Supply Agreements typically include an end date or state and that it will be for a fixed period.
Where the supply agreement 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 supply agreement to come to an end
But what if parties simply continue as if the supply agreement has continued after it’s expired? What is the legal position of the parties? This article will consider the legality of an expired supply agreement 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 supply agreement?
- was there any relevant correspondence between the parties about the old supply agreement’s expiration and its extension?
Following this, there are three possible legal outcomes:
- the supply agreement has continued between the parties either on the same terms or varied terms;
- the parties have now entered into a new supply agreement; or
- there is no supply agreement 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 Supply Agreement?
If both parties continue ‘business as usual’, this will suggest that the parties intended to have the supply agreement’s old terms dictate their relationship. The court will then decide as to whether the entire expired supply agreement 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 supply agreement, then the court is more likely to determine the parties have entered a new arrangement, or the parties have no supply agreement 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 supply agreement?
If you have ‘affirmed’ your expired supply agreement, you should seek legal advice. It may be that you want to continue with the expired supply agreement and renew the terms. If that is the case, you should take active steps to enter into a new supply agreement. 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 supply agreement or be liable for damages.
5. How Can I Avoid This Situation?
It’s best to be on top of your supply agreements and have in place a sound management system. Try to keep a catalogue of your supply agreements 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 supply agreement or create a new supply agreement.
Key Takeaways
If you continue with a supply agreement after it expired, the court may find that you extended the agreement or entered into a new supply agreement with the other party. It’s then important you take active steps to manage your supply agreements.
ServoPro members can access our free Legal Helpdesk for specialised help and advice tailored to your specific business. For more information call Dan Armes on 0490 415 063 or email [email protected]