1. Identify the contract and term
Before accusing the other party of breach, identify the actual agreement. The governing terms may sit across a signed contract, schedules, statements of work, purchase orders, accepted quotations, variations and later correspondence. A dispute can turn on which document has priority.
2. Work out what breach occurred
Be precise about what was required and what happened instead. Common disputes involve non-payment, late performance, defective work, failure to meet specifications, refusal to deliver, misuse of confidential information, breach of exclusivity, or failure to satisfy a completion obligation.
The seriousness of the breach matters. Not every breach gives a right to terminate. Rights may arise under an express clause or at general law, and the consequences of getting that decision wrong can be significant.
3. Preserve the evidence
Collect the signed documents, variations, emails, text messages, file notes, invoices, delivery records, photographs, technical reports and records of meetings. Preserve native electronic records where possible. A strong chronology prepared early often identifies both the legal issue and the commercial pressure points.
4. Check notice and cure rights
Many contracts require a notice before particular rights can be exercised. The notice may need to identify the breach, specify a remedy period, be sent to a nominated address and use a particular delivery method. A commercially sensible complaint can still fail as a contractual notice if the required procedure is not followed.
5. Decide whether to keep performing
A business may want the relationship to continue despite the breach. In that case, consider whether performance should continue under reservation of rights, whether payment or delivery can lawfully be withheld, and whether continuing without objection could affect later arguments. The right response depends on the contract and the nature of the breach.
6. Assess loss and mitigation
Record the financial effect of the breach as it occurs. This may include unpaid amounts, rectification costs, replacement supply, delay loss or other foreseeable loss connected with the breach. A claimant generally needs to act reasonably to avoid unnecessary additional loss rather than allowing losses to accumulate.
7. Consider the remedies
Depending on the facts, remedies may include a debt claim, damages, contractual interest, specific performance, an injunction, restitutionary relief, termination or enforcement of security. Statutory claims may also exist alongside contract rights in some transactions.
8. Use commercial leverage before court
A properly framed letter of demand or breach notice should identify the agreement, breach, required remedy, deadline and consequence of non-compliance. Where there is a genuine dispute, negotiation, mediation or a without-prejudice settlement process may produce a better economic result than immediate proceedings.
Do not lose sight of limitation periods
In NSW, section 14 of the Limitation Act 1969 generally provides a six-year limitation period for a cause of action founded on contract other than a deed, running from when the cause of action accrues. Different rules can apply depending on the claim and document, so limitation should be checked early rather than assumed.
Before terminating, get the basis right
Termination is one of the highest-risk decisions in a contract dispute. A party that terminates without a valid contractual or general-law basis may itself face an allegation of repudiation or breach. If the commercial relationship is material, check the termination right and notice process before sending a final notice.