What to Do When a Business Partner Breaches a Contract

A business partner breaching a contract is one of the most common — and most stressful — legal problems Australian business owners face. Whether it is a supplier failing to deliver, a co-venturer diverting business opportunities, or a franchisee operating outside their territory, the question is always the same: what do I do now?

This guide provides a practical, step-by-step framework grounded in Australian contract law. It covers how to identify whether a breach has actually occurred, your legal remedies, and the practical steps you should take immediately.

How to Know If a Breach Has Actually Occurred

Before you do anything else, review the actual contract terms. Not what you assumed was agreed. Not what was discussed over coffee. The written contract. Australian contract law does not enforce oral side-agreements unless they meet the requirements for variation, and the High Court's approach in recent years has emphasised the primacy of the written terms.

The type of term that has been breached determines your rights:

Conditions (Essential Terms)

A breach of a condition entitles the innocent party to terminate the contract and claim damages. The leading authority is Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 (HCA). A term is essential if the parties intended that any breach of it, regardless of severity, would entitle termination.

Warranties (Non-Essential Terms)

A breach of warranty entitles the innocent party to damages only. You must continue performing your obligations under the contract. You cannot walk away.

Intermediate / Innominate Terms

This is the most common battleground in commercial disputes. Whether a breach of an intermediate term entitles termination depends on the severity of the breach. If the breach deprives the innocent party of substantially the whole benefit of the contract, it can be treated as a breach of condition: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 (HCA). If not, the remedy is damages only.

Anticipatory / Repudiatory Breach

Where a party indicates (by words or conduct) that they will not perform their obligations. The innocent party can accept the repudiation and terminate, or affirm the contract and hold the other party to it. Acceptance of repudiation must be communicated clearly.

The classification matters enormously. If you terminate for a breach that turns out to be only a warranty, you have committed a wrongful repudiation and the other side can sue you. This is one of the most common and expensive mistakes in commercial disputes.

Your Legal Remedies

Damages

The primary remedy. The fundamental principle from Robinson v Harman (1848) 1 Exch 850: the innocent party is to be placed in the position they would have been in had the contract been performed. This is called the "expectation measure" or "loss of bargain" damages.

Remoteness of damages: under Hadley v Baxendale (1854) 9 Exch 341 (as applied in Australia), you can only recover losses that:

1. arise naturally from the breach in the ordinary course of things, or
2. were in the reasonable contemplation of both parties at the time the contract was made as a probable result of breach.

Specific Performance

A court order requiring the breaching party to actually perform their obligations. Available only where damages are inadequate — typically for unique property, unique goods, or share sales in private companies. It is a discretionary remedy and the court will not grant it where supervision would be impractical.

Injunction

A court order restraining the breaching party from continuing the breach. Particularly useful where the breach is ongoing (e.g. breach of a non-compete clause or misuse of confidential information). See our detailed guide on urgent injunctions in Australia.

Rescission

The right to terminate the contract and be restored to the pre-contract position. Available for fundamental breach, misrepresentation, or certain statutory grounds under the Australian Consumer Law.

Penalty Clauses

Be aware that liquidated damages clauses can be struck down if they are penalties. The High Court restated the law in Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 and Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525. A clause is a penalty if it is not a genuine pre-estimate of loss and is extravagant or unconscionable. The ACL unfair contract terms regime (effective November 2023 amendments) now also allows civil penalties of up to $50 million for corporations for unfair terms in standard form contracts.

Step-by-Step: What to Do Right Now

1. Document everything. Save emails, texts, records of conversations, financial records showing the impact. Do this before anything else. If it is not documented, it did not happen.

2. Review the contract's dispute resolution clause. Many commercial contracts require mediation or negotiation before litigation. If you skip mandatory dispute resolution steps, the court may stay your proceedings.

3. Check limitation periods. Under the Limitation of Actions Act 1974 (Qld) s 10, you have 6 years from the date of the breach for simple contracts. For deeds, it was 12 years but this changed to 6 years from August 2025 under recent amendments. Do not sit on your rights.

4. Send a formal letter of demand. Put the breach on the record. Specify exactly what obligation was breached, state the loss you have suffered, specify what you want (performance, compensation, or both), and set a reasonable deadline (7–14 days).

5. Attempt negotiation or mediation. Cheaper and faster than court. The court expects you to have tried. Mediation in commercial disputes typically costs $2,000–$10,000 and resolves around 70–80% of matters.

6. Consider urgent relief if needed. If the breach is ongoing and causing damage, or if the other party is dissipating assets, you may need an urgent injunction.

7. Engage a commercial litigation lawyer if the dispute cannot be resolved through negotiation or mediation.

8. Issue proceedings if necessary.

When to Seek Urgent Court Relief

• If the breach is ongoing and causing continuing damage
• If the other party is about to do something irreversible (sell an asset, destroy records, breach a non-compete)
• If you need to preserve evidence or assets (freezing orders, search orders)

See our detailed guide on urgent injunctions in Australia for the full procedure.

Costs of Breach of Contract Disputes

Stage	Typical Cost Range
Letter of demand + negotiation	$2,000–$5,000
Mediation (including preparation and lawyer attendance)	$2,000–$10,000
Negotiated settlement with legal assistance	$5,000–$20,000
District Court litigation (claims under $750,000)	$20,000–$80,000
Supreme Court litigation (claims over $750,000)	$50,000–$200,000+

Cost recovery: the general rule is costs follow the event. The loser typically pays 50–70% of the winner's actual costs (standard costs). The court has a broad discretion under UCPR r681.

Proportionality: always weigh the cost of pursuing the claim against the value at stake. A $50,000 dispute that costs $40,000 in legal fees to litigate is a bad outcome even if you win.

Frequently Asked Questions

How long do I have to sue for breach of contract in Queensland?

6 years from the date of the breach under the Limitation of Actions Act 1974 (Qld) s 10. For deeds, it is now also 6 years following August 2025 amendments (previously 12 years). Time starts running from when the breach occurred, not when you discovered it.

Can I terminate a contract for any breach?

No. Only a breach of an essential term (condition) or a sufficiently serious breach of an intermediate term entitles you to terminate. Terminating for a non-essential breach is itself a repudiation. This is one of the most common and expensive mistakes in commercial disputes. Get legal advice before terminating.

Do I have to try mediation before going to court?

The court expects genuine attempts at resolution, and many commercial contracts include mandatory dispute resolution clauses. Under UCPR r319AA, the court can order mediation at any time. Failure to attempt resolution can affect costs orders.

Can I claim lost profits for breach of contract?

Yes, if the lost profits were reasonably foreseeable at the time the contract was made (Hadley v Baxendale test) and you can prove them with reasonable certainty. You also have a duty to mitigate — you must take reasonable steps to reduce your loss.

What if the contract has a limitation of liability clause?

These clauses are generally enforceable in commercial contracts between businesses. However, they can be challenged if they are unconscionable, or if they fall foul of the unfair contract terms provisions in the Australian Consumer Law (ss 23–28). Since November 2023, unfair terms in standard form contracts attract civil penalties of up to $50 million for corporations.

Dealing with a breach of contract? Speak with Astris Law on (07) 3519 5616. We provide practical, cost-effective advice on contract disputes for Brisbane businesses. See our contract law, dispute resolution and urgent injunctions services.

This article is for general information purposes only and does not constitute legal advice. You should seek professional advice tailored to your specific circumstances before acting on any information in this article. Liability limited by a scheme approved under Professional Standards Legislation.