Implied contract? When conduct continues after a contract expires

Abstract

How does the law respond where parties continue to perform their contractual obligations even though the express term of their contract has expired? This question remains unresolved in New Zealand, though it is familiar to the Australian courts. In Andar Transport Pty Ltd v Brambles Ltd and CSR Ltd v Adecco (Australia) Pty Limited, both the Supreme Court of Victoria and the New South Wales Court of Appeal held that an implied contract was formed on the terms of the expired contract, as the parties continued to act as if the agreement bound them.

This essay analyses the above question in a New Zealand context. It does so in two parts. First, it assesses the likelihood of the New Zealand courts applying the rule in Brambles and CSR. Doubtlessly, they will apply it. Contract is the law of reasonable reliance and imposes obligations where behaviour projects an objective intention to be bound. That said, courts are reluctant to uphold contracts that parties have not expressly agreed to. Therefore, where expired obligations are not "necessary for the business efficacy" of a continuing relationship, ordinarily, it will be regulated on a quantum meruit basis, a reasonable fee for work done.

Second, this essay assesses whether Brambles and CSR applied the law correctly to their facts. It argues that only Brambles was correctly decided. The continuing relationship in Brambles was inexplicable, absent the expired terms. In CSR however, it was not clear that the parties intended for the expired obligations to continue. The parties were negotiating a new contract, and an available interpretation was that they intended to operate on an informal basis while they negotiated new terms. Given this uncertainty, the New South Wales Court of Appeal was wrong to impose expired obligations. While all cases turn on their facts, New Zealand courts and business people should be aware of its troubling conclusion.