a condition;
  • breach of an intermediate term;
  • refusal to perform all or substantially all of a party’s obligations under the contract;
  • if a party makes it impossible to perform the contract.

This right does not need to be stated in the contract, nor does it rely on being implied into the contract.  Its normally presumed that both parties intend for this remedy to be available for breach of contract (and consequently it’s difficult to exclude this right from a contract).

Commercial Contract Disputes: Frequently Asked Questions

Breach of condition

The terms implied by the SGA providing that goods must be of a satisfactory quality are considered “conditions”. Breach of a condition allows the customer to reject the goods and terminate the contract, unless the breach is so slight that it would be unreasonable for you to do so, or where you have already accepted the goods or part of them.

Acceptance is deemed to be either the customer confirming they have accepted the goods, or when the goods have been delivered and the customer does not act in a way inconsistent with ownership of the goods (i.e. doesn’t reject them). You are entitled to a reasonable opportunity to check the goods meet with requirements, after which it could be considered that acceptance has taken place if you don’t notify the supplier that you have rejected them. It’s important to make it clearly known to the supplier as soon as you notice anything which means you do not want to accept the goods.

Breach of warranty

In the event that the goods are accepted, any potential breach of the implied term that they will be of a satisfactory quality will be considered a breach of warranty, rather than a breach of a condition. The available remedy for such a breach is a claim for damages only, and doesn’t entitle you to terminate the contract and claim a full refund. Any damages would be assessed in relation to any loss you can prove has been suffered by you as a result of the problem with the goods.

4. The contract contains a clause stating that the other party’s liability for all warranties, conditions and other terms implied by statute is excluded. Does this mean I can’t pursue a claim against them?

The Unfair Contract Terms Act 1977 (“UCTA”) applies to clauses which limit liability, specifically limits on liability for breach of the implied conditions requiring goods to be of a satisfactory quality, fit for purpose, and to correspond with the description and/or the sample. Any clause attempting to limit liability must be considered “reasonable” taking into account many factors, including:

  • what the parties knew or should reasonably have contemplated when they made the contract;
  • the equality of bargaining positions;
  • whether the clause was negotiated; and
  • whether insurance for the loss excluded can be obtained.

It’s advisable to seek legal advice on the terms of a contract before entering into it.  If there is any scope for negotiation, it is advisable to try and reduce the effect of exclusion and limitation of liability clauses before the contract is agreed, so you aren’t left with very limited remedies in the event of breach.

If you have any queries about the terms of your contract, please contact Sara Malik, or call 0191 232 8345.