## Introduction

A contract is a legally binding agreement that creates obligations the courts will enforce. It arises from a clear offer, unqualified acceptance, consideration, and an intention to create legal relations. If one party fails to perform as promised, a breach of contract occurs. The legal response depends on the nature of the term breached and the seriousness of the failure, with consequences ranging from damages to the right to bring the contract to an end.

For SQE preparation and day‑to‑day practice, it pays to know how to classify terms, when termination is justified, how exclusion clauses operate, and which remedies are available. This guide sets out the essentials with leading cases and practical steps.

## What You'll Learn

- How to classify terms as conditions, warranties, or innominate terms, and why it matters
- When a breach is repudiatory (justifying termination) and when it is not
- How exclusion and limitation clauses operate, including contra proferentem and the UCTA 1977 reasonableness test
- What counts as an anticipatory breach and your choices: accept and terminate or affirm and keep the contract alive
- The main remedies: expectation, reliance and restitutionary damages; mitigation; remoteness; specific performance; and injunctions
- Practical workflows for advising clients and drafting contracts

## Core Concepts

### When Does a Breach Arise?

- A breach occurs when a party fails to perform a contractual duty or performs it defectively or late.
- The legal effect depends on the type of term:
  - Condition: a key term where breach usually permits termination plus damages.
  - Warranty: a lesser term where breach gives damages only.
  - Innominate (or intermediate) term: the remedy depends on the seriousness of the consequences of the breach.

Repudiatory breach describes a breach serious enough to justify termination (for example, breach of a condition or a serious breach of an innominate term). A non‑repudiatory breach entitles the innocent party to damages only.

### Conditions, Warranties, and Innominate Terms

- Conditions and warranties can be set by the contract, statute, or case law.
- Innominate terms were recognised in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26. The court asks whether the breach deprived the innocent party of substantially the whole benefit of the contract.
- Sale of Goods Act 1979 (SGA):
  - Section 13 (sale by description) is a condition: strict compliance is required.
  - Sections 14 and 15 (satisfactory quality/fitness and sale by sample) are implied terms. Following s15A (inserted by the 1994 Act), in non‑consumer sales a slight breach may limit the buyer to damages rather than rejection. In practice, this often operates similarly to innominate term treatment.

Key effects:

- Breach of a condition generally gives a right to terminate and claim damages.
- Breach of a warranty gives damages only.
- Breach of an innominate term: outcome depends on the seriousness of the actual consequences.

### Exclusion and Limitation Clauses

Three questions guide analysis:

1. Incorporation: Was the clause part of the contract? Methods include signature, reasonable notice before or at the time of contracting, and consistent course of dealing.
2. Construction: Does the wording, read in context, cover the breach? Ambiguity is construed against the party relying on it (contra proferentem).
3. Statutory controls: Is the clause valid under the Unfair Contract Terms Act 1977 (UCTA) or the Consumer Rights Act 2015 (CRA)?

Important points:

- Photo Production Ltd v Securicor Transport Ltd [1980] AC 827: there is no automatic rule invalidating clauses for very serious breaches. Applicability is a matter of construction, with statutory controls deciding fairness.
- UCTA 1977:
  - Section 2: liability for death or personal injury caused by negligence cannot be excluded; other negligence liability can only be excluded if reasonable.
  - Section 3: where one party deals on the other’s written standard terms, exclusions of liability for breach or substantial variations in performance must be reasonable.
  - Section 11 and Schedule 2: set out the reasonableness test and factors (e.g., bargaining strength, inducements, knowledge of the term).
- CRA 2015 applies to consumer contracts, imposing a fairness test and a blacklist of non‑excludable rights.

### Anticipatory Breach and Affirmation

An anticipatory breach occurs when, before performance is due, a party makes it clear they will not perform (by words or conduct).

