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Terminate your supply contract properly

Contract Law News | April 2017

In AAP Industries Pty Ltd vs Rehau Pte Ltd [2017] NSWSC 390, the Supreme Court of NSW found that Rehau Pte Ltd (“the Defendant”) had breached a contract under which they were obliged to purchase the plumbing supplies from AAP Industries Pty Ltd (“the Plaintiff”). This obligation arose out of the express terms of a supply contract which existed between the parties in these proceedings.

The parties in these proceedings entered into the supply contract in 1999 for the Plaintiff to supply plumbing articles to the Defendant (“Supply Contract”). The Plaintiff claimed that a further 7 informal contracts existed between the parties, having come into existence during the period from September 2000 to January 2002 (“Informal Contracts”). The Defendant pleaded that it had correctly terminated the Supply Contract and Informal Contracts in July 2013 pursuant to the relevant termination clause XI that was contained in the 1999 supply contract.

The Plaintiff later accepted what was said in a letter dated 2 June 2014 to be the Defendant’s repudiation of the contracts and brought proceedings claiming damages arising out of this repudiation, claiming to have suffered the following three forms of damage:

  1. Loss of profits;
  2. Loss in respect of completed stock manufactured for the Defendant remaining on hand; and
  3. Loss in respect of raw materials acquired by the Plaintiff for the purpose of manufacture of goods for the Defendant remaining on hand.

The principal issue for the court to determine in these proceedings was whether both the formal contract entered into in 1999 and the informal contracts between the parties contained an implied term of exclusivity.

  • The court awarded the Plaintiff damages for their loss of profits arising from the Defendant not ordering stock from them under the 1999 Contract.
  • The court did not award damages to the Plaintiff for its claims for loss of stock and raw materials due, as the Supply Contract did not contain any provisions requiring the Plaintiff to have a certain amount of stock or raw materials on hand.

In making its decision in these proceedings, the Court found that it ‘may not be necessary to imply a term of exclusivity’, but found that such a term was implied to extent that a number of previous case authorities suggested that a term of exclusivity was implied by proper construction of the contracts between the parties.

When drafting or entering into a contract it is important to carefully consider the express terms, as well as the terms which may be implied, to ensure that you understand your rights and obligations arising from the contract. Failing to adhere to particular termsof a contract can lead to a breach and potentially a damages claim by the other party.

Forum Law has a wide range of experience in drafting, negotiating and advising on various types of contracts. We offer free parking and a friendly professional environment to advise and assist you with all your business processes and decisions. Call us for a free 30-minute conversation on (02) 9560 3388 or in our friendly and professional office in Leichhardt where parking for clients is free.

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