Whether clauses in a contract still enforceable after the contract expires?

Whether contract clauses continue to be effective and binding on the parties after contract period expiry. In answering this question the courts will consider:

 > what the parties have said and done about the contract; and

 > the extent to which their behaviour, conduct and dealing consistent with the ‘underlying

assumption’ that the terms of the written contract would subsist without any formal renewal.

1. A leading case in point would be Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] 1 QB 84 applied in Malaysia–

Although subsequent conduct cannot be used for the purpose of interpreting a contract retrospectively, yet it is often convincing evidence of a course of dealing after it. There are many cases to show that a course of dealing may give rise to legal obligations. It may be used to complete a contract which would otherwise be incomplete; see Broaden v Metropolitan Railway Co (1877 ) 2 App Cas 666 , 682, per Lord Hatherley ... it must also be available ... to interpret them. If parties to a contract, by their course of dealing, put a particular interpretation on the terms of it — on the faith of which each of them to the knowledge of the other — acts and conducts their mutual affairs — they are bound by that interpretation just as much as if they had written it down as being a variation of the contract. There is no need to inquire whether their particular interpretation is correct or not — or whether they had in mind the original terms or not. Suffice it that they have, by the course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it.

2. This case was cited with approval in our Federal Court case of Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd [1995] 3 MLJ 331; [1995] 4 CLJ 283 (FC).

3. The width of the doctrine has been summed by Lord Denning in the Amalgamated Investment case [1982] 1 QB 84 at p 122; [1981] 2 All ER 577 at p 584; [1981] 3 WLR 565 at p 575) as follows:

... When the parties to a transaction proceed on the basis of an underlying assumption — either of fact or of law — whether due to misrepresentation or mistake makes no difference — on which they have conducted the dealings between them — neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the Courts will give the other such remedy as the equity of the case demands.

4. Applying the above principles, if the conducts of the parties after the expiry of the contract sufficiently implying an existence of a contract between the parties, then the above provisions will suffer no difficulties to be enforced.

5. However, if the contract has expired, without doubt that there exists no legal binding contract between the parties to perform their contractual obligations in compliance with the contract clauses as stipulated in the contract.

6. This is because the courts will normally be entitled to assume that a legally-binding agreement has been formed only when a written contract is formally executed by the parties still subsists, and so the courts will not normally accept that there is a contract when there is no formal written agreement after the contract has expired.

7. The courts will continue to be cautious in determining the intention of the parties as to the existence of a legally binding contract especially the contract provides that time is of the essence and especially when the contract actually provides for commencement date and ending date which allows for the imposition of LAD and the calling of the bond.

8. Other than that, it should be noted that the expiration of the contract also follows almost as a matter of course when parties intend the legal consequences of the terms in the contract to follow, for instance, the existing terms will cease to be binding on the parties when the contract expires unless there is a survival clause to revive certain clauses in the already expired contract.

9. The reason is that the relationship between the parties under the contract comes with an end date as opposed to a perpetual contractual relationship without an end date. In short, the provisions cease to have any effect at its demise except if the survival clause plays its role to resurrect it.

The opinion provided above does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available are based on my personal views and for general informational purposes only. The opinion may not constitute the most up-to-date legal or other information.

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