Is There Such Thing As A Contract Without Time Limit?
What happens if a contract does not expressly state the duration of the contract? How can parties to such a contract terminate the contract? What is the court’s stance on such a contract? Is it even a thing?
First thing’s first, what do you call this kind of contract?
It is called a ‘perpetual contract’. Such a contract does not have an end date unless a certain event negates the contract.
However, this does not mean that all contracts which do not specify a time limit are perpetual.
How do we know?
In the Federal Court case of Ng Chin Tai & Anor v Ananda Kumar Krishnan, Ananda Kumar entered into a brokerage contract with Ng Chin Tai and his company. In this regard:
- Ananda Kumar will secure a contract for Chin Tai and Co to supply their seafood to Tesco Hypermarket; and
- In return, Ananda Kumar will receive a 5% consultant fee every week for his services.
For a while, everything was A-ok between the parties. However, towards the end of 2005, Chin Tai and his company decided to terminate the contract (out of the blue) with Ananda Kumar. This effectively halted the supply chain and Ananda Kumar lost his 5% consultation fees.
To make matters worst (and unbeknownst to Ananda Kumar), another company was formed to continue to supply seafood to Tesco until 2015. And if you have not guessed it, the shareholders of the new company were Chin Tai and his company, while the directors of the new company were Chin Tai’s children.
Aggrieved by the shenanigans, Ananda Kumar brought an action against Chin Tai and Co. In his claim, Ananda Kumar claimed for the unpaid consultant fees that were due to him from the time of termination of his contract with Chin Tai and his company until they ceased to supply seafood to Tesco altogether.
What did the court say?
Both the High Court the Court of Appeal (on Appeal by Chin Tai and his company) held in favor of Ananda Kumar. In coming to its decision (long story short), both the High Court and the Court of Appeal noted that Chin Tai and his company intentionally created a second company to avoid paying Ananda Kumar monies. It was on this basis the High Court (and subsequently affirmed by the Court of Appeal) ordered Chin Tai and his company to compensate Ananda Kumar for the fees owing to him.
Whilst it was the same outcome in the Federal Court (i.e. the court siding with Ananda Kumar), the court noted that a brokerage contract is not a contract in perpetuity.
So is there such thing as a perpetual contract?
The Federal Court says no. In this regard, the Federal Court noted that:
- A contract is not a perpetual contract just because it does not contain a termination clause.
- There is no such thing as a contract that cannot be terminated.
- Every contract will have its expiry date, one way or another.
For example (in this particular case and putting the new company aside), the brokerage contract comes to an end when Chin Tai and his company cease to supply seafood to Tesco. Premised on the three points that was mentioned above and the facts of the case, it was clear that the contract has an end point and is not a perpetual contract.
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