On this page
- Introduction
- The agreement between the parties
- Ending a written agreement
- An unwritten agreement
- Steps to enforce an agreement
Introduction
A disaster can disrupt obligations under any contract, including:
- an insurance contract (for example, if the organisation's insurance company delays or denies a claim, arguing that the damage was not covered under the policy or that the organisation failed to comply with policy requirements)
- a supply contract (for example, if a supplier is unable to fulfill their obligations due to the disaster, leading to disruptions in the organisation's operations), or
- a lease agreement (for example, if the property leased by the organisation is damaged or destroyed, it may need to enforce the terms of its lease agreement with the landlord)
The agreement between the parties
An organisation’s first step in any contractual dispute is to determine the agreement between the parties and be clear on what obligations it thinks the other party has not performed and what the organisation's rights are under the contract.
If there is no written contract, the terms of an agreement between the parties may still be clear from their communications (especially written communications). But sometimes there might not be anything written that demonstrates the terms of an agreement between the parties.
If there is a written contract, review the terms of the agreement, paying particular attention to clauses that set out:
- the parties’ obligations
- any time limits that apply
- a dispute resolution process
- consequences of breach of the agreement, and
- whether your organisation can terminate the contract or stop performing its obligations
In doing this, identify the other party’s obligations by confirming what the other party is required to do. There may be a specific clause that sets out the goods or services that a party must provide or these terms may be contained in a schedule or in a separate attachment.
Note
Before demanding that the other party perform obligations, make sure your organisation has complied with its terms.
Often, contractual obligations are intended to be complementary – for example, if the other party has failed to supply office stationery in accordance with a contract, your organisation should ensure it has complied with its obligations, which might include sending a purchase order, paying an amount of the purchase price, or some other action required by the terms of the contract.
If the other party is required to perform its obligations by a certain time, consider whether the time has expired. If the time to perform includes words or phrases like 'promptly' or 'as soon as reasonably practicable', consider whether the other party ought to have fulfilled their obligations by now.
Many contracts specify a particular process that must be followed if one party thinks that the other is in breach. Sometimes this includes:
- an obligation to notify the other party, setting out the nature of the alleged breach
- an opportunity for the party who hasn't fulfilled their obligation to rectify their breach within a certain time frame
- an obligation for the parties to negotiate to see if they can resolve the dispute, before the matter can be referred to dispute resolution or court proceedings
If the contract includes obligations regarding notice or negotiation, ensure your organisation takes these steps when it initiates communication with the other party, or if it decides to initiate enforcement action against the other party.
Sometimes, these requirements are contained in different parts of the contract. For example, the dispute resolution clause may require a party to send a 'breach notice' setting out various pieces of information. What a ‘notice’ should look like (its form) and who it should be addressed to might be covered in a separate clause in the contract.
If the other party is in breach of its obligations under an agreement, your organisation should consider whether the terms of the contract allow your organisation to stop performing its obligations or whether it may be released from its obligations under Australian laws.
This can help your organisation by:
- preserving your organisation’s resources (as your organisation is not expending resources to perform a contract that it’s not receiving the benefit of), and
- creating leverage against the other party, who may be more willing to resume performance or negotiate productively to continue to receive the benefit of your organisation’s performance
Ending a written agreement
Depending on the terms of the agreement, there may be ways to end the contract.
A force majeure clause (also known as an 'act of God' clause) sets out that the parties are not expected to perform their contractual obligations if they are prevented from doing so by something beyond the control of the parties, such as flooding or an earthquake.
Not all force majeure clauses are the same, so be careful to read the specific provision in a contract to determine whether your circumstances fall within the scope of the force majeure clause and make sure your organisation complies with any applicable notice periods.
If your organisation thinks that the force majeure clause might apply, also consider whether the other party has taken any required steps to claim relief under the force majeure clause.
For example, many contracts will require a party seeking to rely on a force majeure clause to give notice promptly, setting out:
- which obligations they will be unable to perform
- why the disaster has caused them to be unable to perform those obligations, and
- an estimate of how long they will be prevented from performing the obligations
As a last resort, the contract may include a termination right.
A termination right gives the parties a right to terminate the contract in certain circumstances, including when the other party is in breach of its obligations. This usually releases parties from performing any future obligations under the contract, but does not prejudice rights or obligations that have accrued up until the point of termination.
Your organisation should be certain that it is permitted to terminate the contract before it purports to do so, as terminating a contract without justification may be a breach of the contract by the organisation. For high-value contracts or contracts that deal with important subject matter, speak with a lawyer to consider whether a termination right is available.
Caution – do not suspend performance or terminate a contract without legal justification
Before suspending performance or terminating a contract, an organisation should be sure that:
- the other party is, in fact, in breach of the agreement, and
- the terms of the contract permits them to suspend performing the contract if the other party is in breach
If the organisation isn’t sure of these things, and suspends performance or terminates the contract, it may cause itself to be in breach of the contract and exposed to legal risk.
An unwritten agreement
Sometimes an agreement is not written, but can be established by communication and conduct.
It is not a legal requirement that contracts take the form of a written agreement between parties. However, you may need the assistance of a lawyer to provide the existence of an oral contract if there is no clear written evidence.
