In the world of business, contracts are the cornerstone of trust and cooperation. However, when one party fails to uphold their end of the agreement, the affected party may be forced to navigate the challenging waters of a legal claim.

This blog explores a case study of a small business that pursued a legal claim against another business for breach of contract.

The background

ABC Design Studio, a small graphic design firm based in Leeds, entered into a contractual agreement with XYZ Retail Ltd, a retail chain headquartered in London. The contract specified that ABC Design Studio would create and deliver a comprehensive rebranding package for XYZ Retail over six months. The scope of work was clear, and the payment schedule was clearly outlined, with payments due at the end of each month.

The breach

For the first three months, XYZ Retail paid the invoices as agreed. However, in the fourth month, payments started to lag. By the fifth month, invoices totalling £10,000 remained unpaid. Despite repeated reminders, XYZ Retail failed to settle the outstanding amounts, prompting ABC Design Studio to cease their services and focus on recovering the money owed.

Initial steps

ABC Design Studio recognised the importance of following the correct approach and so took the following initial steps:

1. Formal written demand: ABC Design Studio sent a formal letter demanding payment, detailing the outstanding invoices and requesting immediate settlement within 14 days.
2. Taking legal advice: To understand their legal position, ABC Design Studio consulted with a solicitor specialising in commercial disputes.

Legal action

When XYZ Retail ignored the formal demand, ABC Design Studio's solicitor recommended taking the matter to court. Here’s how the legal process unfolded:

1.  Pre-action protocol: Following the Pre-Action Protocol for Debt Claims, ABC Design Studio’s solicitor sent a Letter of Claim to XYZ Retail, providing them with an opportunity to respond and settle the matter out of court.
2. Issuing a claim: With no satisfactory response, ABC Design Studio’s solicitor filed a claim on the company’s behalf in the County Court Business Centre (CCBC) using the Money Claim Online service, which was suitable given the value of the claim and the straightforward nature of the dispute.
3. Court proceedings: XYZ Retail disputed the claim, alleging dissatisfaction with the services provided, despite no prior complaints. ABC Design Studio's solicitor prepared robust evidence, including the original contract, email correspondence, and the unpaid invoices. Witness statements from satisfied clients were also gathered to strengthen their case.

The outcome

The court ruled in favour of ABC Design Studio, concluding that XYZ Retail had breached the contract by failing to pay the outstanding invoices. The judgment ordered XYZ Retail to pay the owed amount of £10,000 plus interest and legal costs incurred by ABC Design Studio.

Lessons learned

This case study offers several valuable lessons for small businesses:

1. Clear contracts: Ensure that contracts are detailed and clear, outlining payment schedules and consequences for non-compliance.
2.  Documentation: Maintain meticulous records of all communications and transactions. This evidence is crucial if a dispute escalates to legal action.
3. Legal advice: Early consultation with a solicitor can provide clarity on the best course of action and increase the chances of a favourable outcome.
4.  Pre-action protocol: Following legal protocols demonstrates seriousness and provides a structured opportunity for resolution before court involvement.
5. Persistence and patience: Legal proceedings can be lengthy and complex, requiring determination and patience.

Conclusion

While no business hopes to encounter a breach of contract, this case study shows that pursuing legal action is a viable option for small businesses seeking justice and financial recompense. By following a structured legal process and maintaining thorough documentation, businesses can effectively navigate disputes and enforce their contractual rights. With the right approach and legal guidance, small businesses can successfully hold their partners accountable and secure the payments they are due.

 To discuss a business dispute contact Sarah Naylor at sarah.naylor@switalskis.com or call 01302 320621 .