Running a business isn't easy at the best of times. It becomes even more difficult if you need to deal with a breach of Contract.
Whether a supplier hasn't delivered goods you've paid for or a customer hasn't paid their invoice, breaches of Contract can happen to any business.
In any business Contract dispute, there are legal options you need to consider. Here's what you need to know about breaches of Contract and business liabilities.
What constitutes a breach of Contract?
A breach of Contract occurs when one of the parties does not fulfil the obligations they agreed to under the Contract. This can take many different forms, and in some cases both parties will believe they have fulfilled their obligations and the Courts will have to determine if there has been a breach.
While breaches of Contract can take as many different forms as Contracts themselves, some situations are quite common. Some common types of Contract breaches include:
- Money owed for goods or services – If a supplier provides goods but the customer fails to pay the invoice after receiving the goods, or if a tenant fails to leave a rental property in its original condition and the landlord must spend money to repair it.
- Provided with faulty goods – If you purchase goods that are faulty and must be refunded, or if you buy goods for a specific function on a salesperson's recommendation and the goods fail to perform that function.
- Provided with faulty work – If a tradesperson does construction or other work at your home or business and the final product is inadequate, unsafe, or does not function as it should.
In each of these of these types of cases, the Contract has not been fulfilled by one of the parties. In business, the most common breaches of Contract are those which involve a transaction of some kind.
Liabilities in a breach of Contract
If you believe the other party to your Contract has breached it, you must prove that they have legal liability. This means that they are legally responsible for the breach and typically must either fulfil their obligations or pay damages for not doing so.
Proving legal liability if you believe there has been a breach of Contract usually requires some form of legal action. If someone else has breached a Contract, then you may need to sue the other party to recover any loss or damage you have suffered as a result of their breach of the Contract.
In some cases, liability insurance may cover businesses when there is a Contract dispute. However, liability insurance will not cover misconduct such as trading while insolvent or acting negligently. In some cases, a director may even be held personally liable.
Breach of Contract examples and advice
Breach of commercial lease
“I own a commercial premises which I leased to a company who manufactures scented candles. The business turned one of the rooms of the premises into a showroom. When they vacated the premises, I found they had left considerable damage.
For instance, there is candle wax stuck all through the carpet, dark char marks on the walls, and the air conditioning system is full of candle debris. There are also scratches, dents and holes in the walls. What do I do?”
If the tenant's bond does not cover the damage then you need to make an application firstly to the Small Business Commissioner and secondly to VCAT to resolve the matter. It is generally a term of the lease that the tenant must restore the premises to its original condition upon vacating. You must remember that VCAT is generally no costs jurisdiction which means that if you win, the other side would generally not be forced to pay any of your legal expenses.
Breach of partnership agreement
"A friend and I were partners in a cleaning business. The business had approximately 17 regular clients, six of whom were very well paying and constituted the majority of the partnership's income. A dispute arose between us, and my partner decided to leave the partnership and start his own cleaning business, taking the six largest customers of the partnership and leaving me with a credit card debt of $25,000."
The answer is that you need to initiate Court action in the Magistrates' Court seeking a fair distribution of the assets (clients) and liabilities (credit card debt) of the partnership. In this case, the matter was resolved in a case conference prior to going to trial.
"My husband and I wanted to install an inground pool. We used a pool specialist to waterproof the pool, but when we filled it with water, the waterproofing was of substandard quality and water was leaking from the pool. We called the pool specialist, who told us he had done everything right and it must be something we have done so he is not going to assist us."
In this kind of case, you need to take action against the pool specialist in Court. The result in this case was that negotiations failed and a case conciliation did not resolve the matter. Ultimately both parties produce evidence and call witnesses, and the Judge decides that the pool specialist is indeed at fault, awarding damages to the husband and wife.
Get expert advice for your breach of Contract dispute
At Rose Lawyers, we can help you deal with any kind of Contract dispute. Our business lawyers have a great deal of experience helping our clients through difficult situations.
We can guide you through the whole process and advise you on your legal liability and your options. If going to Court isn't the best option for your case, we'll tell you. Protecting your interests is our top priority.
For advice on your Contract dispute, call us on 03 9878 5222.