Undoubtedly your academy trust will be a party to a number of commercial contracts, whether it be a contract with a supplier for services, such as a cleaning or electricity agreement, or a contract in relation to a school trip.
Although it is always hoped that parties to a contract will be able to perform their obligations successfully, situations can occur whereby one party cannot, or in some cases chooses not to, perform some or all their contractual obligations. Depending on the particular circumstances, this may amount to breach of contract.
Breach of contract
If a party is in breach of a contract, the other party will have certain rights. As well as setting out the parties respective obligations, the contract may state the steps which must be taken where a breach occurs, such as:
- a requirement to serve notice of a breach, potentially giving a period of time for the breach to be remedied
- any pre-agreed damages for a particular breach (liquidated damages)
- where there has been a ‘material breach’ of the contract, a termination right for the innocent part and the right to claim damages.
Before serving any notices of breach or termination, you should ensure that you are clear that there has in fact been a breach. It is also key that you do not stop performing your own obligations where possible, as this may risk the academy trust itself breaching the contract.
If you are certain that there has been a breach (and you may want to seek legal advice), you can consider whether the contract explicitly sets out steps that must be followed and/or a remedy for the breach.
One of the first things to consider where the other party to a contract has breached their obligations is whether you are able to, or want to, terminate the contract. The key point is that not all breaches entitle the innocent party to terminate the agreement.
You should consider whether the contract itself provides for termination in the event of certain specific breaches, such as where there has been a ‘material breach’ or where a breach which is capable of being remedied has not been remedied in accordance with the notice to remedy provisions.
As well as any contractual rights to terminate for breach set out in the contract, there is a common law right to terminate for a repudiatory or anticipatory breach of contract. However, this is a heavily litigated area so we would always recommend seeking legal advice in respect of termination for breach.
In many situations, where there has been a breach of contract there will likely also be a claim for damages to compensate the innocent party for losses which result from the breach. The aim in awarding damages to compensate the innocent party for the true loss suffered and, as far as possible, to place them in the same position as it would have been had the contract been performed.
To claim damages for a breach it will be necessary to demonstrate that there has been a loss caused by the other party’s breach of contract. Whilst the losses can sometimes be difficult to put into monetary format, this does not mean that the party is not entitled to financial recompense.
At the heart of damages is the question of factual causation, or the “but for” test. For example, if your academy trust is seeking to claim damages against a supplier of catering services, it will be necessary for you to prove the position which the breach has left the school in, and the position which the school would have been in had the breach not occurred. In this way, the two positions can be compared.
Avoid future issues
To best prepare your school to avoid, or carefully manage, a potential breach of contract, there are several steps which can be taken when a commercial contract is being prepared.
Whilst there is always a right at law for your academy trust to terminate a contract for very serious breaches, which does not need to be expressly set out in the contract, a contract can further protect your academy trust. We recommend that your contracts include provisions for your academy trust to terminate the contract where the other party commits a material breach which cannot be remedied within a certain timescale, as well as termination for persistent breaches of the contract.