Implied contract after the expiry of an express fixed term contract

Introduction

On 31 May 2017, the appeal division of the Supreme Court of New South Wales (McColl, Macfarlan and Simpson JJA) handed down a unanimous decision in CSR Limited v Adecco (Australia) Pty Limited [2017] NSWCA 121 concerning the inference of an implied contract after the expiry of an express fixed term contract.

Significance

Parties who continue to deal with each other after the expiry of a fixed term contract may nevertheless be bound by its terms if their conduct, including their silence, signals an objective intention that their relationship continued on its terms.

As such, parties must be aware of the expiry of a fixed term contract and expressly inform each other if they do not intend for its terms to govern their continued dealings.

Facts

David Frewin was a truck driver employed by Adecco (Australia) Pty Limited (Adecco) who suffered personal injury as a consequence of driving a defective truck at a concrete plant owned by CSR Limited and Holcim (Australia) Pty Limited (together, CSR). Mr Frewin's services were supplied by Adecco to CSR under a supply agreement for labour hire services for a fixed term of two years. Under the agreement, Adecco agreed to indemnify CSR against claims for personal injury by "Temporary Staff" employed by Adecco working "in an Assignment for CSR". Mr Frewin sought damages for personal injury against CSR and CSR sought to be indemnified by Adecco under the agreement.

On 31 March 2002, the fixed term of the agreement expired. CSR could formally extend the agreement for an additional two years. However, the agreement was only informally extended until 31 July 2002. From 31 July 2002 until May 2004, Adecco and CSR unsuccessfully sought to negotiate the terms of a fresh agreement. During this time Adecco continued to supply labour to CSR (including that of Mr Frewin) and CSR continued to pay for those services.

CSR argued that the parties’ relationship continued after the expiry of the agreement, notwithstanding it had not been formally extended, on the basis of an implied contract containing the same terms and conditions as the expired agreement (including the indemnity) at least until Mr Frewin suffered his injury. The primary judge (Adamson J) rejected CSR’s argument and CSR successfully appealed.

Decision

According to the Court:

  • the question whether an implied contract following on the expiry of an express fixed term contract may be inferred is an evidentiary or factual one, turning on the application of an objective, or reasonable bystander, test;
  • the parties’ intentions that their relationship continued on the terms of the expired contract can be inferred as much by silence, as by performance;
  • the test is not the parties’ subjective assessment of their relationship and it is not necessary to identify communications between the parties confirming the terms of their continuing relationship pending further agreement; and
  • whilst conduct by the parties as if the contract remains on foot is required, it is not necessary for the expired contract to be performed in exactly the same way and on exactly the same basis or to establish that the parties continued to conduct themselves as if bound by the contract for its entire term.

In determining that the conduct of Adecco and CSR was consistent with them acting as though the expired agreement still bound them, the Court had regard to the commercial realities of the parties’ relationship, including the size of the parties’ operations and the complex agreement under which they had operated.

The circumvention of a public tendering process was held to be a strong foundation for the inference that Adecco did not wish to depart from the terms of the agreement in continuing to provide its services to CSR after its expiry.

Conclusion

Parties should diarise the expiry of fixed term contracts so that action can be taken to enter into a fresh contract. If the parties do not intend for the terms of the expired contract to govern their continued dealings, including whilst negotiating a fresh contract, they should expressly inform the other party.

John Poulsen

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John Poulsen Senior Associate

John acts for banks and insolvency practitioners on all security enforcement and recovery matters.

John is a senior associate in our Brisbane office and specialises in the resolution of banking and insolvency disputes. John has experience in personal and corporate insolvency, commercial litigation in both Federal and State Courts, professional negligence claims, public examinations, and farm debt mediation in Queensland and New South Wales. John has experience across many sectors including commercial, rural and residential property, hotels, retail, and mining services.

John has recently completed secondments to the Dispute Resolution Group and RBB Legal Team, Compliance, Legal & Secretariat, Westpac Banking Corporation, in Sydney and to Resolution Advisory Services, BOQ Group Legal & Secretariat, Bank of Queensland Limited, in Brisbane.

As part of HDY's Pro Bono program, John volunteers at LawRight's Self Representation Service providing free legal advice and assistance to self-represented parties through the course of their civil proceedings in the Federal Court and the Federal Circuit Court of Australia. 

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