Being a business owner means that making agreements and signing contracts can be a regular occurrence. These formal agreements protect your business and ensure that suppliers, business partners and even customers uphold their end of the contract.
The clauses that are present in these contracts form the backbone of a business's operations, covering the supply of goods, delivery of services, timeframes for completion and when payments are due. As such not complying with any of the conditions in a contract will often lead to a dispute.
When a party fails to fulfil the terms and conditions in a written agreement, without a lawful or valid excuse, this is referred to as a breach of contract and you must decide how to deal with the breaking of the agreement.
But before you start filling out the court forms, a first step in dealing with a breach is to formally advise the other party with written notice, known as a 'Letter of Claim' or 'Letter Before Action'.
So it's important to understand the purpose and consequences of a Breach of Contract Letter Before Action prior to issuing one.
A Letter Before Action is the starting point of many forms of civil legal proceedings and basically sets out your legal claim. It's important to keep in mind that while a Letter Before Action is the first step in taking formal action, it should be the last step in trying to deal with the issue informally.
Calling in lawyers and involving the court at the first inkling of a problem usually won't be helpful. If an aspect of a contract has not been complied with or is outstanding, then a polite (but firm) enquiry to the other party on the reason and how they intend to resolve the issue should be your first act.
Then if informal discussions don't start the process to resolve the issue, sending a Letter Before Action is often a low-cost route to opening a dialogue with the other side to achieve a resolution.
Background and context
The letter should start by referencing the specific contract or agreement that has been breached, when it came into force and what it covers. You shouldn't assume that the person who deals with the letter is aware of the existing business relationship and that an agreement is in place.
Circumstances and facts
Briefly explain what has occurred and how it is considered to be a breach of the agreement. Ideally point to a specific obligation or clause in the contract and how this obligation hasn't been met. There may also be breaches to legislation or statutory rights (such as the Sale of Goods Act) that can be referred to. If the failure has resulted in a loss or damage that can be calculated, then this should also be included.
Remedy and resolution
State how the breach can be remedied and how the matter can be resolved to your satisfaction. This resolution will be down to the type of agreement and specifics of the breach, but could involve immediate payment of an outstanding amount, the return of a supplied product, cancelling of a service/contract or a monetary payment to cover a loss.
Timeframe and response
A reasonable period should be given for the other party to comply or at least acknowledge and respond to the letter. A timeframe of at least 14 days would be a minimum, however there may be a relevant pre action protocol that the letter needs to specifically comply with such as with Debt Claims or Construction and Engineering Disputes .
Consequences and legal action
Finally, the whole point of the Letter Before Action is to set out your claim and place the other party on notice that a failure to act could lead to you starting legal proceedings. This should be stated in the letter along with highlighting that you will also be looking to recover any additional costs that are involved with court action from them as well.
Engineering and Construction sectors have the greatest frequency of disputes (21%), with Healthcare and Pharmaceuticals having the fewest (7%). Study by the International Association for Contract and Commercial Management
