Contracts typically include an end date or state that it will be for a fixed period. Where the contract explicitly states the end date, parties can engage in discussions to either:
- extend the agreement;
- enter into a new arrangement; or
- choose to allow the contract to come to an end.
But what if parties simply continue as if the contract is on foot after it’s expired? What is the legal position of the parties? This article will consider the legality of an expired contract in more detail.
1. What Will a Court Consider?
The court when determining the legal position of the parties will consider the following:
- did the parties communicate or act in any way that would suggest they were extending the contract?
- was there any relevant correspondence between the parties about the old contract’s expiration and its extension?
Following this, there are three possible legal outcomes:
- the contract has continued between the parties either on the same terms or varied terms;
- the parties have now entered into a new contract; or
- there is no contract between the parties (in this scenario, there may be an obligation on one of the parties to pay the other for services rendered).
2. What Can We Learn From the Expired Contract?
If both parties continue ‘business as usual’, this will suggest that the parties intended to have the contract’s old terms dictate their relationship. The court will then decide as to whether the entire expired contract applies or only parts. This decision turns on whether parties have had a dispute over any specific terms or not.
If the parties’ current dealings deviate from the terms of the expired contract, then the court is more likely to determine the parties have entered a new arrangement, or the parties have no contract between them at all.
3. What Have the Parties Said?
A court will look at the parties communications and conduct to assess what a reasonable person would have understood to be the parties’ intentions. That is, the court will apply an objective and not a subjective test.
4. What If I Have Continued With a Contract?
If you have ‘affirmed’ your expired contract, you should seek legal advice. It may be that you want to continue with the expired contract and renew the terms. If that is the case, you should take active steps to enter into a new contract. If you don’t want to continue with the agreement, you should put the other side on notice. You must carefully serve the notice so as to avoid breaching a renewed contract or be liable for damages.
5. How Can I Avoid This Situation?
It’s best to be on top of your contracts and have in place a sound management system. Try keep a catalogue of your contracts and their expiry dates or deadlines. If you miss the expiry date, be careful of any confirmation – either verbally or in writing – which may affirm the contract or create a new contract.
If you continue with a contract after its expired, the court may find that you extended the agreement or entered into a new contract with the other party. It’s then important you take active steps to manage your contracts. If you have any questions about your position, get in touch with our contract lawyers on 1300 544 755 or fill out the form for advice.