Most fixed-term business contracts end in one of two ways. Either the parties sign a replacement, or they simply keep dealing with each other after the expiry date passes as if nothing has changed. That second path is more common than most owners expect. A supplier keeps delivering, a distributor keeps selling, a labour hire agency keeps sending workers, and invoices keep getting paid, all on the strength of an agreement that technically no longer exists.
That comfortable arrangement carries a legal consequence most businesses do not plan for. Australian courts have long held that continuing to perform after a fixed term expires can create a new contract by implication, one that usually carries over most of the terms of the expired agreement. The relationship is not unregulated. It is regulated by a contract nobody signed.
This article explains how that implied contract forms, what terms it carries over, how it can be ended, and where the traps are. If you have a recently expired agreement, or are considering letting one lapse, this is the mechanism you are about to trigger.
Why expiry rarely means the end of the relationship
The situation arises most often with supply, service, distribution and labour hire agreements that run for a set term. When the term ends, the parties are usually happy with the arrangement and neither wants the cost and effort of negotiating a fresh document. So performance simply continues: goods keep moving, work keeps being done, and money keeps changing hands.
At that point the two parties' interests briefly align. Both enjoy the continuity and neither is thinking about the paperwork. The tension emerges later, when something goes wrong. A worker is injured, a shipment is defective, a customer is lost, or one party simply wants out. Suddenly the question of what governs the relationship matters enormously, and the parties discover that nobody knows the answer with certainty.
That is when the courts get involved. The third actor in this story is the court, which must reconstruct, after the fact, what the parties' conduct signalled about the contract between them. The law has developed a mechanism for doing this, and it is more forgiving than you might expect.
What creates the implied contract
A contract does not need to be in writing. It can be made by words, by conduct, or by a combination of the two. In Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, the High Court confirmed that the ordinary elements of contract formation apply no matter how the agreement is manifested.
Applying those elements to an expired contract is straightforward:
- Offer and acceptance: by continuing to supply goods or services after the expiry date, and continuing to accept and pay for them, the parties' conduct evidences offer and acceptance. If, immediately after expiry, one party refused to perform its side of the bargain, that would point the other way.
- Consideration: value continues to move in both directions, most obviously through payment for goods or services delivered. Consideration that existed under the expired agreement continues to be provided.
- Intention to create legal relations: in a commercial setting, intention is assessed objectively, and dealings between businesses are generally presumed to be intended as binding.
The modern Australian statement of the principle comes from CSR Limited v Adecco (Australia) Pty Limited [2017] NSWCA 121. There, McColl JA quoted with approval a passage from Chitty on Contracts:
Contracts may be either express or implied. The difference is not one of legal effect but simply of the way in which the consent of the parties is manifested. There may also be an implied contract when the parties make an express contract to last for a fixed term, and continue to act as though the contract still bound them after the term has expired. In such a case the court may infer that the parties have agreed to renew the express contract for another term or the court may infer an implied contract drawing on some of the terms of the earlier contract, but omitting others.
The CSR case itself is a striking illustration. CSR and labour hire provider Adecco had a two year supply agreement that expired on 31 March 2002, was extended by agreement to 31 July 2002, and then simply ran on. Adecco kept supplying labour and CSR kept paying. The two companies spent the next two years unsuccessfully negotiating a new agreement. When a worker was injured driving a CSR truck, CSR sought to rely on the indemnity clause in the expired agreement, and Adecco argued there was no contract in force.
The Court of Appeal held that the question of whether an implied contract has formed is an evidentiary or factual one, assessed against an objective test. In the words of the Court, the question is whether a reasonable bystander would regard the parties' conduct, including their silence, as signalling that the relationship continued on the terms of the expired contract. Exactitude in performance is not required. The parties do not need to have performed every obligation with precision for the inference to be drawn. On the facts, the Court found the implied contract was on the same terms as the expired agreement, and the indemnity clause bound Adecco.
What terms carry over
The default position is that the implied contract carries over the terms of the expired agreement. In CSR, the Court quoted with approval the Victorian Court of Appeal's decision in Brambles Ltd v Wail; Brambles Ltd v Andar Transport Pty Ltd (2002) 5 VR 169, where the parties had operated after expiry under a standing agreement in which all the procedures and, importantly, the remuneration were exactly the same as under the written agreement. The whole commercial framework carried over: pricing, payment terms, service standards and the rest.
