Breach of Contract: Four Financial Risks Every Business Should Understand

A customer refuses to pay. A supplier fails to deliver. A valuable commercial relationship breaks down. 

When contracts go wrong, the financial consequences can extend far beyond the immediate disagreement. Businesses may lose anticipated profits, struggle to recover payments or find themselves exposed to unexpected liabilities. 

Recent decisions of the Supreme Court, Court of Appeal and High Court have highlighted how the terms of the contract and the decisions made when difficulties arise can determine the financial outcome of a dispute. 

Four areas deserve particular attention.

Losing the profits you expected to make

Imagine your business enters into a five-year supply agreement expected to generate £500,000 in profit. You invest in equipment, recruit additional staff and commit resources to fulfilling the contract. After 18 months, the customer breaches the agreement, and you exercise a right to terminate the contract. 

Can you recover the profits you expected to earn over the remaining three and a half years? Not necessarily. 

A contractual right to terminate does not automatically entitle a business to compensation for the profits it would have earned had the agreement continued. 

In Great Asia Maritime Ltd v Orion Shipping and Trading LLC [2026] UKSC 23, the Supreme Court confirmed that damages for the loss of a contractual bargain could be recovered under an express compensation provision, notwithstanding that the breach did not amount to a repudiatory breach. 

The decision turned on the interpretation of the particular contractual provisions. However, it does not establish a general right to recover future lost profits whenever a contract is terminated following a non-repudiatory breach. 

For businesses entering into valuable long-term agreements, the distinction matters. A right to terminate may provide a means of ending an unsuccessful relationship without necessarily protecting the profits that would otherwise have been earned. Even where lost profits are recoverable in principle, the amount claimed may be affected by causation, remoteness, mitigation and contractual limitations on liability. 

The financial consequences of early termination should therefore be considered when negotiating the agreement, rather than only when the relationship breaks down. 

Being unable to recover money you expected to receive

Payment disputes are among the most common causes of commercial litigation. Two recent decisions illustrate why money that appears commercially due may not necessarily be recoverable in the way a business expects. 

When a customer prevents payment from becoming due 

Suppose a business agrees to sell an asset for £1 million, with a £100,000 deposit payable once specified documents have been completed. The purchaser fails to cooperate with those requirements, preventing the deposit from becoming payable. 

In King Crude Carriers SA v Ridgebury November LLC [2025] UKSC 39, the Supreme Court rejected the proposition that contractual conditions for payment should automatically be treated as satisfied simply because the purchasers had wrongfully prevented their fulfilment. 

Although the sellers might have a claim for damages, they could not recover the deposits as contractual debts merely by treating the relevant conditions as fulfilled. The distinction can have important financial consequences. 

A debt claim seeks payment of a sum that has become contractually due. A claim for monetary damages requires proof of the loss caused by a breach, subject to the applicable legal principles. For businesses dependent upon timely payments, this may affect cash flow, the cost of proceedings and the certainty of recovery. 

When work has been completed but payment is disputed 

A different problem arises where a business has already undertaken substantial work before the contract comes to an end. 

In The Winros Partnership v Global Energy Horizons Corporation [2026] EWCA Civ 654, the Court of Appeal considered a dispute concerning solicitors’ fees under conditional fee agreements. 

The solicitors sought payment following the client’s repudiatory breach. However, the contractual arrangements did not provide the entitlement claimed, and the Court rejected an attempt to recover the fees through unjust enrichment in circumstances inconsistent with the parties’ agreed allocation of risk. 

The decision does not mean that businesses are generally unable to recover payment for completed work following termination. Rather, it illustrates that the entitlement to payment depends upon the contractual arrangements, and that a claim for payment based on the value of the work carried out (called a restitutionary claim) cannot necessarily be used to overcome an unfavourable contractual outcome. 

For professional service providers, consultants and businesses undertaking substantial work before payment becomes due, the implications are clear. Payment provisions should address what happens if the agreement ends before completion, including whether fees become payable for work already undertaken. 

These two decisions concern different legal issues but illustrate a common commercial risk: a business may have suffered financial loss or provided valuable services without necessarily being entitled to recover the particular sum it expected. 

Terminating a contract without a valid entitlement

A business faced with repeated contractual breaches may understandably conclude that it is entitled to terminate the contract. However, even persistent failures by the other party do not necessarily justify termination under the relevant contractual provisions. 

In Providence Building Services Ltd v Hexagon Housing Association Ltd [2026] UKSC 1, the Supreme Court considered repeated late payments under a construction contract. The contractor sought to rely upon a termination provision following repeated payment defaults. The Supreme Court held that the contractual requirements for exercising that particular right had not been satisfied. 

