Clients often ask “What do I do when someone breaches our contract?”.   If you believe someone has breached your contract, you firstly need to be aware of exactly how it was breached and the level of breach that occurred.  This will allow you to determine the appropriate next most appropriate steps to take.

There are broadly three levels of breach under contract:

  1. Breach of a Warranty
  2. Breach of an Intermediate Term
  3. Breach of an Essential Term

Breach of a Warranty

Depending on the contract, a breach of a warranty is not essential to the performance of your contract.  For example, the other party to your contract may provide a warranty that the software development company will finish developing your software bug free.

What is An Intermediate Term

An intermediate term, as the name suggests is somewhere between an essential term and a warranty.  Intermediate terms were affirmed by the High Court of Australia in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61.

In order to determine if the innocent party has the right to terminate for the breach of an intermediate term, the Court must decide whether the breach of the intermediate term, was serious enough for it to be equitable for that party to terminate at the time of the breach.

Breach of an Essential Term

An essential term is a term of the contract that is material to the performance of the contract.  For example, payment upon completion of the software development project or the requirement to provide the software to  the buyer.

Remedy for Breach of a Warranty vs Breach of an Essential Term

The remedy for breach of a warranty is damages that the breach of warranty caused. Whereas, the breach of an essential term allows for termination of the contract as well as damages that potentially flows from the breach.

Implied Terms of Software Development Contracts

Implied terms are terms that can be implied into a contract.  These terms are ones that are so obvious that they go without saying, or terms which are implied so as to give business efficacy to the contract.  Examples of implied terms into software contracts, may include that the software code is of a reasonable standard of quality and is properly documented.

For a breach of a non-essential term, the usual course of action is to first send a letter of demand to the other side, before commencing litigation in the Courts.

It goes without saying: get proper legal advice from a commercial lawyer who is competent in litigation and dispute resolution.