- What counts as a breach of contract?
- Actual breach: when the promised performance never arrives
- Anticipatory breach: when the other side signals it will not perform
- How serious the breach is decides what you can do
- The remedies a court can order
- When to get a contract lawyer involved
- The election you cannot take back
Your supplier has missed its delivery date twice. Your biggest customer has emailed to say it will not be taking the goods after all. A contractor has handed over work that is plainly not what the contract promised. In each case the other side has broken a promise the contract made, and you need to know what that means for you: can you walk away, can you claim compensation, and what are you obliged to do in the meantime?
A breach of contract occurs when a party fails, without a lawful excuse, to perform a promise the contract requires. Australian courts do not work from a fixed list of named breaches. The outcome of a dispute turns on two questions: how the breach happened, and how serious it is measured against the promises the contract was built on. If the matter ends up in court, you carry the burden of proving both the breach and the loss it caused you.
What counts as a breach of contract?
A breach can be committed by either side, and by failing to do something or by doing it badly. Non-payment of an invoice, late delivery, goods that do not match the specification, work that is substandard, and a refusal to accept delivery are all common examples. The breach does not have to be deliberate: a supplier who simply cannot source the stock has still broken the contract, even if the failure was not its fault.
The important point is that a breach is not a single category with a single response. The law asks what the broken promise was and how central it was to the deal. That distinction, rather than the label attached to the breach, decides whether you can end the contract or only claim compensation.
Actual breach: when the promised performance never arrives
An actual breach is the straightforward case. One party fails to perform an obligation when the time for performance arrives, or performs it in a way that does not meet the contract's requirements. Both count as breaches.
- Non-performance: the supplier does not deliver the goods by the agreed date, or the customer does not pay the invoice when it falls due.
- Defective performance: the work is done, but not to the standard, specification or quality the contract required, for example a fit-out that does not meet the fire-safety requirements in the contract.
- Partial performance: only part of what was promised is delivered, such as half the ordered quantity.
An actual breach gives the innocent party a right to damages in every case. Whether it also gives a right to end the contract is a separate question, covered below, which depends on how serious the breach is.
Anticipatory breach: when the other side signals it will not perform
An anticipatory breach, also called repudiation or renunciation, happens before the time for performance arrives. One party makes it clear, by words or conduct, that it will not or cannot render the substantial performance the contract requires. The High Court in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61 described this as a party evincing an inability or unwillingness to perform the contract substantially. An email saying "we will not supply at that price", a customer telling you to stop preparing their order, or a contractor walking off site mid-job are all classic signals.
The significance of an anticipatory breach is that you do not have to wait for the due date to pass before you can act. In Foran v Wight (1989) 168 CLR 385, the vendors told the purchasers shortly before completion that they would be unable to complete on the fixed date, completion on that date being an essential term of the contract. The High Court confirmed the purchasers could treat that statement as a repudiation and terminate the contract on that account, without needing to wait for the completion date itself to come and go. The repudiation also relieved the purchasers from having to prove they were ready, willing and able to perform their own side.
That last point carries a warning. If you receive an anticipatory breach and do nothing, or keep demanding performance, you may be taken to have elected to keep the contract on foot. In Sargent v ASL Developments Ltd (1974) 131 CLR 634, the High Court held that a party which chooses to treat a contract as continuing can lose, by that election, the right to terminate for the breach later. An election can be made by conduct: continuing to deal with the other party, accepting performance, or simply letting the matter slide can all be enough. If you keep the contract alive, it remains on foot for the benefit of both parties, and you stay bound by your own obligations.
How serious the breach is decides what you can do
The right to end a contract for breach depends on the classification of the term that was broken, not on how upsetting the breach was. Australian law divides contractual promises into conditions, warranties and intermediate terms, and the High Court in Koompahtoo confirmed that the consequences of a breach follow from which class the term falls into.
- Essential terms (conditions): a promise that goes to the root of the contract, such as a delivery date where time is expressly made of the essence. A breach of an essential term entitles the innocent party to terminate the contract and claim damages.
