Almost all everyday relations are governed by contract and the many varieties of legislation (aka statutory overlays) that govern such contracts in turn. Invariably, disputes arise as to whether there was a contract, if there was one what it all meant and what rights (if any) flow from the breach of the contract. This blog article provides a basic overview of some of the relevant matters in a contracts dispute so readers can get a sense of a breach of contract case might be looked at.
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Background to a contract dispute
A contract is a legally binding agreement between at least two people, keeping in mind that a company is also a legal person.
Contracts can be simple or more formal such as by deed.
Once the contract is breached, there is a cause of action against the person breaching the contract.
Basically, the requirements for contract are:
- one party makes an offer and the other accepts it so that there is proper consent to enter into the agreement.
- they need to intend to create “legal relations” (as opposed to just making an informal arrangement such as let’s have a BBQ on Sunday)
- something of value must flow from one person to the other and this is called “consideration”
- they must be old enough to make a contract and need to have their wherewithal’s in the sense of having legal capacity
- the contract can’t be for something that is illegal or unlawfulness such as to buy drugs that cannot be sold at law; and
- the deal that they make needs to be certain and not missing terms in order to avoid confusion about what was actually agreed.
How do breaches of contract come about?
Sometimes people just want to make a deal without thinking it through properly and at other times they do try and plan properly, but they get blindsided.
Some of the common reasons why contracts end up getting breached include:
- they make a verbal deal and sometime later there is a fight about who said what and what it all meant
- each side tries to use their own forms to make a deal so that there is confusion about whose forms or terms were ultimately relied upon (aka the battle of forms)
- it is unclear who the parties are
- there is confusion about what the contract required in terms of its principal obligations
- the contract does not say when the work needs to be done or when the money must be paid
- it is unclear how much money needs to be paid
- the contract doesn’t say how it can be brought to an end
- the contract doesn’t say what happens when one side to it stuffs it up
- it’s hard to determine which country’s laws apply to the deal
- the contract has conditions and it is difficult to work out if the condition was fulfilled or not
- the contract was governed by legislation and no one knew (or understood what was required)
- etc.
Your options in a contract dispute
The law has evolved over time, whether by the common law or by statute, to try and deal with the myriads of problems that can arise:
- the law might imply terms into contracts even though the writing or verbal parts said nothing about it e.g. reasonable skill and care.
- the law sometimes implies guarantees into contracts to protect consumers e.g. acceptable quality type provisions
- there are a range of legal rules to assist with how contracts are to be interpreted e.g. the hypothetical reasonable businessperson.
- there are rules about how limitation of liability clauses should be dealt with and if they will work.
Once there is a breach of contract
A contract can be breached in many different ways. Some breaches are incredibly trivial and other breaches are very serious. Only the more serious breaches will permit a party to terminate the contract by ending the whole arrangement. If there agreement is breached and it is not serious then perhaps the best course is to simply seek damaged.
It is also worth considering if it is worth jumping up and down about a breach because it may damage the relationship in circumstances where you may actually want an ongoing business relationship.
Serious breaches that may permit termination are those that go to the “root” of the agreement. A term may also be specified as essential to the agreement and that could be a strong indicator that if it was breached the deal was over. Sometimes terms are “intermediate” so that it becomes necessary to look at the consequences of the breach to decide if there was a right to terminate.
Repudiation of contract
What is repudiation?
Repudiation is when one side (or the other) to a contract behaves in a way that indicates that that party is not going to do what it is meant to do under the terms of the contract.
Sometimes it is merely a case of the party saying that it is no longer able to do what needs to be done whilst in other cases there may be a lack of a will to perform the contractual obligations yet in other instances the party might say that they will perform their obligations but in a manner that is very different from what it is supposed to do. In simple language repudiation can be tantamount to saying “get stuffed” whilst in less extreme cases the party is trying to to cherry pick what they will do. The matter is always considered objectively, otherwise a party would simply say I did not in my mind intend to show in any way or form that I was no longer bound by the arrangement.
Once a party has repudiated an agreement it becomes necessary to think about whether it should be affirmed or if the repudiation will be accepted. Often, the answer is not as easy as what it first sounds depending upon how complicated the whole arrangement is. The nature of the repudiatory conduct must be considered in light of the terms of the contract so that if it is just a minor breach of a non-essential term there may very well be no real repudiation. On the other hand if the repudiation of the contract will take away the key benefits of the contract then that could likely be repudiation in the proper sense.
What can you do once a contract is repudiated?
Once the contract is objectively repudiated it is necessary to make a decision. The contract is not automatically brought to an end as there is a need to make an election of sorts.
It is necessary to make a decision about what you, as the innocent party, wants to do in the face of a repudiation by the other party. One option is to keep the arrangement on foot whilst another is to say that the repudiation is accepted so that the obligations have ended.
Where a contract is repudiated it can raise questions about what rights the parties are entitled to and the role of accrued rights.
Example of a repudiated contract
An example of repudiation would be if a tenant abandoned the landlord’s premises without paying rent when it was due. In that sense the tenant is effectively saying I no longer consider myself bound, and the landlord may have rights against the tenant for unpaid rent, and even the making good of the premises subject to such defences as may be raised.
The impact of a breach on the validity of a contract
One there is a contract, the validity of it can be affected by a whole range of matters.
- the parties could be mistaken e.g. they might think that a ship exists to be salvaged when it does not
- one party may have pressured the other into the deal so that there is duress
- one person may have influenced the other unduly beyond what the law permits e.g. a parent influencing a young child to enter into an agreement that the law does not countenance
- there might be a statute that says the contract us unfair
- the contract might be a penalty i.e. more that fair damages
- the contract might get frustrated such as when a pandemic breaks out to radically alter the situation beyond what was contemplated at the time of contracting
In each of the above examples there will be legal questions about whether the contract can be enforced or not.
Damages for a breach of contract
Typically, where there is a breach of contract the idea is to place the injured party in the position they would have been in if the contract had not been breached.
The quantum of the loss is loss of bargain damages. In some cases the measure will be the reliance measure.
Usually damages are assessed as at the date of the breach but there can be all sorts of difficulties in assessing damages.
The amount of damages can be limited by considering matters like causation, mitigation, contributory negligence and the discounting of the award to name a few.
How long do you have to sue for a breach of contract claim?
Under the Limitation Legislation there are various time limits that apply. As a general rule you must bring your case within 6 years from the date on which the contract was breached. However, there may be specific legislation or even the contract itself may govern the time periods that are relevant. As such the time period can be shortened such as for instance under the Home Building Legislation a claim for a minor breach needs to be brought within 2 years of the date of the breach.
What legislation could affect a contracts dispute
In Australia there is a whole swagger of legislation that could impact a breach of contract including:
- The Uncollected Goods Legislation
- The Sale of Goods Legislation
- The Building Licensing Legislation
- The Australian Consumer Law (including Misleading Conduct)
- The Corporations Legislation (including insolvency disputes and corporate disputes)
- The Insurance Legislation
- The Real Property Legislation
- The Conveyancing Legislation
- The Industrial Relations Legislation
- The Restraints of Trade Legislation
- etc.
Help dealing with a person breaching a contract
Litigant focuses on breaches of contract and our commercial litigation lawyers may be able to assist you with recovering damages against a person breaching the contract.