Claiming compensation for supplier-caused losses

This is a common and important question, and the answer depends on several factors. The short answer is yes, in principle you can claim compensation from a supplier whose breach of contract or other wrongful act causes your business to lose money, but the legal and practical hurdles can be significant.

Legal basis for a claim:

The most usual route is a claim for breach of contract. If your supplier has failed to deliver goods or services on time, delivered defective goods, or otherwise failed to meet the terms of your agreement, you may be entitled to damages to put your business in the position it would have been in had the contract been performed properly. This is the standard measure of contractual damages, established in the foundational case of Robinson v Harman (1848).

You may also have a claim in tort, for example in negligence, if the supplier owed you a duty of care outside the contract and breached it, causing you foreseeable loss. In some situations, a claim under the Supply of Goods and Services Act 1982 or the Consumer Rights Act 2015 (if your business qualifies as a consumer in the particular transaction, which is unusual but possible) may also apply. Misrepresentation is another potential route if you were induced to enter the contract by false statements.

Types of loss you can claim:

1. Direct losses, such as the cost of replacement goods or services, the price difference, or the cost of putting things right.

2. Consequential losses, such as lost profits, lost contracts with your own customers, additional costs incurred because of the breach, and wasted expenditure.

3. In some cases, damages for loss of reputation or goodwill, though these are harder to establish.

Key legal hurdles:

Remoteness of damage is a significant filter. Under the rule in Hadley v Baxendale (1854), you can only recover losses that arise naturally from the breach or that were within the reasonable contemplation of both parties at the time the contract was made. If your losses are unusual or were not foreseeable, the supplier may argue they are too remote.

Mitigation is also important. You have a duty to take reasonable steps to reduce your losses. If you could have sourced replacement goods or services elsewhere and chose not to, a court may reduce your award.

Causation must be established. You need to show that the supplier's breach actually caused the losses you are claiming, not some other factor.

Contractual terms matter enormously. Many supplier contracts contain limitation or exclusion clauses that cap or exclude liability for consequential losses, lost profits, or losses above a certain value. These clauses are enforceable if they satisfy the reasonableness test under the Unfair Contract Terms Act 1977. You should check your contract carefully.

There may also be a force majeure clause, which could excuse the supplier from liability if the failure was caused by events beyond its control, such as extreme weather, pandemics, or government action.

Practical considerations:

Before rushing to issue a claim, there are sensible steps to follow.

1. Gather and preserve all evidence of the breach and your losses. This includes the contract itself, correspondence, invoices, delivery records, records of lost sales or customers, and evidence of what you did to mitigate the loss.

2. Quantify your loss as precisely as you can. Vague or speculative loss claims are likely to fail or be significantly reduced. You may need an accountant or financial expert to help with this.

3. Review the contract carefully, paying particular attention to limitation and exclusion clauses, notice requirements, dispute resolution clauses (some contracts require mediation or adjudication before court proceedings), and governing law and jurisdiction provisions.

4. Write a clear and detailed letter before action to the supplier, setting out the breach, the losses, and what you are seeking. This is also a requirement under the Pre-Action Protocol for court proceedings.

5. Consider whether informal negotiation, mediation, or some other form of alternative dispute resolution might resolve the matter more quickly and cheaply than litigation. Court proceedings for business disputes can be slow, expensive, and stressful, and the outcome is never guaranteed.

6. If the claim is under 100,000 pounds it would typically be allocated to the fast track or intermediate track in the County Court. Claims above that figure go to the multi-track and potentially the High Court, where costs escalate significantly.

7. Consider whether the supplier has the means to pay any judgment. Winning a court order against a supplier that is insolvent or has no assets is a hollow victory.

Important unknowns:

The strength of your position depends heavily on what your contract says, what evidence you have, the nature and scale of the breach, how your losses arose, and whether you took steps to mitigate. If you can share more detail about the specific situation, I can give you a much more targeted answer.