What to do when the other party breaches your agreement

A customer stops paying your invoices. A supplier ships the wrong stock and misses your launch. A contractor delivers work that does not meet the specification you agreed to. In each case the other side has not done what the contract promised, and the question running through your head is probably not "can I sue?" but "what can I actually do, and what happens if I get it wrong?"

That is the right question to ask before you act. Australian law gives an innocent party a powerful set of remedies, but it also punishes the party who overreaches. Terminate without proper grounds and you can become the party in breach, owing damages for wrongful termination. This guide sets out what counts as a breach, how Australian courts classify breaches, the remedies available, and the practical steps to take so you protect your position rather than giving the other side an argument to use against you.

What counts as a breach of your agreement

A breach happens when a party fails to perform an obligation the contract imposes on them, and that failure is not excused by the contract or by law. It covers the obvious cases, like failing to pay by the due date, delivering late or not at all, or supplying goods that do not match the specification. It also covers conduct that falls short of a missed deadline, such as using confidential information outside the scope of the licence you granted, or selling into a territory the agreement reserved for someone else.

Breach also includes the situation where a party signals in advance that they will not perform. If a party says, by words or conduct, that they will not do something the contract requires of them at a future date, that is repudiation, often called anticipatory breach. Australian courts have long treated this as something the innocent party can act on before the due date arrives: in Foran v Wight [1989] HCA 51, the High Court held that a purchaser who was told the vendors could not complete on the settlement date could treat the contract as at an end, and in Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd [2015] NSWCA 16 the New South Wales Court of Appeal confirmed that a party's conduct can amount to repudiation even when the threatened failure has not yet occurred.

Whether a particular failure counts as a breach, and how seriously the law treats it, turns on the contract's wording and its commercial context. The same missed deadline could be a minor matter in one deal and a disaster in another. That is why drafters write "time is of the essence" into contracts where a date genuinely matters: the phrase tells a court the parties intended timely performance to be a central obligation, not an aspiration.

Why the type of term decides your remedies

Online guides written for other jurisdictions often talk about "material" and "minor" breaches. Australian law does not use that framework. The classification that matters here is between conditions, warranties and intermediate terms, and it was confirmed by the High Court in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61:

Condition: a term that goes to the heart of the bargain. Any breach of a condition, however small the practical impact, entitles the innocent party to terminate the contract and claim damages.
Warranty: a lesser, supporting term. A breach of a warranty supports a claim for damages, but does not justify termination. If you terminate for a warranty breach alone, you may be the one in breach.
Intermediate term: most commercial obligations fall into this middle category. Termination is available only where the breach is sufficiently serious that it deprives the innocent party of substantially the whole benefit of the contract. In Koompahtoo, where the joint venture manager had failed to keep proper accounts and records, the High Court upheld termination on the basis that the breaches were "grossly departed" from the contract's requirements and went to the root of the agreement.

The fourth category is repudiation, which can overlap with the others. A party repudiates when they evince an inability or unwillingness to render substantial performance of the contract. If they do, the innocent party can accept the repudiation, bring the contract to an end, and claim damages, including for the loss of the bargain.

This classification is the reason "just terminate the contract" advice is dangerous. Before you walk away you need to know which category the breached term falls into, and whether the other side's conduct is serious enough to justify termination. Get that wrong and the costs of your own wrongful termination can exceed the value of the original dispute.

What remedies you can claim for a breach

Australian law aims to protect the benefit of your bargain, and the remedy you can claim depends on the terms of the contract, the seriousness of the breach, and what you do after the breach occurs.

Damages

Damages are the default remedy. The general aim is to put you in the position you would have been in if the contract had been performed. To recover, you need to show the loss was caused by the breach, that it was not too remote, and you are expected to take reasonable steps to mitigate your loss, for example by sourcing substitute goods at a fair market price rather than letting the loss grow.

Your contract will often shape what you can recover. A limitation of liability clause may cap the total amount payable or exclude "consequential loss", and courts read those clauses carefully, so their practical effect depends heavily on drafting. Those clauses also interact with the Australian Consumer Law, which in some circumstances prevents a business from contracting out of statutory rights.

