Last month, I wrote about a common contracting problem at the outset of ICT relationships. This month, I’ve looked at a problem with established relationships: what happens when a licence or other technology contract expires and the parties simply continue as if nothing had happened? Does a contract still exist or not? And if one does exist, what terms apply and how can it be terminated?
Of course, the best advice is not to get into this situation in the first place, to track contract expiry dates, and to take preventative action to ensure that all contracts are either renewed or terminated.
But that frequently doesn’t happen. If the parties continue to deal with each other after the expiry of a formal written agreement, there are three potential interpretations: either there’s a new agreement; the old agreement continued, on the same or varied terms; or there’s no contract, but only a duty to pay a reasonable sum for services requested.
The second option is most likely where a prior agreement existed. If the parties continue to do business in a way that’s consistent with the terms of the expired agreement, this typically indicates that their relationship is governed by its terms.
In determining the correct legal approach, a court will look at what the parties have said or done about extending the contract or continuing to deal with each other, and assess what a reasonable person would have understood their intentions to be.
A court will also examine the facts to decide whether the expired agreement is extended in its entirety or that just some of the old terms apply. Most cases suggest that, as long as there have been no disputes over specific terms in the post-expiry period, the entire original agreement may apply.
If the original contract has been extended (or there’s a new contract on the same/somewhat varied terms) then the termination provisions from the original contract could be applicable. But it’s also possible for a court to imply a term that the contract is deemed to continue for an indefinite period, subject to a right to terminate on reasonable notice.
What the English courts consider to be reasonable notice is also fact-specific. Although there are no general guidelines on what constitutes reasonable notice, the factors that a court might consider include: the contract duration; what rights are granted; the degree of financial dependence of the terminated party on the contract; the parties’ intention at the time when they entered into the contract; any outstanding commitments at the date of notice to terminate; and the time that would be required by the terminated party to replace the lost business represented by the contract.