Provided the following requirements are met, any agreement, (established by writing, oral communications, or conduct) will be a legally valid contract:
- Offer – there must be a clear offer from one party to the other
- Acceptance – the other party must accept the offer
- Consideration – something of value is exchanged between each party
- Intention to create legal relations – there must be evidence that the parties intended to be legally bound by the agreement
- Certainty – the terms of the contract must be sufficiently certain
- Capacity – the parties must have the capacity to enter into legally binding arrangements
If there is no written document to evidence an agreement, consider if the terms of the agreement are clear from:
- correspondence between the parties (search through emails and texts for correspondence that sets out discussion and agreement regarding what goods or services would be provided, and the timetable for performance), and
- the conduct of the parties (sometimes, in the context of an ongoing commercial relationship between parties, at some point the continued conduct of those parties may give rise to contractual relations)
If you are in doubt about whether your organisation has a contract with another party, especially if it’s not evidenced by a written agreement or some other form of communication or by conduct, seek advice from a legal practitioner.
For more information, see our webpage on understanding contracts.
Note – no evidence of an agreement
Even if there is no agreement between the parties, depending on the nature of the dispute, an organisation may still have legal options. For example, an organisation may have protection under provisions of the Australian Consumer Law including against misleading and deceptive conduct.
For more information, including on the Australian Consumer Law, see our guide to the laws of advertising and your community organisation.
Steps to enforce an agreement
Once your organisation is clear on what obligations it thinks the other party has not performed and what its rights are under the contract, initiate communication with the other party as quickly as possible that sets out:
- the obligations your organisation thinks the other party has failed to meet with details that demonstrate that the breach has occurred (if the organisation can’t adequately substantiate its claim, it’s unlikely that the other party will feel compelled to respond)
- that the communication is being sent in accordance with the specific resolving disputes or responding to breaches (if the contract sets out a specific procedure for this)
- what your organisation requires the other party to do to rectify the breach, including the time frame for rectification (which may be stipulated by the contract)
- what the organisation intends to do if:
- as long as the breach persists (if the contract allows, this might include the organisation suspending performance of its own obligations)
- if the breach is not rectified, this might include:
- escalating the dispute according to the terms of the contract or if the terms of the contract do not provide for how a dispute should be resolved, or
- if the dispute resolution process has been exhausted – taking enforcement action
Caution
The legal position is only one aspect of negotiations. Regardless of the legal position, take care to preserve existing relationships, especially important ones, during negotiations.
If a service-provider has been a longstanding and reliable partner, it may be worth adopting a more conciliatory stance.
Part performance
In response, the other party might offer to perform some (but not all) of their obligations under the contract.
This might be useful to your organisation, particularly in a disaster situation where part performance could be better than no performance at all. Generally, it’s useful to negotiate in good faith with the other party in these circumstances so that as much of the agreement between the parties is preserved as possible.
If your organisation is willing to accept part performance, be clear in your written communications that the part performance does not fully satisfy the other party's obligations under the contract, and that your organisation is not waiving its right to require the other party to discharge all their obligations under the contract.
If your organisation doesn’t make this clear, the other party could argue that your organisation agreed to vary the contract and accept a lower standard of performance with respect to the other party's obligations under the contract. This will not automatically reduce your organisation's obligations and may lead to an unfair bargain.
Caution
Be sure not to waive (give up) your organisation’s contractual rights by accepting part performance.
If the other party proposes to perform some, but not all, of their obligations under the contract, your organisation should be clear that it does not waive its right to require the other party to discharge all their obligations under the contract.
Alternative dispute resolution
If your organisation believes the other party has not complied with their contractual obligations, alternative dispute resolution can be a good first step. Alternative dispute resolution is often quicker and cheaper than a more formal type of enforcement such as litigation.
Common alternative dispute resolution approaches include:
- negotiation with the other party (with or without lawyers)
- mediation, which involves a discussion with the other party facilitated by a neutral mediator
- arbitration, which involves having your arguments heard by an arbitrator who will determine a resolution to the dispute
Contracts sometimes provide that parties must engage in alternative dispute resolution as the first step after a dispute.
Case study – meal packs don’t meet specifications in a supply contract
Flood Food Relief is a not-for-profit organisation that provides food to people in flood-affected areas in New South Wales. Flood Food Relief becomes aware that one of their suppliers, Packed, has been supplying meal packs that don’t meet the specifications required in the supply contract.
Flood Food Relief requests a negotiation with Packed. The parties reach an agreement under which Flood Food Relief will receive the next six months of meal pack supply at a discounted rate in exchange for waiving any action that Flood Food Relief might take for breach of contract.
In this example, alternative dispute resolution provided a workable solution and the parties could continue their relationship.
Consider enforcement action
If communications with the other party do not resolve that matter, if your organisation has complied with any clauses that set out a dispute resolution procedure it can consider taking enforcement action.
Litigation should be considered as a last resort, given the cost and risk involved. Even if the contract does not provide that the parties must engage in alternative dispute resolution, it might be more cost-efficient or quicker to seek resolution through an alternative dispute resolution mechanism, such as mediation.
Enforcement action refers to starting proceedings in a court or tribunal that has the power to either order the other party to perform the contract or make an order for damages for breach of contract.
Enforcement action is a form of litigation. The nature and outcomes of any litigation will vary drastically depending on the specific circumstances.
Not-for-profit organisations should always seek legal advice before beginning court action and should be wary of conducting litigation without professional advice. Costs can accrue quickly in litigation, and if an organisation is unsuccessful it may receive an order to pay the other party's costs, even if the organisation did not occur any legal costs itself. This may cause the organisation to become insolvent.
Disclaimer: These resources provide general information about legal issues that may arise for not-for-profit organisations in managing disasters. This information is a guide only and is not legal advice. If you or your organisation has a specific legal issue, you should seek legal advice before deciding what to do. See full disclaimer and copyright notice.
The content on this webpage was last updated in December 2024.