Options for the innocent party:

- Accept the repudiation: terminate immediately and claim damages (Hochster v De La Tour (1853) 2 E & B 678).
- Affirm the contract: insist on performance and keep the contract alive. This requires clear affirmation and carries risks (e.g., intervening events may discharge the contract). Damages will still be subject to mitigation.

Practical notes:

- Document the election (acceptance or affirmation) clearly.
- If affirming, continue to perform your own obligations unless excused.
- Mitigation still applies; you must act reasonably to limit loss.

### Remedies: Damages and Equitable Relief

Damages

- Principle: Robinson v Harman (1848) 1 Ex 850 — put the claimant, so far as money can, in the position as if the contract had been performed.
- Types:
  - Expectation loss: the benefit of the bargain (difference in value, cost of cure, lost profits).
  - Reliance loss: wasted expenditure incurred in reliance on the contract. Reliance cannot exceed the expected benefit; the defendant may show the contract would have been loss‑making (C & P Haulage Co Ltd v Middleton [1983] 1 WLR 1461).
  - Restitutionary gain: exceptional; aimed at stripping gains wrongfully obtained.
- Mitigation: claimants must take reasonable steps to reduce loss. Sometimes this means accepting reasonable substitute performance (Payzu Ltd v Saunders [1919] 2 KB 581).
- Remoteness:
  - Hadley v Baxendale (1854) 9 Exch 341: recoverable loss is that which arises naturally from the breach or is reasonably within the contemplation of both parties at the time of contracting.
  - Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48: adds a focus on whether the type of loss is one the defendant can fairly be taken to have assumed responsibility for.

Equitable remedies

- Specific performance: ordered only where damages are inadequate, typically for unique goods or land. Courts avoid orders requiring constant supervision (Co‑Operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] UKHL 17).
- Injunctions: usually prohibitory (to restrain a breach). Often used to enforce negative obligations, such as exclusivity clauses (Warner Bros Pictures Inc v Nelson [1937] 1 KB 209).

## Key Examples or Case Studies

Arcos Ltd v E A Ronaasen & Son [1933] AC 470

- Facts: Timber staves were slightly thicker than the 0.5‑inch description.
- Held: Description under SGA s13 is a condition. Even a small mismatch justified rejection.
- Use in practice: Draft precise specifications and consider s15A in non‑consumer sales to avoid disproportionate rejection.

Re Moore & Co and Landauer & Co [1921] 2 KB 519

- Facts: Correct total quantity of tinned fruit delivered, but cases were packed 24 tins instead of 30 as described.
- Held: Non‑compliance with description entitled the buyer to reject.
- Use in practice: Packaging and presentation can be part of the description; manage risk via careful drafting or s15A where applicable.

Photo Production Ltd v Securicor Transport Ltd [1980] AC 827

- Facts: Security guard deliberately set fire to the claimant’s factory; the contract had a strong exclusion clause.
- Held: Whether the clause covered the loss was a matter of construction; no automatic rule invalidating it for serious breach. UCTA reasonableness (where applicable) remains critical.
- Use in practice: Draft clear, targeted exclusions/limitations and prepare to justify reasonableness.

Hochster v De La Tour (1853) 2 E & B 678

- Facts: Employer cancelled a courier’s contract before the start date.
- Held: The courier could sue immediately for anticipatory breach.
- Use in practice: On clear repudiation, decide quickly whether to accept and claim or affirm and keep the contract alive.

Robinson v Harman (1848) 1 Ex 850

- Principle: Expectation measure aims to give the benefit of the bargain.
- Use in practice: Frame claims around the position as if performed; choose between difference in value and cost of cure appropriately.

Hadley v Baxendale (1854) and The Achilleas [2008] UKHL 48

- Principle: Loss must be within the reasonable contemplation of both parties; The Achilleas focuses on assumed responsibility.
- Use in practice: Identify special circumstances communicated at formation and address assumed responsibility in drafting.

## Practical Applications

Analysing a potential breach

- Identify the term breached and classify it (condition, warranty, or innominate).
- Assess seriousness and consequences to decide whether termination is available.
- Check for any cure rights or contractual notice procedures before terminating.
- If facing an anticipatory breach, record your election (accept or affirm).

