If you’re dealing with commercial contracts regularly, understanding the concept of a material breach of contract is paramount. For small businesses operating in the UK, knowing when a breach of contract becomes material can make the difference between a minor hiccup and a legal predicament.
In this article, we'll explore the intricacies of material breaches, their implications and how they’re viewed from a UK contract law perspective.
What is a material breach of contract?
A material breach of contract signifies a significant failure by one party to uphold their obligations as stipulated in the contract. It's a breach so substantial that it goes to the very core of the agreement, rendering the contract unworkable.
While minor breaches can be addressed without resorting to legal action, a material breach is a game-changer. In essence, it jeopardises the foundation upon which the contract was built.
What constitutes as a material breach?
Determining what constitutes a material breach of contract can sometimes be a grey area, but there are common indicators to help you identify one:
- Fundamental terms and conditions violation – a material breach typically involves a violation of the fundamental terms and conditions set out in the contract (this might include failure to deliver goods or services, missed deadlines or materially defective performance)
- Failure to perform key obligations – when a party fails to perform its key obligations that were essential to the agreement's purpose, this can be a key indicator of a material breach of contract
- Significant financial impact – a breach that results in a significant financial loss for the innocent party is more likely to be considered material than one resulting in a very minor financial loss
- Anticipatory repudiation – anticipatory repudiation, which we will explore further, is a strong indicator of a material breach (this occurs when one party communicates its intention not to fulfil its contractual obligations)
Does a contract become void and unactionable upon a material breach?
While a material breach is a serious matter, it doesn't automatically render the entire contract void and unactionable. In the UK, the innocent party can choose how to proceed when faced with a material breach of a legally binding contract:
- Terminate the contract – the innocent party has the option to terminate the contract due to the material breach (however, it’s important to follow the correct legal procedures to do so and take appropriate advice)
- Seek legal redress – the innocent party can also pursue a breach of contract claim to seek compensation for any losses incurred due to the breach
- Attempt to cure – in some cases, the party in breach may be allowed to rectify the breach, depending on the contractual terms (this is known as "cure" and can prevent the contract from being terminated)
Is non-payment a material breach?
Non-payment can indeed constitute a material breach, depending on the circumstances and terms of the contract. If the contract specifies payment terms and the breaching party fails to make the agreed-upon payments, it can severely disrupt the contract's purpose and financial viability, thus qualifying as a material breach.
Is a breach of warranty a material breach?
A breach of warranty, unlike a breach of a fundamental term, is generally not considered a material breach. In contract law, warranties are secondary or subsidiary promises, and a breach of these promises is typically not substantial enough to undermine the core purpose of the contract.
Is anticipatory repudiation a material breach of contract?
Anticipatory repudiation is a strong indicator of a material breach. It occurs when one party clearly communicates its intention not to fulfil its contractual obligations before the performance is due. In such cases, the innocent party is usually entitled to consider the contract void and unactionable.
How to prove a material breach of contract
To prove a material breach of contract, it's crucial to gather evidence that supports your claim. Here are the key steps to consider:
- Review the contract – start by thoroughly reviewing the contract's terms and conditions to determine whether the breach is, indeed, material. If you are unsure, take appropriate advice.
- Document the breach – carefully document all instances of the breaching party's failure to uphold their obligations (this includes any written correspondence, oral communication and any other evidence related to the breach)
- Negotiation – sometimes, it may be possible to negotiate with the breaching party to resolve the issue without resorting to legal action (alternative dispute resolution methods, such as mediation or arbitration, can be explored)
- Consult legal experts – seek legal advice from a qualified solicitor with expertise in contract law, like the experts at LawBite (our team can provide guidance on the best course of action and help you build a strong case)
Key takeaways
- A "material breach of contract" is a significant failure by one party to fulfil their contractual obligations, jeopardising the core purpose of the contract.
- A material breach may involve a violation of fundamental terms, failure to perform key obligations, significant financial impact or anticipatory repudiation.
- While a material breach doesn't automatically void the contract, the innocent party has options, including termination, seeking legal redress or allowing the breaching party to cure the breach.
- Non-payment can be a material breach and anticipatory repudiation is a strong indicator of a material breach.
- To prove a material breach, gather evidence, consult legal experts and consider negotiation or alternative dispute resolution methods.
Get legal assistance from LawBite
Understanding what constitutes a material breach is critical if you’re dealing with commercial contracts. It not only helps in protecting your business interests but also ensures that your contractual relationships remain legally sound.
Should you ever find yourself in a contractual situation where you suspect a material breach or any other type of breach, remember to seek legal advice promptly.
We're here to guide you through the intricacies of contract law and provide practical and affordable legal advice. If you suspect a party you’re in contract with has breached the terms of your agreement, book a free 15 minute consultation with one of our expert contract lawyers or call us on 020 3808 8314. We’ll be able to help you determine the validity of your material breach claim and advise on next steps.
