Speaking with ANRA members in Sydney recently about client agreements, it was good to have a chance to clarify what we mean when we say, “We have a contract”. We’re not always talking about written terms of business; what we’re mostly talking about is a special type of legal relationship. So, here’s the working definition we’ve been using:

“A contract is a legal relationship that arises from some actual agreement between parties, which creates legal rights that a court will protect and obligations that it will enforce.”

Can you see the emphasis, which this definition places on the existence of actual agreement? Terms of business without agreement – i.e. without a meeting of the minds between the parties or without acceptance – are not enough to create a contract; they’re just  something that you hope your client might agree.

The meeting of the minds (consensus ad idem) and acceptance need not always be reached or communicated in writing. Often, the parties’ conduct will be enough to evidence their agreement.

Not all service relationships are governed by terms of business; nevertheless, they may still be contractual.  Think about it – your relationship with your GP is possibly not governed by anyone’s terms of business. It’s a professional relationship that is based on custom, consent, care and an expectation of ethical conduct.

We explored this with the ANRA members, looking at a situation where a nursing agency might have been on-hiring nurses to a health facility and the facility had been paying – all in the absence of agreed terms of business. So, our conversation went a bit like this:

“Did you agree with the hospital that you would on-hire nurses to it?”

“Yes.”

“And did they agree to pay you for that?”

“Yes.”

“Well, there’s your contract. It’s a very simple one by which, in return for the hospital’s promise to pay money, you agree to on-hire nurses.”

“But what about notice and termination and everything else?”

“The courts will often imply the terms that are necessary to make the contract workable.”

You can see where we’re going with this. If there is an actual agreement, the courts will often imply terms  that are necessary to make it work. But they will not necessarily imply all the provisions that are set out in your terms and conditions (or those of your client) merely because they would be convenient or would make it work better.

Sometimes the course of the parties’ previous dealings can be enough to  persuade a court that one party’s terms and conditions have been accepted and should govern their transaction.

That happened in Hays Personnel Services (Australia) P/L v Motorline P/L [2008] QCA 375, where the Queensland Court of Appeal was persuaded that Hays’ terms of business -which stipulated that a placement fee must be paid if an employee was hired by the client or a ‘related business’ and which had been sent to the client on nine previous occasions– were incorporated into the parties’ contract by virtue of their previous dealings.

However, in Redwood Group Limited v Hays Specialist Recruitment (Australia) Pty Ltd [2009] NZHC 825, the New Zealand High Court held that terms of business, which had only been attached to an email, failed to become part of the contract. The Court said that:

“…there was an oral contract between Hays and Redwood for Hays to provide Ms Z as a candidate, and if she was employed Redwood would pay Hays $36,000.00. The written terms were not part of that contract.”

In that case, the written terms contained exclusion clauses that placed full  responsibility for the hiring with the client. The Court held that they never became part of the contract and that Hays needed to satisfy implied terms of service quality in order to maintain its claim for payment – which, I should point out, it did.

Now go back to our working definition of a contract. Can you also see the emphasis that’s placed on the legal quality of the relationship – upon legal rights and court enforceability?

The legal relationship that is represented by your contract sits alongside the commercial or business relationship that you enjoy with your client – at least I hope you enjoy it!

Once that is recognised, it becomes important to think about whether the legal relationship that you’re creating is well-matched to the business relationship that you are seeking. What you put in your terms of business (or your client puts in its terms of business) says a lot about the type of relationship you are likely to end up with.

So where does that leave your terms of business? Well, they may become terms of the contract if you have actually made it; and they may be enforceable if they meet minimum requirements of legality and certainty. That might be enough to encourage you to think about the process by which you go about making contracts and what you include in them.

But beyond that, it might also  be time to think about whether they are appropriately designed for the type of business and professional relationships that they are intended to serve.

Andrew C. Wood