Termination

If a condition is breached, the breach of an intermediate term is sufficiently serious, or the other party repudiates, you can elect to terminate the contract. Many contracts also give express termination rights for defined events, such as sustained non-payment after a notice and cure period, or insolvency of the other party.

Termination is an election, and the law holds you to your choice. In Sargent v ASL Developments Ltd [1974] HCA 40 the High Court confirmed the classic rule: if you have a right to terminate and you instead treat the contract as continuing, for example by continuing to demand performance or accepting further benefits, you may lose the right to terminate for that breach. You can still claim damages, but the contract stays on foot. This is the single most common way innocent parties accidentally give up their termination rights, and it is examined further below.

Specific performance and injunctions

In limited cases a court will order the breaching party to actually do what they promised, or to stop doing something. These remedies are discretionary, and courts grant them only where damages are not an adequate remedy, which tends to arise with unique goods, land, or misuse of confidential information. They are the exception rather than the rule, and you generally need to move promptly to obtain them.

Liquidated damages versus penalties

Many commercial contracts include a clause fixing a pre-agreed sum payable on a particular breach, most commonly delay. A genuine liquidated damages clause, one that represents a reasonable pre-estimate of the likely loss, is enforceable. But a clause that imposes a sum out of all proportion to the legitimate interests it protects is a penalty, and penalties are unenforceable in Australia.

The modern law was applied by the Full Federal Court in Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50, which upheld bank exception fees after considering whether they were a genuine pre-estimate of loss or compensation for a legitimate interest. The practical point for your contract: a delay damages figure of a few thousand dollars a week may be fine, while a figure that looks like a punishment, such as a sum vastly exceeding any plausible loss, risks being struck down.

The Australian Consumer Law overlay

If your contract involves supplying goods or services to consumers, the Australian Consumer Law in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the ACL) may add statutory rights that sit alongside your contract and sometimes override it. Three parts of the ACL are worth knowing:

Misleading or deceptive conduct: s 18 of the ACL prohibits conduct in trade or commerce that is misleading or deceptive or likely to mislead or deceive, and it applies between businesses as well as to consumers. A misrepresentation made during negotiations can support a remedy even where the written contract says nothing about it.
Consumer guarantees: where goods or services are supplied to a consumer, the ACL implies guarantees of acceptable quality, fitness for purpose and the like, and these cannot be contracted out of. A supplier cannot rely on an exclusion clause to avoid liability for a failure to meet a consumer guarantee.
Unfair contract terms: since the 2022 reforms, a term in a standard form consumer contract or small business contract is void if it is unfair, and it is now also unlawful to propose or rely on an unfair term, with significant penalties available. One-sided terms that a party had no real opportunity to negotiate can be struck out even if the contract otherwise stands.

The steps to take when you suspect a breach

When something goes wrong, a calm and staged approach protects your position while leaving room for a commercial solution. The order matters:

Read the agreement first: identify the precise obligation that has been missed, the timelines that apply, and any "time is of the essence" wording. Then work through the machinery clauses: the notice of breach and cure provisions, express termination rights, the dispute resolution process, liability caps, exclusions, and any liquidated damages clause. These clauses dictate what you can and cannot do, and how.
Gather the evidence before you send anything: collect the signed contract and any variations, purchase orders, statements of work, emails and messages. Document the issue with dates, screenshots, delivery dockets, invoices and any loss you have suffered so far. Assume everything you write could be reviewed later, because it might be.
Open a commercial discussion: many disputes resolve with a practical conversation. Write to the other party, set out what has gone wrong by reference to the contract, and state what you need, whether that is rectification within a timeframe, a partial refund or a revised delivery schedule. If you enter genuine settlement negotiations, mark the communications "without prejudice" so they cannot later be used as admissions.
Comply with any notice mechanics: if the contract requires a formal notice of breach or a notice to remedy, follow the process strictly: the content required, the method of service, the address, and the time periods. Keep proof of delivery. Courts are unforgiving of parties who terminate without following their own contract's notice steps.
Watch your election carefully: the moment you have grounds to terminate, you face a choice between affirming the contract and terminating it. Continuing to demand performance, accepting further deliveries, or paying the next invoice after a terminating breach can be treated as affirmation, which waives the right to terminate for that breach. Be deliberate and documented about your choice, and take advice before you do anything that could be read as keeping the contract alive.
Follow the dispute resolution clause, and document any deal: if you reach a settlement, record it in a properly drafted deed of release and settlement so both sides can move on with certainty, and so the dispute genuinely ends rather than resurfacing.
Get legal advice before you terminate or sue: wrongful termination can be more costly than the original breach. A lawyer can confirm your grounds, your evidence and your strategy before you commit to a course of action.

