Contracts are a normal factor in business life. Unfortunately, so are disputes relating to contracts. Ideally, a well drafted contract provides both parties, the supplier and customer, with certainty. The customer knows they have a source of supplies on agreeable terms and the supplier knows they have a customer on profitable terms. This enables both parties to plan production and, on larger contracts, the investment needed to make the most efficient use of the contract.
Where one party withdraws from the contract without giving proper notice, then this can cause a loss to the other party because of their inability to replace the customer/supplier quickly enough.
In our experience, there are common themes in relation to breaches of contract. Some suppliers realise the deal they have done is simply not viable for them and they cannot continue to supply on the agreed terms. Another is where a customer decides to change their own products or systems such that they no longer need the contracted supply. It is common for there to be inequality in the financial resources such that, in our experience, it is often a larger entity that breaches the contract with a smaller supplier that was reliant on their business.
In one such case, a major national business terminated a smaller supplier’s contract for services with almost no notice. The customer was aware they were in breach but appeared to rely on their greater resources to put pressure on the supplier to settle without going to Court.
The wronged supplier had very good production and financial records. We were able to use its financial records on both the subject contract and other similar contracts to demonstrate the profit that had been lost during the period for which the contract should have run and could not be replaced. We took into account the seasonality of the business and provided alternative projections of loss of profit. The case resolved at a level of damages within the range we had calculated. The supplying business was able to overcome the loss of the contract and continued to grow successfully, whereas otherwise the contract loss might have had a longer lasting impact on their business.
Contracts are a normal factor in business life.
We were able to use its financial records on both the subject contract and other similar contracts to demonstrate the profit that had been lost during the period for which the contract should have run and could not be replaced.
In this matter, the key to achieving a strong settlement was the quality of the supplier’s financial records that enabled compelling analysis to be put forward.