Post-term formation of implied contracts

It is not uncommon, where good business relationships exist, for the parties to continue to work together after the expiry of a fixed term contract (Expired Contract).  This typically occurs where there is a fixed term for the agreement and that termination date comes and passes.  While it is great to form such good business relationships, contracts are there for a purpose and there are no guarantees that good business relationships will persist.

So what is the nature of the contractual relationship between the parties in such circumstances?

Quick refresher on contracts

Contracts need not be in writing, they can be written, verbal or a combination of both.  The three key elements of a contract are discussed below in context of an Expired Contract:

• Offer and acceptance – By continuing to perform the obligations, perhaps by purchasing goods and supplying them the conduct of the parties goes to there being offer and acceptance. The contrary would be evidenced if, after the expiration of the contract the parties refused to perform their side of the bargain.
• Consideration – Consideration is the provision of something of value from one party to another, such as payment of an invoice for delivery of goods. Presuming the Expired Agreement was a valid contract, consideration existed and continues to be provided.
• Intention to enter into contractual relations – Again presuming the Expired Contract was valid, and the parties were operating in a business relationship the intention to have contractual relations is clear.

The fact the parties continue to perform, evidences a contract exists.   While it may not be express an argument could be made that is was implied.

In CSR Limited v Adecco (Australia) Pty Limited [2017] NSWCA 121 (CSR Limited) McColl JA referred to the body of law relating to implied contracts and said:

‘Contracts may be either express or implied.  The difference is not one of legal effect but simply of the way in which the consent of the parties is manifested.  …  There may also be an implied contract when the parties make an express contract to last for a fixed term, and continue to act as though the contract still bound them after the term has expired.’

The question which remains is, what are the terms of that Expired Contract?

What are the terms of the implied agreement?

In Cawsand Pty Ltd v Normans Wines Pty Ltd (unreported but referred to in Steve Burke Transport Pty Ltd v Toll Transport Pty Ltd T/As Toll Ipec  [2017] WAIRC 00069):

“the expired written agreement was a short one which did not contain all the terms agreed upon.  In those and other special circumstances of the case Brooking J declined to infer agreement as to a term for a particular period of notice of termination in the implied replacement agreement.  Significantly for present purposes, however, his Honour distinguished the case “of a lengthy written agreement containing numerous terms governing the relationship between the parties, including one concerning notice, where the parties have so acted as to lead to the inference that notwithstanding the expiration of the term they regard the provisions of the agreement as still governing their relationship”.

As such the formality of the Expired Contract may have some bearing as to how the implied agreement may be interpreted.

In Brambles Ltd v Wail; Brambles Ltd v Andar Transport Pty Ltd [2002] VSCA 150, the Victorian Court of Appeal considered the terms of an expired agreement which operated as follows:

‘The evidence, fairly sparse though it is, warrants the finding that after 3 April 1993 ….the parties operated under a standing agreement under which all the procedures and, importantly, the remuneration were exactly the same as they had been under the written agreement.’

One term which clearly stands out is the date of termination.  Given the termination date on the expired agreement had passed the court considered how the agreement may be terminated.  In that regard the Court indicated:

‘the parties proceeded as though still governed by the terms of the original agreement (save that, since it had already expired, either could terminate the substitute arrangement on reasonable notice)’.

The matter proceeded to the High Court to consider the construction of an indemnity clause, while not material to the question of an implied agreement the High Court in Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28 per Callinan J, agreed with the Court of Appeal concluding that the expired agreement remained in force, such that the indemnity continued to bind the parties.

Clearly the terms of the expired agreement are material to evidencing the obligations on the parties, to an implied agreement, which arise post expiry of a fixed term agreement.

All that being said, careful consideration should be given to the circumstances, and perhaps the formality of the expired agreement, before drawing any conclusion regarding each party’s obligations pursuant to an implied agreement.

Links and further references

Cases

CSR Limited v Adecco (Australia) Pty Limited [2017] NSWCA 121

Cawsand Pty Ltd v Normans Wines Pty Ltd (Unreported)

Steve Burke Transport Pty Ltd v Toll Transport Pty Ltd T/As Toll Ipec 2017 WAIRC 00069

Brambles Ltd v Wail; Brambles Ltd v Andar Transport Pty Ltd [2002] VSCA 150

Further information about interpreting contracts

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Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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