This article on ‘Breach of Contract in Australian Laws‘ was written by Aditi Amarawat, an intern at Legal Upanishad.
The contract refers to a set of promises from two or more parties that is legally binding. Every country has laws and statutes governing the requirement for a legally enforceable contract also called a valid contract. For the sake of protecting the interests of all the parties involved in a contract countries lay down a set of laws to provide the same, these laws are called the laws of the contract. In this article, we will examine the concept and laws regulating the breach of contract in Australia.
The notion of contract laws was introduced in Australia with the arrival of the British. Australian contract laws are not codified such as the Indian contract act, they are loosely based on the British common law with the basic principles of freedom of contract. (Ultz, 2015). Australian laws cover contracts being made in every sphere of business we must understand what a contract consists of.
ESSENTIALS OF A CONTRACT
Since Australia doesn’t have single legislation governing this topic multiple laws in place mention the requirements of a contract.
Australian law does not require the contacts to be written except in some prescribed cases such as a lease or property transfer.
According to the laws covering contracts in Australia, 5 elements must be present for a contract to be legally enforceable.
- There must be an agreement between all the parties involved in the contract. The contract cant is unilateral in nature.
- There should be something that can be given from both the parties involved to each other such as money or materialistic goods this is called consideration.
- Both parties must have the capacity to enter into the contract, such as being of sound mind and having attained legal age.
- Both parties must have the intention to enter into a legal relationship.
- The parties must enter in good faith with the certainty to complete their part of the bargain. (Australian contract.info, 2015)
Blomley Vs Ryan (1956)
Ryan being heavily intoxicated agreed to sell his farm to Mr. Blomley, after the contract was challenged it was held that a heavily intoxicated person could not be seen to have the capacity to enter into a contract.
BREACH OF CONTRACT IN AUSTRALIA
A breach of contract in Australian laws refers to the unfulfillment of any key terms of the contract by one of the parties.
Since most of the contracts may or may not be written down it becomes difficult for the parties involved to determine if there has been a breach of contract. As far as the breaches are concerned they can be categorized into four categories. (Douglas, 2020)
- A fundamental breach is the most severe and common breach to be found, it is also known as a material breach. This breach refers to instances where an integral part of the contract has not been fulfilled by a party.
- if you order a set of sofas and only a cushion arrives the retailer has materially breached the contract.
- A minor breach is much less severe and will not lead to an immediate cancellation of the contracts.
- If the retailer had sent the whole sofa set but didn’t send the instruction manual it will be a minor breach that cant lead to a cancellation.
- An anticipatory breach is a kind where a party informs the other parties in advance about them not performing the respective tasks until a certain period.
- Even though such breaches are pretty rare in nature it still entitles the other party to remedies.
- The actual breach is the most common breach, it refers to the refusal by one of the parties to perform their end of the bargain when the time comes.
when a party becomes certain their contract has been breached by the opposing party they must immediately inform the concerned party of the same.
HANDLING A BREACH DISPUTE
Once the breach has been communicated to the defending party they can take one of the following routes according to the Australian legislation. (Legal service commission)
- The party which allegedly breached the contract can dispute the occurrence of a breach
- They can point out any clause from the contract contradicting the claims of a breach
- The party can even dispute the validity of the contract
- Or lastly, the party to the breach can acknowledge the breach and try to provide remedies.
The burden to prove that the breach has taken place is on the party that alleges the breach.
DEFENCES FOR BREACH
There are a plethora of arguments that a party can present to defend itself from the breach allegations, some of the most common ones are;
- The commencement of the contract will be against public policy. The party can challenge the legality of the said contracts.
- DiGesu v. Weingardt Both parties decided to split a liquor license and open it in two different locations. The said contract was taken to court by DiGesu since the regulations of the locality only allowed for a certain no. of liquor shops. The judgment by justice Franchini held that a contract with terms violating public policy would be held void. (Easley, 1978)
- If the performance of the contract becomes an impossibility the contract cant is said to have been breached.
- If X wants his house painted and employs Y for it, but later the house burns down, Y cant is held liable for breach of contract as painting the house became an impossibility.
- A party can also claim to have been under undue influence and demand the contract to be rescinded, which means it would be as if the contract never existed.
- If a party can be alleged to have unconscionable conduct which disability or weakness while knowing such a weakness.
- In the aforementioned case of Blomley Vs Ryan (1956) where the defendant knew about the intoxicated state of the plaintiff and used it to buy the farm.
- The contract would also cease to be enforceable if it can be proven that there has been a mistake or misrepresentation of facts related to the contract.
REMEDIES FOR BREACH
Once a breach has been proven by the plaintiff party, the court can further award kinds of remedies to the plaintiff. Damages or specific performance (Leeks, 2019)
The damages are the most common form of remedies awarded by courts as specific performance may not be in the jurisdiction of a magistrate judge.
The kind of damages being awarded by courts in Australia can be categorized into 2 categories.
These damages are awarded to the non-breaching party for the losses they have incurred due to the breaching of the contract.
Such losses must be generally necessarily incurred by the party.
The losses can be direct and general or can be specific and under special circumstances.
Compensatory damages are the most commonly awarded damages in contract cases.
These damages are to “punish” a wrongdoer and to be made an example of, these damages are not paid for the loss incurred but to demotivate others from doing the same.
Exemplary damages or punitive damages are mostly awarded in tort cases, they are a rarity in contract cases.
CALCULATING THE DAMAGES
The calculation of general damages is mostly done by a standard measure.
Such a measure looks towards the profits the plaintiff (non-breaching party) would have made had the breach not happened.
If such a number is speculative or cant be agreed upon, the damage must be equivalent to the amount the non-breaching party spent in performing their end of the contract. (University of New Mexico)
In some instances, the court can order the completion of the contract even after a breach has been made.
For an order of specific performance, the court must make sure that;
- There is a legally binding contract
- A breach of contract has taken place.
Once both these prerequisites are met, the court can order to enforce the terms of a contract. (Turnbill, 2020)
- CODIFICATION the laws related to contracts need to be codified and be bound under legislation to remove ambiguity and make it more clear.
- CLASSIFICATION many clauses under different legislations seem to overlap with each other without any legal explanation.
- CLEAR PROCEDURES a lot of laws and clauses related to definitions or evidence along with the procedure to be followed are highly unclear.
The Australian contracts law mostly focuses on consumer protection and their rights, it is not a written set of laws and does not fall specifically under any legislation. Due to the vague nature of contracts and being dominant oral nature rather than written, judging a breach can be a tricky task for a court. There is a lot of room for improvement in the legislation but it certainly acts as a set of rules to guide and protects the right of Australian citizens against big corporates and even the state.
- George Turnbull, What Remedies Are Available for a Breach of Contract?, Legal Vision, 29 July 2020, available at: https://legalvision.com.au/what-remedies-are-available-for-a-breach-of-contract/
- Jones Day, Spotlight: breach of contract claims in Australia, Lexology, 3 December 2019, available at: https://www.lexology.com/library/detail.aspx?g=d573148e-f91f-45fe-a4ed-764f35379363
- Avoidance (vitiating factors), Australian Contract Law, available at: https://www.australiancontractlaw.info/law/avoidance
- Andrew Stewart, What’s Wrong with the Australian Law of Contract?, 29 Journal of Contract Law (2012)