{"id":1571,"date":"2020-12-17T00:40:49","date_gmt":"2020-12-17T00:40:49","guid":{"rendered":"http:\/\/nz.legalvision.com.au\/?p=1571"},"modified":"2025-05-22T19:13:01","modified_gmt":"2025-05-22T06:13:01","slug":"breach-contract","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/commercial-contracts\/breach-contract\/","title":{"rendered":"What is a Breach of Contract and What Does it Mean for Me in New Zealand?\u00a0"},"content":{"rendered":"\n

Most businesses have experienced a breach of contract, either as the party in breach or the party at the receiving end of a breach. Maybe you have entered into a contract with a supplier who is late in delivering the goods<\/a>. Maybe the accounts receivables team of a supplier has followed you up on an unpaid invoice. These examples are likely to be a breach of contract between the two relevant businesses (ie. the parties to the contract). So how do we know when we are in breach of contract<\/a>, what does it mean, and what can the innocent party (sometimes called the \u2018aggrieved party\u2019) do about it?\u00a0<\/span><\/p>\n\n\n\n

How Do I Know When a Breach of Contract Has Occurred? <\/span><\/h2>\n\n\n\n

A breach of contract is another way of saying someone has broken a commercial promise or agreement. To determine whether there has been a breach of contract, go through the following steps.<\/span><\/p>\n\n\n\n

1. Look Closely at the Contract<\/span><\/h3>\n\n\n\n

The first step to determine if there has been a breach of contract is to carefully review the contract terms. This may seem obvious, but sometimes the terms are not exactly as the parties may have thought. This is because, in practice, parties frequently sign contracts without thorough review. <\/span><\/p>\n\n\n\n

Hopefully, you have a written contract<\/a> that sets out what promises each party has made. Th<\/span>is will define what each of you agreed to do. Ideally, it will set this out expressly (ie. it will say it clearly on the page). However, there are also certain obligations that can be implied into a contract to fill in gaps.  <\/span><\/p>\n\n\n\n

The laws around implying terms can be a bit overwhelming. Essentially, however, y<\/span>ou can imply an unspoken term if it is clear that <\/span>both parties should reasonably understand that the contract contains that term. Relevant questions in determining this include whether: <\/span><\/p>\n\n\n\n

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  1. the term is reasonable and equitable<\/span>;<\/li>\n\n\n\n
  2. the term is necessary to give business efficacy to the contract;\u00a0<\/span><\/li>\n\n\n\n
  3. it \u201cgoes without saying\u201d or it is \u201cobvious\u201d that the term is part of the contract; and<\/span><\/li>\n\n\n\n
  4. the term is capable of clear expression (if it is not, or if it contradicts terms that are expressed, it is unlikely to be a<\/span>n implied <\/span>term).<\/span><\/li>\n<\/ol>\n\n\n\n

    A common example of a<\/span>n implied term is where there is no express time stated for the delivery of goods or services. In this case, the obligation is that the delivery is within a \u2018reasonable\u2019 time.<\/span><\/p>\n\n\n\n

    2. Determine Whether a <\/span>Party Breached a Term<\/span><\/h3>\n\n\n\n

    By now you should know what the contract requires. Now, consider whether what happened (or did not happen) amounts to a breach of the term in question.<\/span><\/p>\n\n\n\n

    For express terms, this should be fairly straightforward. <\/span><\/p>\n\n\n\n

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    For example, if the contract says that payment is to be made on the 20th of the month, there is a breach if it is not paid on that date. If the contract is for the delivery of 25 units of product and only 20 are delivered, this is a breach of contract. <\/span><\/p>\n<\/div>\n\n\n\n

    The key here is to be very specific. Carefully consider the words in your contract when setting out the breach and ensure there is alignment between these words and what has happened. <\/span><\/p>\n\n\n\n

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    Example of a breach of contract:<\/span><\/p>\n

    Term: Clause 2.1 The buyer shall make payment within 20 days of receiving the goods. <\/span><\/p>\n

    Event: The buyer received the goods on 1 March 2020 and on 30 March 2020 had still not made payment. <\/span><\/p>\n

    Breach: The buyer did not make payment within 20 days of receipt of the goods and has therefore breached Clause 2.1. <\/span><\/p>\n<\/div>\n\n\n\n

    Take care to review other clauses in the contract – it is not uncommon for some obligations to<\/span> intersect. <\/span><\/p>\n\n\n

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    For example, another term in this contract may say that Clause 2.1 is subject to the goods being of satisfactory quality. Accordingly, if they were not, there was no breach. <\/p>\n<\/div>\n\n\n

    What Happens After a Breach? <\/span><\/h2>\n\n\n\n

    The first step to understanding the consequences and remedies for a breach is to check the contract itself. It is not uncommon for contracts to dictate or limit what parties\u2019 rights are upon breach. <\/span><\/p>\n\n\n\n

    Leaving aside what the contract says (and how it might limit the rights arising after a breach), however, the most important legal consequences of a breach i<\/span>nclude:<\/p>\n\n\n\n