Broken contracts – where do you stand?

By James O’Connell – Associate Solicitor, Mayo Wynne Baxter LLP

COVID-19 has not changed contract law. The same rules apply now as have always applied.

In a very small number of special situations, the existing rights of enforcement have been temporarily suspended. For example, landlords are not currently allowed to begin eviction proceedings for tenants who are up to 3 months behind in their rent. But the underlying obligation to pay rent has not gone away. Other than those special situations, the law is applied in the usual way.

So, you have not performed your contractual obligations, or a customer has not performed theirs: what are your next steps?

Contract law has never been a fan of the Old Testament principle of “an eye for an eye”. If the other side from you on a contract has not met their obligations, that does not allow you to ignore yours.

Just because the other party has breached their contractual obligations, it does not allow you to automatically ignore or breach yours. What you can do depends on how serious the breach is. If it is a major breach (they have not paid) then the default position is that you are entitled to end the contract immediately and claim damages. If it is a minor breach (you promised to deliver 10,000 cups, but actually delivered 9,998) then the law says you must either continue the contract and claim damages (if you have suffered any loss from the breach) or just carry on and ignore the breach. If it is a major breach and damages would not be a sufficient remedy (e.g. the funeral home will not return mum’s ashes) you can ask the court to force the other party to do what they promised to do – which is called seeking specific performance.

People often conflate bad, dishonourable, or immoral behaviour with a breach of contract. The two are not usually connected. On the other side of that same coin, being right is not a bullet-proof vest. You can be totally in the right but legally in the wrong. What contract law does is force you to honour the terms of your agreement, regardless of whether it is stupid, distasteful, economically ruinous for you or just the worst deal ever.

So, identify the actual breach by reading the contract very, very carefully. The precise meaning of every word potentially counts. People who skim read contracts clearly like taking risks.

I am a commercial lawyer and when I am involved in contract disputes it is usually with the hope of avoiding litigation.

Those are the cases I like!