Working with exclusion and limitation clauses

- Confirm incorporation: signature, timing and quality of notice, or course of dealing.
- Read the clause carefully: does it cover the breach and the type of loss?
- Apply UCTA 1977 (and CRA 2015 for consumers): prepare a reasonableness analysis (bargaining strength, availability of insurance, alternatives, transparency).

Quantifying and limiting damages

- Choose the measure: expectation (difference in value or cost of cure), reliance (if expectation is uncertain), or exceptionally restitutionary.
- Gather evidence for mitigation steps (e.g., cover purchases, alternative suppliers).
- Anticipate remoteness arguments: document what was communicated at contract formation.
- Be prepared for the defendant to argue the contract was loss‑making (to cap reliance loss).

Equitable relief strategy

- Consider specific performance for unique goods or land, where supervision is minimal.
- Use prohibitory injunctions to restrain breaches of exclusivity or non‑compete obligations.
- Avoid seeking orders that require continuous oversight by the court.

Drafting and negotiation tips

- Label terms clearly as conditions or warranties where appropriate, but remember courts look at substance.
- Include fair, well‑signposted limitation clauses (caps, carve‑outs for death/personal injury) designed to pass UCTA reasonableness.
- Manage foreseeability: address special risks expressly and allocate responsibility.
- For sales of goods, take account of SGA s15A to avoid disproportionate rights of rejection in non‑consumer deals.

For SQE exam technique

- Identify the term and classify it before jumping to remedies.
- Flag incorporation, construction, and statutory control for any exclusion clause.
- For damages, apply Robinson v Harman, mitigation, and remoteness in that order, citing Hadley and The Achilleas.

## Summary Checklist

- Offer, acceptance, consideration, and intention present? Contract formed.
- Which term is breached: condition, warranty, or innominate? Any express labelling?
- Are the consequences serious enough for termination (repudiatory breach)?
- Exclusion/limitation clause:
  - Incorporated?
  - Properly construed to cover the breach?
  - Compliant with UCTA 1977 (and CRA 2015 if consumer)?
- Anticipatory breach: accept and terminate or affirm? Record your choice.
- Damages:
  - Expectation, reliance, or restitutionary?
  - Evidence of mitigation?
  - Loss within reasonable contemplation (Hadley; The Achilleas)?
- Equitable relief suitable? If so, is supervision minimal and damages inadequate?

## Quick Reference

| Concept              | Authority                                    | Key takeaway                                                       |
| -------------------- | -------------------------------------------- | ------------------------------------------------------------------ |
| Term classification  | Hong Kong Fir [1962]; SGA 1979 ss13–15, s15A | Conditions/warranties fix remedies; innominate depends on impact   |
| Description of goods | Arcos [1933]; Re Moore [1921]                | Strict compliance; slight mismatches can justify rejection         |
| Exclusion clauses    | Photo Production [1980]                      | Effect is by construction; then apply UCTA/CRA controls            |
| UCTA core rules      | UCTA 1977 ss2, 3, 11; Sch 2                  | Death/personal injury can’t be excluded; others only if reasonable |
| Anticipatory breach  | Hochster v De La Tour (1853)                 | Accept and sue now, or affirm and keep contract alive              |
| Damages measure      | Robinson v Harman (1848)                     | Put claimant in position as if performed                           |
| Mitigation           | Payzu v Saunders [1919]                      | Take reasonable steps to limit loss                                |
| Remoteness           | Hadley (1854); The Achilleas [2008]          | Loss recoverable if within contemplation/assumed responsibility    |
| Specific performance | Co‑Op Insurance v Argyll [1997]              | Rare; not for continuous court supervision                         |
| Injunctions          | Warner Bros v Nelson [1937]                  | Common for negative obligations                                    |


Breach of Contract: Rights & Remedies