What Is a Fundamental Breach of Contract in Construction?
Construction contracts are well-known for being complicated and complex; the devil is always in the detail, or lack of it.
However, construction contracts are still subject to the same legal principles as plain and simple contracts. One such principle is a fundamental breach.
A fundamental breach can have a terminal impact on a construction agreement.
As construction litigation specialists, Helix Law provides expert advice during contract negotiations to prevent a fundamental breach from occurring in the future. Should a dispute arise, we can help.
Contact us today for a consultation. We aim to respond to all queries within an hour.
What is a Fundamental Breach of Contract?
A fundamental breach means that one party to the contract has been unable to or has chosen not to fulfil or complete its obligations under the agreement.
There is no legislation enshrining fundamental breach of contract. Instead, the concept is enshrined in the common law of contract. It’s sometimes also referred to as a repudiatory breach.
A fundamental breach usually occurs when one party fails to perform an essential action to complete the contract. The act or omission typically means that another party or parties to the agreement cannot meet their duties and obligations.
A fundamental breach denies the innocent party the main benefit of the contract and is often described as going to the root of the contract. It’s usually incompatible with the continuance of the contractual relationship.
Common fundamental breaches in construction contracts include:
- Deliberate refusal to perform or complete the contract
- Intentionally abandoning the work or service
- Refusing to perform a valid instruction under the contract
- Failure to make payments under any circumstances.
Usually, a construction agreement will list the most common acts or omissions that amount to a fundamental breach.
A fundamental breach can also be evidence of clear intention to deprive the other party or parties of their benefit under the contract should the contractual obligations be fulfilled. Consequently, the whole project founders.
A fundamental breach of contract can apply to any legal, contractual obligation. However, a fundamental breach is somewhat different in construction — an industry noted for its complexities, multi-party agreements, and third-party contractors.
Construction contracts are usually divided into different parts; a partial failure may not derail the whole agreement.
It’s generally in everyone’s best interests for the contract to continue rather than suffer the delay and difficulties of appointing a new contractor.
A well-drafted construction contract typically allows for provisions to be varied to circumnavigate a breach.
What Are the Potential Remedies For a Fundamental Breach of Contract?
An aggrieved party can go to Court and request that the Court compel all contractual parties to complete the contract; this is called specific performance.
Depending on the nature of the breach, sometimes this isn’t possible.
Rescission involves cancelling the contract. Typically, the aggrieved party receives a full or partial refund for the service or product.
Reformation is akin to rewriting the contract to cover the scope of the action or omission committed by the party causing the breach. This avoids or tries to prevent a scenario where a fundamental breach occurs and the parties are at loggerheads.
In some situations, renegotiating terms can salvage the agreement, allowing the contractual parties to try and move towards a workable outcome.
A well-drafted construction contract should allow for provisions to be varied without there being a breach.
Suing for damages is usually a last resort for the aggrieved party to recover some of their losses.
If there’s no need to maintain a working relationship with the party causing the breach, litigating for damages may be the first and best option.
Here are some critical points about claiming damages.
- Damages are awarded to put the claimant into the same position it would have been if the terms of the contract had been met and are based on an estimate of the losses
- Damages can be awarded for quantifiable losses
- There’s a presumption that the claimant will have taken steps to mitigate their losses to reduce the impact of the breach; a claimant cannot claim for losses or an element of loss that could have been reasonably avoided
- Some contracts limit the amount of damages recoverable, but a limitation clause must be reasonable
- There’s a statutory limitation period for bringing a claim of six years or 12 years if the contract is signed as a deed.
Alternatives to Litigation
There is a statutory right to have construction contract disputes determined by an adjudicator, which is quicker and potentially cheaper than going to Court.
Adjudicators are usually construction industry specialists like surveyors, architects, or engineers. They can be identified in the contract, chosen by the disputing parties, or nominated by a nominating body like the Royal Institution of Chartered Surveyors (RICS).
Need Advice About a Breach of Contract in Construction? Contact Helix Law
Prevention is nearly always better than cure. It’s much better to avoid a fundamental breach of contract in construction, if possible, than to claim for specific performance or damages later on.
There is no guarantee that a fundamental breach won’t occur, but working to ensure that a construction contract is as watertight as possible is a worthwhile investment for all parties at the negotiation stage.
To discuss your options, including drafting exemption clauses, skilled and strategic commercial negotiation, and guidance and representation for when things do go wrong, contact Helix Law.
Our team are litigation specialists with decades of experience in construction law.