Facing a Breach of Contact?

When you have a contract with another person, including another company a breach of contract may arise when one more of the parties has not performed one of its agreed contractual obligations.

The legal remedies available in circumstances of a Court finding that a party has breached the contract include injunction, damages and equitable relief.  If you were to seek to obtain legal remedy against you for breach of contract you would then bear the onus of demonstrating that the contract has been breached because you are then the party seeking to rely on the contractual provisions.[1]  

Damages

Damages for breach of contract are calculated if a person fails to comply with contractual obligations imposed.  The measure of damages in contract is aimed at putting the innocent party in the position as if the contract had been performed.[2]

On the basis that the breach is enforceable a breach of contract can give rise to damages being awarded by the Court.  In other circumstances an anticipatory breach can give rise to damages.[3]  The contract law does recognise that a party is entitled to all of the lost profit and financial benefit that would otherwise have been gained if the contract had been complied with.

In order for a non defaulting party to obtain awarded damages it would need to prove its loss.  This would require quantification and could potentially also involve expert evidence requirements. This is because the non defaulting party bears the onus of proof in providing the court with the information required.[4]

The calculation of damages can occur on a number of ways including nominal damages, liquidated damages, account of profits which is commonly used.

Nominal damages

Nominal damages are essentially a token amount that is awarded by the court in recognition of a breach of contract, and loss being suffered, albeit in the absence of a full quantification of financial loss being suffered.

Nominal damages are generally only awarded where the party has not suffered any financial loss.

Liquidated damages

Liquidated damages are an agreed calculation of the loss which is calculated at an agreed amount and specified in the contract [5] A contract or agreement can contained a term that says the defaulting party, in breach of the contract, must pay liquidated damages of an agreed sum and the liquidated damages amount might be stipulated as being exclusive of GST.

Account of Profits

Another form of calculating damages is in respect of account of profits.  On this basis damages would be calculated at the amount of profit that could have otherwise made.[6]

Such an award of damages on account of profits would require evidence showing the amount of profit that would have been made if there was no breach of the contract.  There are other forms of damages such as in rare cases if there was loss or anxiety suffered.  In addition in some circumstances equitable damages can be obtained.

Injunction

An injunction is a court order made to restrain an act and the Court may grant either an interlocutory or final injunction.[7]  An injunction is an equitable remedy.  There can be interlocutory injunctions and final injunctions.

If a party seeks an injunction that would be for the defaulting party to cease breaching the contract for example.

The Federal Court has no inherent power to grant equitable relief such as in the form of an injunction, but the Federal Court can grant injunctive orders in commercial disputes generally in circumstances where the Court relies on common law or equitable rights.[8]

Interlocutory Injunction

An interlocutory injunction can be sought prior to any final hearing. These type of orders could be sought in the context of a proceeding been commenced and a separate application on an urgent basis.

Time is of the essence when requesting the court to impose an injunction for a breach of a restraint of trade clause. A party generally needs to seek an injunction on an urgent basis in a breach of restraint proceeding, generally within a week or two, otherwise it can be detrimental to  injunctive relief being granted.[9]

An injunction application must be filed and served without delay to avoid any negative and unnecessary consequences because the time lapsed could be detrimental to any Orders sought from the Court.

Final Injunction

A final injunction is deeply enshrined in the equity jurisdiction. If a proceeding was commenced as a plaintiff there would be a number of requirements which must be satisfied.  Party’s would need to demonstrate to the court satisfaction that damages would not be an appropriate remedy amongst other requirements.[10]

In restraint of Trade scenarios it is more likely about damages would be seen as an inappropriate remedy.  On this basis an injunction obtained could be more likely.  An injunction is commenced by Summons and requires Affidavits in support of the Orders sought.

When there has been a breach of contract, the complying party can seek remedies to compensate for loss, in addition to an injunction and other equitable remedies which are generally available. This amount could be exclusive of gst in the context of compensation payable. Whether or not damages attract GST depends on the circumstances as to whether the settlement payment is a taxable supply.[11] 

The assessment of damages would require a calculation of the amount of profit loss.  The calculation of loss generally takes place by determination of the amount as at the time the contract was entered into.[12]

Courts have recognised that commercial fairness and the parties need to get the benefit from the contract are legitimate interests to protect.  These are relevant factors when a court considers whether a clause is reasonable.[13]

Consideration Before Going To Court

Before starting or defending any court case most people are encouraged to fully consider the costs of both time and money which are involved as a part of the litigation process.

Often settlement negotiations and an agreed settlement outcome by negotiation can be more fruitful, less costly and a lot less stressful than going to Court because of the cost, time and stress involved in litigation.

Next Steps

If you are in a contract dispute, need advice or if you need a contract written you can contact us today by calling (03) 8564 8474 or you can book an online appointment via the homepage.

Important disclaimer: The material contained in this publication is of a general nature only and it is not, nor is intended to be, legal advice. This publication is based on the law as it was prior to the date of your reading of it. If you wish to take any action based on the content of this publication, we recommend that you seek professional legal advice.

[1] Schroeder Music Publishing Co Ltd v Macaulay (1974) [1974] 3 All ER 616.

[2] Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64.

[3] Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64.

[4] McRae v Commonwealth Disposals Commission (1951) 84 CLR 377

[5] See Boucaut Bay Co Ltd v Commonwealth (1927) 40 CLR 98.

[6] NCON Australia Ltd v Spotlight Pty Ltd [2012] VSC 604.

[7] s37(1) Supreme Court Act 1986 (VIC)

[8] s79 Judiciary Act 1903 (Cth)

[9] Network Ten Ltd v Fullwood (1995) 62 IR 43 at 46.

[10] Ozefax v Telco Edge [2013] NSWSC 1506

[11] A New Tax System (Goods and Services Tax) Regulations (Cth) 1999

[12] Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535

[13] BDO-Group Investments (NSW-Vic) Pty Ltd v Ngo [2010] VSC 206

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