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Most companies utilise direct debit and credit payment systems to increase efficiency. The downside to direct debit and credit systems is that they must be continuously checked to ensure that the payments are rightfully accepted and distributed by the company.

A recent decision handed down by the NSW Supreme Court has reminded businesses just how important it is to keep track of their accounts and contractual relationships, and how no one should ever assume a contract continues because both parties continue to comply. In our contract law update, we set out the issues in Electric Life Pty Ltd v Unison Finance Group Pty Ltd [2015] NSWCA 394, as well as explain why you should carefully check your company’s accounts.  

What Was The Problem?

Electric Life Pty Ltd (the “Renter”) rented equipment from Unison Finance Group Pty Ltd (the “Owner”). The Rental Agreement commenced on the 10th of November 1998. The Rental Agreement had an “Initial Term” of 48 months and from thereafter would ‘automatically’ renew without any notice required from either the Owner or the Renter. Unfortunately for Electric Life Pty Ltd, they mistakenly made quarterly direct debit payments until the 20th of November, 2012, more than 14 years after the agreement began, amounting to payments more than $57,600.40. These payments were made even though the equipment no longer existed.

The Court had to decide whether the Rental Agreement provided for only one renewal period or an unlimited number of renewal periods.

What Was The Outcome?

Even though there was some argument that the Renter made the payments due to their own mistake (and sloppy bookkeeping) by failing to provide notice, the Owner was nevertheless ordered to pay back the Renter for all payments made after the initial term plus one renewal period, that is 10 November 2003. The contract was deemed to have not automatically renewed after this date. To allow the Owner to keep all the payments would result in unjust enrichment as the Owner did not seek the return of the equipment. As the Renter believed that the agreement expired at the end of the first renewal, the Court was prepared to accept their interpretation of the contract.

Key Takeaways

If you are in charge of your company’s accounts, do not be sloppy! Look at the accounts regularly, and know what each payment is for. Also, if you are the recipient of any direct debit payments, always check to make sure that you have the right to receive these payments from the customer. Just because a contract was enforced and put in action does not mean it remains operative at all times.

Questions? Get in touch with LegalVision’s contract lawyers on 1300 544 755.

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