The subject of this case was a badly drafted renewal clause which provided that on the expiry of the 4 year Initial Term, the relevant lease agreement would “renew for a period which is the lesser of the Initial Term or 12 months and otherwise upon the same terms and conditions as appear in this Agreement”. The New South Wales Court of Appeal found that, on the that drafting, there was not to be a single 12 month renewal but rather, the agreement would continue to renew for successive 12 month periods until terminated in accordance with its terms. As a result, the lessor was entitled to keep overpayments paid over 9 years of successive renewal periods until the agreement was finally terminated. This case serves as a reminder to take care when drafting renewal provisions to ensure that the extent, and number of, any renewal periods is clearly stated in the agreement.
A rental agreement between Unison Finance Group Pty Ltd (Unison) and Electric Life Pty Limited (Electric Life) (Agreement) provided that:
- the Initial Term was 48 months from the Commencement Date;
- the Agreement could not be cancelled or terminated except as expressly provided for in the Agreement; and
- immediately upon the expiration of the Initial Term, the Agreement would renew without the need for any further notice from either party unless the renter gave the requisite notice and returned the equipment (clause 8(a)) and in such case, the term of the Agreement would “renew for a period which is the lesser of the Initial Term or 12 months and otherwise upon the same terms and conditions as appear in this Agreement” (clause 8(b)).
In finding that the renewal clause provided for successive 12 month renewal periods after the expiry of the Initial Term (rather than a single renewal period), Adamson J in the Supreme Court of New South Wales found that:
- the concluding words in clause 8(b) of the Agreement – “upon the same terms and conditions as appear in this Agreement” – meant that all the terms of the original Agreement (including clause 8(a)) survived a renewal and were incorporated in the renewed Agreement. Accordingly, the Agreement would continue to renew until terminated in accordance with clause 8(a);
- it followed that, since Electric Life did not give notice or return the equipment as required under clause 8(a), the Agreement was continually renewed until December 2012 when it was terminated by agreement of the parties; and
- nonetheless, most right thinking people would think that Unison has been unjustly enriched at the expense of, and had taken unfair advantage of the mistake of, Electric Life and should therefore consider whether it should keep the amounts paid during the renewal period.