Contracts are legally binding agreements that clearly outline and record the rights and contractual obligations of all parties involved.
An effective contract should have the effect of establishing an agreed understanding so that everyone involved knows what to expect.
In Australia, contracts can be verbal or written, but written contracts provide clearer evidence of the agreed terms and conditions. Once signed by both parties, the written contract acts as a legal promise that the specified rights and obligations in the contract will be fulfilled by each party.
More often than we might expect, breaches of contract occur, and this leads to disputes that need to be resolved. A breach of contract occurs when one party fails to comply with the terms of the contract.
Below, is a step-by-step guide that aims to provide a comprehensive and clear approach on what a breach of contract is and how to handle these situations.
Common Breaches of Contract
Common breaches of contract include failure to deliver goods or services as promised, non-payment, or failure to meet deadlines. Where there is a breach of contract, the wronged or injured party may be able to recover any of the losses caused by the breach, seek that the terms of the contract breached be performed, or cancel the contract. This all depends on the type of breach that has occurred, which is why it is important to understand the types of breaches.
A contract breach can range from minor breaches to major breaches.
A minor breach is a failure to comply with a small detail of the contract and does not change the purpose of the contract so that the contract can still be performed.
A major or material breach is so substantial that it alters the contract, usually meaning that the contract cannot be performed because an important or essential element of the contract was not met.
Understanding your rights under contract law and what can be done in the case of breach of contract is crucial for businesses, legal professionals, and individuals who are parties to a contract.
For more information on breach of contracts, read Legal Aid’s comprehensive guide.
Step 1: Review the Contract
The first step upon establishing a potential breach of your contract is to thoroughly review the contract. If it is a basic contract that you had no assistance in preparing or reviewing prior to signing, then it is likely you will be able to take this step without legal assistance. If you have had legal representation when entering into the contract then it would be appropriate to take your concerns to them so they may review the contract.
Important considerations for contract review include:
- Check the contract is enforceable: Ensure the contract is legally valid. There must be an offer and acceptance, consideration (usually an exchange of money) and legal capacity to enter into the contract.
- Identify the obligations: Locate and identify the obligations of each party that are contained in the contract
- Document the breach: Identify what type of breach has occurred i.e. minor or material, as this will affect how you resolve it. Gather evidence that clearly demonstrates how the other party has failed to fulfil their obligations.
Step 2: Attempt Informal Resolution
After you have taken steps to ensure your contract is legally valid you can then take steps to address the breach of contract. Before pursuing legal action, consider resolving the matter informally through negotiation or mediation.
- Contact the other party: Clearly communicate the breach to the other party and discuss potential solutions.
- Negotiation: Propose solutions such as adjusting timelines, offering compensation, or renegotiating terms.
- Mediation: If negotiation fails, consider mediation where a neutral third party facilitates discussions between the parties to reach a resolution. This process allows parties to voice their concerns, understand the other party’s perspective, and hopefully resolve the dispute in a way that benefits both parties.
Step 3: Consider Legal Advice
If the breach remains unresolved, seek legal advice from a qualified Australian lawyer. There are numerous benefits to seeking legal advice, including but not limited to:
- Assessment of options: A lawyer has the expertise and qualifications to best evaluate the strength of your case and explore legal options available under Australian contract law.
- Draft and send legal documents: After they have reviewed your matter, a lawyer can then prepare formal legal documents, such as a letter of demand outlining the breach and legal consequences if not corrected. While this can be drafted and sent by you, a letter from a lawyer may be more effective if the other party has not yet represented themselves.
- Initiate legal proceedings: A lawyer will be familiar with informal and formal methods of dispute resolution and court processes. They can help you file a claim with the appropriate court or tribunal if necessary.
Even the most meticulously drafted contracts can face breaches. In such instances, commercial lawyers can provide invaluable guidance and representation. Whether it’s identifying a breach, advising on the next steps or representing you in litigation, commercial lawyers have the expertise and experience to effectively handle breaches of contract.
Step 4: Issue a Formal Notice
Where attempts at informal resolution have not worked, the next step in resolving your breach of contract matter would be to issue a formal notice of breach.
This notice should include:
- Details of breach: Clearly outline how the other party has breached the contract and provide any evidence you can to support this.
- Remedy sought: Specify the remedy you are seeking to resolve the breach, such as carrying out an obligation, compensation for losses incurred, or termination of the contract.
- Deadline: Set, and make clear, a reasonable deadline for the other party to respond to the notice or fix the breach.
Step 5: Initiate Dispute Resolution Processes
In Australia, the main types of dispute resolution processes that can be pursued include:
- Court proceedings: The court can assess the evidence and may issue orders for specific performance, damages, or other remedies. There are several factors to consider before commencing legal proceedings, including financial implications, potential damage to business relationships and the strength of your case. It is advised you seek legal advice prior to this step.
- Alternative dispute resolution: Explore methods like arbitration or adjudication, which offer faster and less formal processes compared to court litigation.
Step 6: Enforce Judgments or Settlements
If the court or other avenue of dispute resolution rules in your favour or a settlement is reached, ensure the terms are enforced:
- Compliance: Ensure the other party complies with court orders or settlement terms. This may require the assistance of a lawyer if one is not already engaged.
- Enforcement actions: Take enforcement actions if necessary, such as seizing assets or obtaining court orders for enforcement.
Protect Your Legal Rights for a Favourable Outcome
Handling a breach of contract in Australia requires a methodical approach. Once you are familiar with the terms of the contract, attempt an informal resolution and then, if necessary, escalate to formal legal action with the help of legal representation.
By following this step-by-step guide, individuals and businesses can navigate contract breaches effectively, ensuring their rights are protected and disputes are resolved in accordance with Australian contract law.
And always remember, seeking early legal advice can significantly enhance your chances of achieving a favourable outcome in contract disputes.
Read our recent article ‘Breach of Contract Remedies from a Sydney Commercial Lawyer’.
Dettmann Phair Lawyers: Your Trusted and Experienced Legal Professionals
At Dettmann Phair Lawyers, our experienced lawyers have engaged in all forms of the dispute resolution process and can assist you with your breach of contract matter.
To explore your options call one of our expert commercial and litigation lawyers at Dettmann Phair Lawyers today on (02) 9412 4500 or complete our enquiry form online.