The vast majority of commercial transactions are founded on contracts. A contract arises where there is an agreement supported by “consideration”, which may be money but need not be. The terms of each contract determines the rights and obligations of the parties, and in commercial contracts the parties are largely free to decide what these terms should be.
Where one of the parties is a “consumer”, terms are implied into the contract by statute regardless of what the parties agree. In these cases, goods supplied to a consumer must be of satisfactory quality, fit for the purpose for which they were bought, and delivered in a reasonable time. Similar provisions apply to services. In addition to these implied terms (which cannot be excluded), the terms of the contract cannot be “unfair”; if they are, the Court will simply exclude them if proceedings are brought to enforce the contract.
Terms and conditions
The terms and conditions of trading used by commercial organisations are therefore extremely important. They can be used to determine every aspect of the contract, for instance how interest is to be calculated (from when at and what rate), when risk passes on goods to be delivered, and when ownership of property is transferred. This is particularly important if the buyer has financial difficulties; if the terms and conditions allow for it, the seller can require the buyer to keep the goods separate and can collect them from the seller if they haven’t been paid for in accordance with the terms and conditions of sale.
Breach of contract
If a party is in breach of the contract between them, the other party may have a number of remedies. It could in some cases bring a claim for an injunction compelling the other party to abide by the contract, or choose to accept the breach of contract and bring a money claim to recover its losses. Broadly speaking, the claim can be brought for all of the losses that naturally flow from the breach of contract. However, the amount of money that can be recovered is governed by a number of factors.
A Claimant must attempt to minimise the losses that it suffers, for example by attempting to sell stock elsewhere if a purchaser has not paid for them. Usually this will be for less than the contract price (but may not always be the case, particularly in a rising market) and may be difficult if not impossible if the goods were specially made.
The Limitation Act 1980 prevents “stale” claims being brought, and a defence that successfully raises the Limitation Act will result in the claim being struck out. The usual rule is that claims that are older than 6 years are statute-barred; in contract claims the period runs from the date of the breach of contract, but in tort or negligence claims it runs from the date of the “damage”. This may be the date of the negligent Act, but may not be in some circumstances (see below for further details). For personal injury claims the period is 3 years, and for claims brought to enforce a deed or other documents under seal (for instance a lease) the period is 12 years.
Interest can either be claimed at the rate specified by the contract (if there is one), or alternatively at the rate set by the Court. This is 8% at present, and can be claimed from the date of the breach of contract. In some cases it is possible to claim compensation and an enhanced interest rate under the Payment of Commercial Debts (Interest) Act 1998.
Building and construction claims
There are a number of key distinctions that apply to building and construction claims that separate them from normal contractual disputes. They are often based on a special form of contract known as a “JCT contract” or something similar. In some cases however, particularly in domestic building works, there is no or very little contract documentation and it will then be for the Court to decide what the precise terms of the contract are. This can lead to long and costly litigation with little benefit to either party so it is always best to have a written contract to avoid uncertainty. Domestic building contracts are also regulated by the consumer legislation concerning unfair contract terms and so on.
The Civil Procedure Rules of the Court require that building and construction claims are governed by a “pre-action protocol”. This means that before a claim can be issued the Claimant must send to the proposed Defendant a letter before action that states concisely what the claim is about, and how the damages that the Claimant seeks are calculated. The protocol then requires the Defendant to reply in equal detail within a set period, and for the parties and their experts to meet to try to resolve as many issues as possible. Only after this process has been completed can proceedings be issued (unless of course there is a need to issue more quickly, for instance if there is a Limitation Act reason, or an injunction is needed quickly).
The intention of this and other pre-action protocols is to save costs and time for the parties by requiring them to identify the real issues between them and to resolve them between the parties by negotiation, rather than the Court needing to do so. If the pre-action protocol is not adhered to, the Claimant risks being punished in costs even if they are successful (for further details about the pre-action protocol and the Court procedure generally see our Litigation note).
Finally, if the case is particularly complex, the Court may decide that it is best dealt with by the Technology and Construction Court which has a number of specialist Judges that sit around the country. Again the intention is to save time and cost.
This note is not intended to be a definitive guide to the law. For further information contact David Vaughan-Birch.