Be Careful with Long-term Contracts

Forgetting the details can have significant consequences

Many contractual relationships last for years and, over time, the parties may forget, or change, their understanding of what was originally agreed.

A recent case, Savvy Vineyards 3784 Limited v The Arck Limited¹, highlights two particular issues:

• The danger of not complying with strict contractual terms particularly with regard to timeframes, and
• The readiness of the court to use email correspondence as evidence of the intention to create contractual relations.

The case was about a number of matters in dispute. The critical issue, however, was whether or not Savvy had exercised an option to purchase grapes from Arck. Savvy and Arck had an agreement which, amongst other things, contained a right of first refusal for Savvy to purchase the entire or any part of the entire crop of grapes from Arck for the next three years. In order to exercise this right of first refusal, notice had to be given by Savvy to Arck by a particular date. It was accepted in evidence that whilst Savvy had prepared its notices to exercise its option there was no record of those notices ever having been sent. Accordingly, when a dispute arose between the parties, Arck tried to rely on the non-service of the notices to avoid any obligation to supply grapes to Savvy.

While it was clear that the right of first refusal to purchase the grapes had not been exercised strictly in terms of the contract, subsequent email correspondence was such that the court found a contract for Arck to supply the grapes to Savvy had been concluded, so the question of whether or not the option was correctly exercised ultimately wasn’t critical. Arck had not realised that Savvy, by not serving its notices, had potentially missed out on its right to purchase the grapes. If Arck had realised this at the time, it may have behaved quite differently in its subsequent email negotiations with Savvy.

Problems can arise with long-term contracts

The case does show, however, the problems that can arise in long-term agreements. The agreement in question had an initial term of 10 years and had two rights to extend the agreement for two further terms of 20 years each, giving a contract term of up to 50 years. Over that period of time, personnel and/or landowners would almost certainly change and, at the very least, the specifics of contracts entered into years ago can start to fade in the memory.

All terms of a contract will become important at some time or another, but missing deadlines for notices can have a potentially devastating impact. Some contracts will have a ‘time is of the essence’ phrase in a clause requiring a party to do something by a particular time, which makes it clear that if the timeframe is not met then they may not have a second chance. Examples of critical options or time periods that should be remembered are:

• Notices to exercise options to purchase
• The ability to terminate, or end, a contract early or to prevent it rolling over
• Rent reviews, and
• Renewals of leases, or supply or purchase agreements.

These days most people will have electronic calendars that they may or may not use. If you are entering into any contracts with lengthy terms and critical time periods, then it’s most important to not only note the date by which the notice needs to be sent, but also make a reminder some weeks before that a critical date is coming up.

Emails can be used as evidence

The other interesting point about the Savvy case is the issue of the email correspondence between the parties being used to determine that a concluded contract had been made. Emailed communication tends to be conversational and often conducted with less thought than would go into formal written communication.

When you’re dealing with contractual issues by email you must be aware that any emails you send can be saved and used as evidence in any subsequent dispute. These days it’s easier for parties either to inadvertently give up legal rights or be held to have concluded a contract when perhaps they had not intended to do.

The motto here is think before you email.

_{1 Savvy Vineyards 3784 Limited v The Arck Limited}