- Non-essential terms (warranties): promises that are peripheral to the deal. A breach of a warranty sounds only in damages. The contract continues, and you must keep performing your own side while you claim compensation for the shortfall.
- Intermediate terms: most commercial promises fall here. Whether a breach of an intermediate term allows termination depends on how serious the breach is in its actual consequences. The High Court in Koompahtoo endorsed the test of whether the breach was sufficiently serious, having regard to the nature of the contract and the consequences of the breach, to justify termination, or in the traditional phrase, whether it went to the root of the contract.
That is why you will sometimes see guides talk about "minor" and "material" breaches. Those labels are convenient shorthand, but they are not a formal test an Australian court applies. A "minor" breach, such as a supplier delivering a few items short of a large order where the rest is usable, generally supports a claim for damages only. A breach that defeats the purpose of the deal, such as machinery delivered that cannot do the job the contract promised, is sufficiently serious to justify termination. What matters is the substance: how central was the promise, and how badly did the failure strike at what you contracted for.
The remedies a court can order
For most breaches, the primary remedy is damages. The aim, as the High Court restated in Clark v Macourt [2013] HCA 56, is to put the party who has been injured in the same position as if the contract had been performed. That means the value of what you were promised but did not receive, plus losses flowing from the breach such as lost profit or the extra cost of sourcing a replacement. You are also expected to mitigate your loss: you cannot recover damages for a loss you reasonably ought to have avoided, so you should generally take sensible steps to limit the damage once a breach occurs.
Specific performance is the other order a court can make: a direction that the party in breach actually perform the contract. It is an equitable remedy, so it is discretionary and exceptional. Courts will not order it where damages are an adequate remedy, and they are reluctant to order it where it would require ongoing supervision of the parties' conduct, as the High Court explained in JC Williamson Ltd v Lukey and Mulholland [1931] HCA 15. The classic exception is a contract for the sale of land, where each property is unique and damages are usually not a sufficient remedy, a point noted by the New South Wales Court of Appeal in K & K Real Estate Pty Ltd v Adellos Pty Ltd [2010] NSWCA 293.
Termination itself is not a remedy ordered by a court so much as a right the innocent party exercises, by notice or conduct, when the breach is serious enough. Once validly terminated, both parties are released from future performance, subject to accrued rights and any damages claim.
When to get a contract lawyer involved
The hardest parts of a breach dispute are judgment calls, and they are exactly where a lawyer earns their fee. Whether a term is essential is a question of construction of your particular contract. Whether a party's words or conduct amount to repudiation is a factual assessment. Whether you have already waived or elected away a right to terminate can turn on the correspondence you exchanged. And a termination notice that is invalid can convert you from innocent party into the party in breach, exposing you to a damages claim of your own.
A contract lawyer can review the contract and the correspondence, tell you whether you have a right to terminate or only a claim for damages, and help you take the right step at the right time: issuing a proper notice, keeping the contract on foot without waiving rights, or quantifying your loss. If you are facing a dispute with a supplier, customer or contractor, getting that assessment from Artificer Legal before you act can protect rights you would not get back once you have elected.
The election you cannot take back
The most expensive mistake in a breach dispute is responding before you know whether you hold a right to terminate. Keep the contract on foot after a repudiation, and your conduct can be treated as an election that forfeits the right to terminate later. Terminate without a lawful basis, and you are the party in breach, liable for the other side's losses instead of recovering your own. The distinction between the two is not the label of the breach but the seriousness of it against the contract's essential promises, so the first step is always to identify what the contract made essential and what the failure actually cost you.
Every contract dispute starts the same way: a promise broken, a deadline missed, a delivery refused. Actual and anticipatory breaches are the two ways a promise can be broken, and the seriousness of the broken promise decides whether you can walk away or only claim compensation. Damages are the default remedy, measured by the position you would have been in had the contract been performed, with specific performance available only in exceptional cases. Understanding your rights before you act is what keeps them available to you.