Breach of Contract
What counts as a breach of contract in NSW, when a breach lets you end the contract, and what to do next if it does not.
Contract law basics / 5 min read
A breach of contract happens when a party fails to do what the contract requires, does it late or badly, or does something the contract prohibits. Every breach can support a claim for damages, but only a breach of an essential term, or a sufficiently serious breach of an intermediate term, gives the other party a right to terminate.
What is a breach of contract?
A breach of contract is a failure, without lawful excuse, to perform an obligation under a contract. It can take several forms: not performing at all, performing late, performing badly or differently from what was agreed, or doing something the contract prohibits. A breach does not need to be deliberate. A supplier that delivers the wrong goods by mistake is still in breach.
Every breach gives the innocent party a right to claim damages for the loss it causes, but not always a right to end the contract. That distinction is where many disputes begin.
Does every breach let me terminate the contract?
No. Whether a breach allows termination depends largely on the kind of term that was broken. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, the High Court confirmed that Australian law recognises three kinds of term:
Conditions (essential terms)
terms so important to a party that it would not have entered the contract without an assurance of strict or substantial performance, and this ought to have been apparent to the other side. A breach of an essential term, even a small one, generally gives a right to terminate.
Warranties
less important terms. A breach gives a right to damages only, and the contract continues.
Intermediate terms
terms that can be broken in trivial or serious ways. Termination is available only if the breach is sufficiently serious, which the High Court linked to whether it deprives the innocent party of a substantial part of the benefit it contracted for.
How do I know which kind of term was broken?
It is a question of reading the contract as a whole: the words used, its commercial purpose and the circumstances when it was made. Some contracts state that a term is essential, or that time is of the essence. Many include a termination clause setting out when and how a party may end the contract, often only after a written notice giving the other party time to fix the breach.
Following that clause precisely matters. A termination that skips a required notice, or relies on the wrong ground, can itself be wrongful and amount to repudiation by the party that sent it.
What does this look like in practice?
Suppose, hypothetically, a builder contracts to fit out a shop by 1 March so the owner can open for a seasonal trading period, and the contract states that completion by that date is essential. The builder finishes on 20 March. Because the date was an essential term, the owner could have terminated when it was missed, and in any case can claim damages for trading losses caused by the delay.
Now suppose the contract said nothing about the date being essential and the builder finished a week late. The delay is still a breach, but it may only support a damages claim unless it went to the root of the bargain. Terminating too quickly in that scenario could put the owner in breach.
What should I do after a breach?
Keep performing unless you have a clear right to stop
Until you have a right to terminate and have exercised it, your own obligations usually continue.
Put it in writing
Record the breach and your position promptly, and follow any notice process in the contract.
Mitigate your loss
The law expects the innocent party to take reasonable steps to reduce its loss, such as finding a replacement supplier. Loss that could reasonably have been avoided is usually not recoverable.
Keep records
Invoices, correspondence and repair costs are the evidence of your loss.
How long do I have to sue for breach of contract in NSW?
Generally six years. Under section 14 of the Limitation Act 1969 (NSW), an action founded on contract must be brought within six years from the date the cause of action first accrues, which for breach of contract is usually the date of the breach, not the date the loss is discovered. An action on a deed has a longer limitation period of 12 years under section 16. Other claims arising from the same facts can have their own time limits, so acting well within time is the safer course.
Frequently asked questions
A breach is a failure to perform a particular term. Repudiation is conduct showing that a party will not perform the contract, or will only perform it in a way substantially inconsistent with its terms.
Both can give a right to terminate, and the repudiation guide explains how to respond.
Only if the breach gives you a right to terminate, or the contract allows you to withhold payment. Withholding payment without that right can put you in breach yourself, which is why the kind of term matters.
Usually damages to put you in the position you would have been in had the contract been performed, subject to rules on remoteness and mitigation. The guide to remedies for breach of contract explains the options.
Yes. It still supports a claim for damages, and a pattern of breaches can together show that a party is unwilling or unable to perform, which may amount to repudiation.
Speak with Vamp Law about a breach of contract
This guide is general information, not advice on your situation, and whether a breach gives a right to terminate depends on the contract, the facts and the documents. Vamp Law acts for businesses and individuals in contract disputes, and Kyra Pastrovic can review the contract and correspondence before you take a step that is hard to undo. Make an enquiry or call +61 431 569 686.
More contract law basics
When the question has become a dispute, these are the pages on how Vamp Law acts in it.
Repudiation
What repudiation of a contract means in NSW, the choice it gives the innocent party, and the risk of terminating without a proper basis.
Remedies for Breach of Contract
What you can recover when a contract is broken in NSW: damages, liquidated damages, specific performance, injunctions, restitution, interest and costs.
Elements of a Contract
What turns an agreement into a binding contract in NSW, from offer and acceptance to capacity, and when a contract must be in writing.
In a dispute?
Talk to us about your contract
This guide explains the law in general terms. For advice on your own contract, send us the documents and we will explain where you stand.