The one term that obviously cannot carry over is the expiry date itself. The implied contract cannot continue indefinitely on the old fixed term. As the Victorian Court of Appeal put it, the parties proceeded as though still governed by the terms of the original agreement, save that, since it had already expired, either could terminate the substitute arrangement on reasonable notice.
How much of the expired agreement is imported depends partly on how formal and complete that agreement was. In Cawsand Pty Ltd v Normans Wines Pty Ltd (Supreme Court of Victoria, Brooking J, 21 June 1989, unreported), which the Court of Appeal discussed in CSR, the expired written agreement was a short one that did not contain all the terms the parties had agreed. In those circumstances Brooking J declined to infer that a particular notice of termination period formed part of the implied replacement agreement. His Honour distinguished the case of a lengthy written agreement containing numerous terms governing the relationship, including one concerning notice, where the parties have so acted as to lead to the inference that, notwithstanding the expiration of the term, they regard the provisions of the agreement as still governing their relationship.
The same dispute in Brambles eventually reached the High Court in Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424, where the contested question was the construction of the indemnity clause. The High Court reaffirmed that a doubt about the construction of an indemnity is resolved in favour of the indemnifier, so indemnity clauses are construed strictly against the party seeking to rely on them. The point for a business is that those clauses are precisely the kind of term that can keep binding the parties years after the written agreement has lapsed.
Where the traps are
The mechanism works quietly, which is exactly why it catches businesses out. A few situations deserve particular attention:
- Silence counts: The reasonable bystander test expressly includes silence as part of the conduct to be assessed. If your counterparty keeps performing and you keep accepting and paying, saying nothing does not protect you. Your silence can signal that the relationship continues on the expired terms.
- Failed negotiations do not switch the old terms off: The parties in CSR spent almost two years trying and failing to negotiate a replacement agreement, and the implied contract was still found. If you want the old terms to stop applying, you need to do more than start talking about a new deal.
- The notice problem: An implied contract has no fixed end date, so it is terminable by either party on reasonable notice. What is reasonable is judged against the circumstances: how long the arrangement has run, the nature of the industry, the level of investment and reliance. Getting that assessment wrong, and terminating on notice that a court later finds unreasonable, can expose you to a claim for wrongful termination.
- Obligations can outlive the obvious: Indemnities, insurance requirements, confidentiality obligations and intellectual property licences do not stop operating just because the headline term has passed. In CSR it was an indemnity, of all things, that kept the parties locked into the expired agreement years later.
- Changed conduct cuts both ways: The implied contract is built from what the parties actually do. If, after expiry, the parties start dealing on different prices or different service levels, that conduct may show a different arrangement from the expired agreement, with some old terms dropped.
When a lawyer can help
The most useful thing a commercial lawyer can do here is reconstruct what a court would infer before you are in front of one. That involves reviewing the expired agreement, the conduct of the parties since expiry, and the correspondence between them, then advising on the terms a reasonable bystander would regard as still governing the relationship.
There are three points in the process where that advice pays for itself. First, before the expiry date arrives, when a short extension agreement or a letter confirming the basis on which work will continue can be put in place. Secondly, when negotiations for a replacement agreement stall, to make sure neither party inadvertently locks the other into terms neither wants. Thirdly, when a dispute has arisen or a party wants to exit, to assess what notice is reasonable and how to terminate without exposing the business to a claim.
The CSR litigation shows the cost of leaving the question open. The worker's injury occurred years after the written agreement lapsed, and the indemnity dispute was still being resolved by the New South Wales Court of Appeal in 2017. That is a decade of uncertainty, and of legal fees, that a signed extension would have avoided.
The expiry date is the cheapest moment to act
Every business that lets a fixed-term contract lapse should understand one thing: the expiry date itself is the cheapest moment in the whole relationship to make a decision. A one-page extension agreement, or even a short email confirming that the existing terms continue to apply until a new agreement is signed, converts an uncertain implied arrangement into a documented one.
If you do nothing, you are not avoiding the contract. You are simply deferring the question of what it contains until a dispute forces a court to answer it, years later, based on conduct neither party was thinking about at the time. The risk concentrates in exactly the terms that matter most when things go wrong: indemnities, notice periods and termination rights. If you have an expired agreement that is still being performed, or a counterparty who wants to keep working on your old terms, a short conversation about how to document the arrangement is a sensible place to start.