Reading time: 6 minutes

There are many reasons why someone may be unable to fulfil contractual obligations. For example, sometimes, an unforeseen event occurs that causes the contract to be incapable of performance. This means the obligations radically change. At other times, there has been a misrepresentation in the contract. In some cases, one of the parties to the contract simply fails to deliver. Where the other party cannot or does not fulfil their promises under the contract, it is important to know your rights. This article will explain what you can do when the other party cannot fulfil the contract. 

Frustration

Frustration of a contract occurs when an unforeseen event makes contract performance impossible. This is not the result of a fault by either party to the contract. As a result of this event, the obligations under the contract become radically different to those initially agreed by the parties.

Generally, frustration only applies when an outside force occurs. This must be the cause of the other party being unable to meet their part of the contract. For example, a natural disaster or a significant delay from an external provider might frustrate the contract. If this happens, neither party has breached the contract. This is because requiring performance of the contracted obligations would be impossible or result in an entirely different outcome. 

Example: A company is constructing a building and the neighbours successfully seek an injunction against the construction. This would effectively stop the company from performing further building work. It would also mean that the company would no longer be able to fulfil obligations. For example, the number of shifts originally agreed to with the workers at the construction site. The company’s contracts with these workers would be thus frustrated as the company could no longer fulfil its obligations due to an unforeseen event outside the company’s control. This event has fundamentally changed the situation which the parties initially contemplated. 

Misrepresentation

Misrepresentation is the giving of false information, or withholding of relevant information, which induces a party to enter a contract. A misrepresentation is by one party, or their agent, to the other party.

The Court may cancel a contract following misrepresentation if the agreement contains a clause that allows for termination on these grounds. In particular, it would need to specify that misrepresentation of certain facts is a fundamental element of the agreement. If the misrepresentation does not become a contractual term (or is not a fundamental aspect of the agreement) the misrepresented party can claim damages.

Misrepresentation is most common in the selling of goods or services. When offering goods or services, the seller makes certain representations about the quality, features and use of the goods or service. 

Under Australian Consumer Law, if the seller makes a false representation about their goods or service inducing a buyer to purchase it, they will be liable for misrepresentation. This is because it may constitute ‘misleading and deceptive conduct’. If the seller misrepresented fraudulently, the seller may be liable to pay damages to the innocent party. They may also be charged with fraud.

Commonly, the supplier of goods and services provides a warranty to consumers when they supply the goods, or the service takes place. This is a representation communicated to the consumer that if their product or services are defective, they will repair, replace, resupply or compensate the consumer. 

How to Recover Unpaid Invoices

Whether you’re a small business owner or the Chief Financial Officer of an ASX-listed company, one fact remains: your customers need to pay you.

This manual aims to help business owners, financial controllers and credit managers best manage and recover their debt.

Download Now

Breach

A contract breach occurs when a party to a contract fails to perform their obligations under the contract. This can be either by act or omission. A contract breach also occurs where a representation or warranty turns out to be false. In the event of a breach, if you are the non-breaching party, you may be able to seek damages. Unless the contract expressly states that it will end when a contract breach occurs, the contract will not automatically end. In this case, the contractual obligations will continue to be binding. 

The breach may be a significant breach of an essential element of the contract. In this case, the innocent party will have the right to terminate the contract or keep it going. If the party chooses to terminate, they may be required to provide the other party with a ‘Notice to Remedy a Breach’ before termination.

Several types of breaches may occur. These are outlined in the table below. 

Actual breach

This occurs when the party does not perform their obligations per the agreed timeframe in the contract. It also occurs when they do not perform a key aspect of what they promised. 

Repudiatory breach

Also known as an anticipatory breach, this occurs when the party is not willing to perform their obligations under the contract. Once the breaching party notifies the non-breaching party that they will not fulfil their obligations, the non-breaching party can end the contract. 

Minor Breach

This occurs when the party does not perform a small part of their obligations under the contract. The non-breaching party may only be able to recover damages if they can prove that the minor breach resulted in financial loss.

Key Takeaways

If the other party cannot fulfil their obligations under a contract, you have a range of options. If an unforeseen circumstance makes performance impossible, the Court will likely deem it to be ‘frustrated’. This will release both parties from their obligations. On the other hand, if the party cannot fulfil the contract because the other party misrepresented important facts, the Court may cancel the contract. Finally, if the other party chooses not to fulfil their obligations, you can seek damages for the loss caused by the breach. 

For more specific legal advice on your situation and available options, get in touch with LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page. 

Frequently Asked Questions

Are parties in a contractual relationship able to cancel a contract if they mutually agree to do so?

Yes, typically, if all parties agree to end the contract, they can do so in writing or by replacing the old contract with a new one. Suppose the other party is conducting themselves in a way that indicates an unwillingness to be bound by or perform their obligations under the contract, also known as repudiation. In that case, you may choose to accept the repudiation and terminate the contract or continue the performance of the contract. 

If the other party does not fulfil the contract, what remedies are available?

Several remedies are available depending on the situation. For example, if the contract is frustrated, the Court may seek to return the parties to their original position as much as possible. If a seller knowingly made a false claim about a product you purchased, they may be liable to pay you damages and may also be charged with fraud.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Angie Lum | LegalVision
Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards