A contract, whether orally or in writing, obligate the parties to perform according to the terms in the contract. However, sometimes one of the parties acts in breach of the contract. This article will explain what you can do and which rights you have if someone breaches its obligations in a contract you are a party to.
If one of the parties breaches a contract, the other party may have the right to terminate the contract. However, this is not always the case and it is not a right that automatically arises as soon as a party breaches the contract. The non-breaching party has the choice to terminate the contract if:
• The contract itself allows termination if a specific breach occurs.
• The other party repudiates the contract, which means that the party declares or demonstrates that it does not have an intent to perform according to the contract.
• The breach is sufficiently serious or a breach of an essential term of the contract. The nature and seriousness of the breach are the key factors to be considered.
Termination of a contract without having the right to do so may in itself be a breach of the contract. Therefore, it is always important for the non-breaching party to make sure that there is, under the specific circumstances, an actual right to terminate the contract.
If a party has breached the contract, there are a couple of remedies available for the non-breaching party to be decided in court. As of monetary remedies, the non-breaching party could claim damages from the party in breach. The purpose of damages is to put the non-breaching party in the same financial position as if the breach never had occurred, and the size of the damages will be decided accordingly. However, the non-breaching party is under a duty to do what can be reasonable expected to reduce its loss.
Sometimes the amount payable for a breach is already specified in the contract, so-called liquidated damages. The non-breaching party will have the right to receive the amount according to the contract if the specified breach occurs, as long as the liquidated damages does not have the character of a penalty. Furthermore, the non-breaching party may make a claim based on the other party’s debt arising from the contract.
If a monetary remedy is not appropriate, the non-breaching party has the option to make a claim for equitable remedies for breach of the contract. If damages will not provide adequate compensation and the contract does not include personal service, the court may order the breaching party to perform its obligations under the contract in a specific way. The court also has the possible to order the party to stop acting a certain way, so called injunctions.
It is important to remember that generally, it is not possible to enforce any form of penalty on the party in breach of the contract. The remedies available are purely to ensure that the non-breaching party does not experience any loss because of the other party’s breach of the contract.
Our solicitors have great experience and knowledge in contract law, what actions to take when a party is not performing according to the contract and what remedies to seek when the other party acts in breach of the contract.
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For more information and legal advice regarding a breach of a contract, call our experienced solicitors on (02) 9233 7776 or email us