Contracts underpin almost every commercial and personal transaction — from supply agreements and leases to employment terms and service arrangements.
When one party fails to do what they promised, the other party may have a claim for breach of contract. This post sets out the basics of how breach of contract claims work under New Zealand law.
What counts as a breach?
A breach of contract occurs when a party fails to perform an obligation under a contract without lawful excuse. This can take several forms: non-performance, meaning failing to deliver goods, complete work, or make payment as agreed; defective performance, meaning performing an obligation but doing so in a way that falls short of the agreed standard; anticipatory breach, meaning indicating, before performance is due, that a party does not intend to honour the contract; and repudiation, meaning conduct showing a clear intention not to be bound by the contract at all.
Not every breach has the same consequences. Courts distinguish between breaches of essential terms (sometimes called conditions) and breaches of less significant terms (warranties). The nature of the term breached affects what remedies are available.
Elements of a claim
To succeed in a breach of contract claim, a claimant generally needs to establish that a valid contract existed (whether written, oral, or a mix of both), the terms of that contract including what was actually promised, that the defendant failed to perform those terms, and that the claimant suffered loss as a result of that failure.
Written contracts make it more straightforward to prove the terms of the agreement, but oral and implied terms can still be enforceable if they can be proven. Contracts covered by the Contract and Commercial Law Act 2017 (which consolidated much of New Zealand’s contract legislation) are subject to specific statutory provisions, including rules on misrepresentation, illegality, and frustration.
Common remedies
Where a breach is established, the available remedies typically include damages, specific performance, cancellation, and injunctions. Damages are the most common remedy, intended to put the innocent party in the position they would have been in had the contract been performed. Damages must be reasonably foreseeable and the claimant has a duty to mitigate their loss. Specific performance is an equitable remedy requiring the breaching party to actually perform their obligations. This is discretionary and generally reserved for situations where damages would not be an adequate remedy, such as contracts involving unique goods or land. Cancellation, under the Contract and Commercial Law Act 2017, allows a party in some circumstances to cancel the contract, releasing both parties from further performance. An injunction is a court order preventing a party from doing something that would breach the contract.
Which remedy is appropriate depends heavily on the facts, the terms of the contract, and what the innocent party is actually trying to achieve — compensation, performance, or simply an exit from the arrangement.
Limitation periods
Claims for breach of contract are subject to limitation periods under the Limitation Act 2010. Generally, a claim must be filed within six years of the date the breach occurred, though this can be extended in certain circumstances, for example where the loss was not reasonably discoverable at the time. Because these time limits can affect whether a claim can proceed at all, it is worth seeking advice promptly once a breach becomes apparent.
Before going to court
Litigation is not always the first or best step. Many contracts include dispute resolution clauses requiring mediation or arbitration before court proceedings can be issued, and even without such clauses, negotiation or mediation can often resolve a dispute more quickly and cost-effectively than litigation. Reviewing the contract itself, including any dispute resolution, limitation of liability, or notice provisions, is usually the sensible starting point.
Getting advice
Breach of contract disputes can vary enormously in complexity, from straightforward non-payment matters to disputes involving multiple parties, overlapping agreements, or difficult questions about loss and causation. If you are dealing with a possible breach of contract, whether you are the party who has suffered loss or the party facing a claim, early advice can help clarify your position and options before matters escalate.
This post is general information only and does not constitute legal advice. If you have a specific issue, please get in touch to discuss your circumstances.