The decision concerned the interpretation of specific JCT contractual provisions. It does not establish that repeated breaches can never justify termination, nor does it displace any common-law termination right that may otherwise arise. Nevertheless, it demonstrates the importance of complying with contractual notice requirements, opportunities to remedy breaches and other conditions governing termination. 

The financial risks of getting termination wrong were also illustrated in Whitburn Estates Ltd v Thirteen Homes Ltd [2026] EWHC 1256 (Ch). In that case, a purchaser’s attempt to terminate a property agreement was unsuccessful. The court found that the purchaser had failed to comply with its own contractual obligations and that the seller had validly terminated the agreement. 

The dispute included competing claims concerning the contractual deposit. An unjustified termination may itself amount to a repudiatory breach, potentially entitling the other party to terminate and pursue damages. A business that initially considered itself the innocent party could therefore find itself exposed to substantial financial liability. 

Before terminating a valuable agreement, it is important to establish whether a termination right exists, whether the circumstances justify exercising it and whether all relevant contractual procedures have been followed. 

Continuing to trade without appreciating the effect on your rights

Establishing a right to terminate is one question; preserving that right is another. 

Businesses frequently continue trading with customers or suppliers after discovering problems, particularly where the relationship remains commercially valuable. However, continuing to perform an agreement may affect the ability to terminate it later. 

In URE Energy Ltd v Notting Hill Genesis [2025] EWCA Civ 1407, the Court of Appeal considered whether an energy supplier had lost a contractual termination right by continuing to perform the agreement after an event triggering that right had occurred. 

The Court confirmed that, for there to be a waiver of a right to terminate, a party must have actual knowledge both of the relevant facts and of its right to terminate before its conduct can amount to an election to affirm the contract. Consequently, continuing to perform an agreement does not necessarily mean surrendering a termination right of which the business was unaware. 

There are, however, important qualifications. A party cannot necessarily avoid the consequences of affirmation by deliberately turning a blind eye to a termination right. Knowledge may be established where a party consciously avoids confirming what it suspects. 

Furthermore, even where a business has not formally given up its right to terminate, its conduct may prevent it from exercising that right if the other party has relied upon its actions or assurances and would suffer an unfair disadvantage if the business subsequently changed its position and attempted to terminate. 

Businesses should therefore distinguish between the existence of a termination right, knowledge of that right and the consequences of continuing to perform the contract. 

In some circumstances, maintaining the relationship while seeking a commercial resolution may be the most sensible approach. The important consideration is that the decision should be made with an understanding of the available rights and potential consequences. 

What should businesses take from these decisions? 

The judgments demonstrate that establishing a breach of contract is only the starting point in assessing the financial consequences. Businesses must also consider the nature of the claim they are entitled to pursue. 

A right to terminate does not necessarily establish an entitlement to future lost profits. A breach involving a payment condition does not automatically make the conditional sum recoverable as a debt. Equally, undertaking valuable work does not guarantee payment irrespective of the agreed contractual terms. 

The decisions also highlight the importance of managing the period after a breach has occurred. Terminating prematurely may create substantial liability, while continuing to perform without considering the contractual position may affect valuable rights. 

For businesses negotiating commercial agreements, careful attention should be given to payment conditions, compensation provisions, termination procedures and the treatment of work undertaken before termination. 

Where difficulties have already arisen, an early assessment of the contractual position can help identify the available remedies, preserve commercial options and avoid unnecessary disputes. 

Understanding a breach of contract 

The commercial consequences of a breach of contract are not always determined by which party was originally at fault. Businesses may find themselves unable to recover anticipated profits, facing difficulties enforcing payment obligations or exposed to substantial claims following an unsuccessful attempt to terminate. 

The recent judgments reinforce the importance of distinguishing between contractual rights, payment entitlements and the damages recoverable when an agreement breaks down. Understanding those distinctions before taking action can protect substantial sums and prevent a manageable commercial disagreement from becoming an expensive dispute. 

How we can help 

Our Commercial Dispute Resolution team advises businesses on disputes involving unpaid debts, failures to supply goods or services, contractual termination and claims for financial losses. If you’re unsure of when to take legal action, you can read more about contractual breaches here.

We provide practical advice focused on protecting our clients’ commercial interests, assessing financial exposure and achieving proportionate resolutions. 

Call us on 0161 667 3686 or fill out the form.

This article provides general information about English law as of October 2026 and does not constitute legal advice. The appropriate course of action will depend upon the contractual terms and individual circumstances.