One option to minimise the uncertainty that accompanies that level of discretion is to try to eradicate ambiguity, by expressly defining within the agreement what constitutes a material breach of contract. whether the breach can be remedied in future.īreach of contract and materiality: What practical advice arises for negotiating/drafting contracts?įor all practical purposes, the courts have a considerable degree of discretion when deciding whether or not a breach of contract is material.potential consequences on the respective parties if the breach were found to be material.commercial/factual consequences of the breach and impact on the innocent party.the parties’ conduct, including their reaction to the breach.the full factual matrix, including the commercial circumstances and circumstances surrounding the breach.the nature of the contract and all relevant contractual terms.If there’s no express contractual definition for ‘material’ breach of contract, the following factors should be taken into account: So, in light of the court’s varied approach and the significant subsisting uncertainty, how can a contract negotiator or contracting party determine whether a breach of contract is material? (Dissolution of a company was found not to constitute a material breach of contract since the company could be restored to the register.)Īscertaining materiality: The correct approach The same principle was applied in the recent case of RiverRock European Capital Partners LLP v Harnack (2022).In the recent case of Stobart v Esken (2022), it was held that there had been no material breach because the sorts of breaches committed could have been put right in the future.Along similar lines, in Mears Ltd v Costplan Services (South East) Ltd (2018), material breach was held to be somewhere between not trivial and sufficiently serious to be repudiatory.The breach must be a serious matter, rather than a matter of little consequence”. Having regard to the context of this provision, I think that ‘material breach’ means a breach which is substantial. In Compass Group UK and Ireland Ltd v Mid Essex Hospital Services NHS Trust (2013) LJ Jackson stated the phrase ‘material breach’ “connotes a breach of contract which is more than trivial, but need not be repudiatory….In Crosstown Music Company 1, LLC v Rive Droite Music Ltd(2009) the court considered that the concept of materiality, as opposed to triviality, has to be measured in the context in which the question arises – that is, the total factual matrix, covering the terms of the contract and the circumstances of the case.(It was relevant, in that case, that Celtech was on the brink of insolvency.) In Dalkia Utilities Services Plc v Celtech International Ltd (2006), the High Court ruled that failing to make three consecutive monthly payments constituted a material breach of Celtech’s obligations, as the combined total was “neither trivial nor minimal”.In National Power Plc v United Gas Co Ltd (1998), the court held that a material breach of contract was a breach that has a serious effect on the benefit that the innocent party would have otherwise derived from the contract. Over time, the courts have adopted a varied approach to interpreting materiality: Meaning will therefore be a question of interpretation, on a case by case basis. There is no universal legal definition for material breach of contract. But what constitutes a ‘material’ breach? Breach of contract and materiality: Key principles To allow termination, as opposed to just financial compensation, for breaches which are less drastic than repudiatory breaches, but that nevertheless still have a significant impact, parties often agree express terms providing for termination in the event of a material breach of contract. (Such a breach is also known as a repudiation, or a repudiatory breach.) The basic, common law position is that a contract can only be terminated if the actions of a breaching party go right to the core of the contract and substantially deprive the innocent party of the benefit the contract was intended to confer.
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