Reducing the risk of a breach before it happens

The best time to deal with a breach is before it occurs. Most disputes trace back to contracts that were vague about scope, silent on timing, or drafted without thinking about what happens when performance goes wrong.

Draft clear, practical obligations

Set out the scope in plain language with measurable deliverables, milestones and acceptance criteria. If timing genuinely matters, say "time is of the essence" for those obligations. Include a change control mechanism so variations and out-of-scope requests are documented rather than argued about later. Tie your payment structure to deliverables, with deposits, milestone payments or progress claims, so you are not financing the other side's performance.

Balance the risk allocation

Include sensible caps and exclusions, but remember the ACL limits what can be excluded when consumers or small businesses are involved. Use liquidated damages for the risks you can estimate, like delay, and keep the figures proportionate so they are enforceable rather than penalties. Add a set-off or suspension right so you can respond to genuine non-payment without breaching the contract yourself.

Secure your position in asset and supply deals

If you supply goods on credit, consider a retention of title clause and register your interest on the Personal Property Securities Register (the PPSR), the national register of security interests in personal property administered by the Australian Financial Security Authority. Registration is done online, and a properly registered interest can protect your priority over other creditors if the buyer becomes insolvent. Retention of title arrangements are among the interests that can be registered.

Keep your paperwork tight

Use properly drafted agreements with up-to-date schedules rather than ad-hoc emails, maintain a change log, and make sure variations are signed by people with authority to bind your business. Train your team on approval thresholds so no one accidentally waives a right in a casual email.

How an Artificer Legal lawyer can help

The judgement calls in this article are where legal advice pays for itself. A lawyer from Artificer Legal can help you:

classify the breached term as a condition, warranty or intermediate term, and assess whether the breach or repudiation is serious enough to justify termination;
review the contract's notice, cure, termination and dispute resolution clauses so you know the exact steps required before you act;
decide whether to affirm or terminate, and manage that election so you do not accidentally waive your right to terminate;
draft the breach notice, termination letter, deed of release or settlement agreement;
assess claims under the Australian Consumer Law, including misleading or deceptive conduct and unfair contract terms; and
review and redraft your standard agreements, including caps, liquidated damages and PPSR registration steps, to reduce the risk of the next dispute.

The election to affirm or terminate

If there is one point to take from this guide, it is the election. The most common way an innocent party loses their rights is not by failing to sue, but by accidentally keeping the contract alive after a terminating breach: continuing to demand performance, accepting the next delivery, or paying the next invoice while they "decide what to do". Courts will hold you to that choice, as the High Court did in Sargent v ASL Developments Ltd. So the practical rule is simple: when you have grounds to terminate, make a conscious, documented decision, and get advice before you do anything that could be read as affirmation.

The other key points are these. A breach is a failure to perform an obligation, including a repudiation in advance. Whether you can terminate or only claim damages depends on whether the term is a condition, warranty or intermediate term, and on how serious the breach is. Damages are the default remedy, termination is available in the serious cases, penalties are unenforceable while genuine liquidated damages are not, and the ACL may add statutory rights. When a breach happens, follow a staged process: read the agreement, gather evidence, negotiate commercially, comply with notice mechanics, and take advice before you terminate. And prevent what you can, with clear drafting, proportionate risk allocation and PPSR registration where it applies.