It is not necessary to actually breach a contract for your contract breach liability to arise. A clear declaration to the other party of refusal to perform an agreement (in the future) may be suffice to trigger a breach situation.
Imagine the hypothetical case of a supplier of equipment (Widgets Ltd) which agrees by way of contract (dated January 2, 2014) to furnish certain machines to be used by a company (Doogle plc) in its production plant. The parties agree on a delivery date of August 10, 2014. However, the manager of Widgets informs Doogle’s CEO in May 2014 that because of in-house technical problems the delivery will be at least 6 months late and that the machine will have an output 10% less than the specfications in the contract order. What are the consequences? Must Doogle wait until 11 August, determine that the machines have not arrived and then terminate or sue for damages for late delivery (or when they finally arive, for defective performance)? Not necessarily.
If a party gives clear and unequivocal notice that it will not perform an existing contract as substantially agreed the common law systems have the concept of “repudiation” (refusal to perform). That can be regarded as a (material) breach.
The recent English case of Jet2.com Ltd v SC Compania Nationala de Transporturi Aeriene Romane Tarom SA at the Court of Appeal [2014] EWCA Civ 87 has reviewed the established principles of repudiatory breach. The Court confirmed that where a party which had agreed to perform services for another renounced its obligations under the contract, damages fell to be assessed on the basis that it would have performed those obligations, notwithstanding any declared intention not to do so.
In other words the court said that the injured party should be put in the position it would have been in if the contract had been performed correctly by the repudiating party. Notwithstanding the general duties of mitigation of damage, this would involve the potential for claiming expectation damages for a (future) failure to perform as agreed.
In practice we have to be very careful when communicating with the other contract party. Any clear statement of a refusal or unwillingnes to perform a contract in some substantial manner (e.g. “we will stop working until you pay us for the last stage of work”) could even be interpreted as a repudiation in some circumstances. Unless a contract or the law specifically allows the party in question not to perform in certain circumstances, that party should not declare its intention to take such a course of action. If there is a repudiation the other party may then elect to treat this as a (material) breach and terminate and/or claim damages