Intention to create contractual relations is assessed objectively considering all the circumstances. Once the existence of a contract is established, there is a presumption that it continues until it is discharged.

The Supreme Court of NSW recently applied the principles of formation and discharge of contracts in the case of Seven Network (Operations) Limited v Melanie Brown [2013] NSWSC 372 which involved the media personality, Mel B.

For those not acquainted with Mel’s work, Justice Hammerschlag provided the following introduction:

"The first defendant is a successful and in demand show business personality who uses the show name Mel B. She was a member of a popular all female singing and dancing group known as the Spice Girls, in which capacity she performed under the name Scary Spice. I shall refer to her as Mel, with no disrespect intended."

The talent shows and the agreements

The case concerned Mel’s planned move from the Seven Network's talent show, the X Factor, to the Nine Network's Australia’s Got Talent. Justice Hammerschlag noted that both television shows “compete hotly for the same television audiences.” Mel was a judge on the X Factor in 2011 and 2012 and "[b]y all accounts she was a big drawcard.”

In February 2012, Mel, her management company and Seven entered into an agreement according to which Seven obtained her exclusive television services in Australia for Dancing With the Stars and the X Factor for the period of 1 February 2012 until 31 January 2013.

Mel and her family all resided in Los Angeles and hence Mel needed to relocate to Australia, at least temporarily, to take part in the shows. It was an express term of the Seven Agreement that the agreement was “entirely conditional on” Mel obtaining a visa that permitted her to participate in the shows. It was not, however, a condition that Mel obtain visas for her children. The Seven Agreement gave Seven an option to extend Mel's services until 31 January 2014.

On 4 December 2012, Mel lodged an application for permanent residency in Australia for herself and her family. There was no suggestion that Seven knew about this application. Mel encountered difficulties with the application in relation to two of her children.

Also in December 2012, Seven sought to exercise the option under the Seven Agreement to secure Mel’s services throughout 2013. Mel’s management company informed Seven that Mel wished to take part in the X Factor in 2013 but not Dancing with the Stars. Seven agreed to this.

Mel’s management company also informed Seven that she was unable to arrange for two of her children to come to Australia for filming of the X Factor, which was expected to take around five months, and that she did not wish to relocate to Australia without them. Seven sought to accommodate Mel by allowing her to participate in the X Factor while remaining in Los Angeles. This would be achieved by X Factor contestants visiting Mel in Los Angeles in “home visits”.

On 14 March 2013, Mel, her management company and Nine entered into an agreement according to which Mel would act as a judge on Australia’s Got Talent for 2013. Mel’s management company had informed Nine of her arrangements with Seven. The agreement included an indemnity from Nine in favour of Mel and her management company in respect of any costs arising out of a claim by Seven in respect of Mel working with Nine. To fulfil her role with Nine, Mel would have to be in Australia for 91 days. Mel appeared to have no difficulty in obtaining the necessary visa to do this.

Seven’s position in the court proceeding was that it had exercised its option under the Seven Agreement to obtain Mel's exclusive services on Australian television until 31 January 2014, save that the option had been varied so that Mel would not be required for Dancing with the Stars and would be paid an increased fee. Seven sought an injunction restraining Mel from appearing on Australian television with a network other than Seven until 31 January 2014.

The defendants in the proceeding were Mel, her management company and Nine. The defendants’ position was that the option had not been validly exercised or, if the option had been exercised, the Seven Agreement had been terminated or abandoned, based on various dealings between the parties in February 2013.

Had the option been exercised as varied?

The first question for the Court was whether the option had been exercised as varied. Justice Hammerschlag focused on whether there had been an intention by the parties to create legal relations. He noted the following points:

  • Intention to create legal relations is assessed objectively. It is a fact-based inquiry considering all the circumstances.
  • If intention is to be divined from communications, regard can be had to the commercial circumstances of the communications and the subject-matter of the arrangement.
  • Regard can be had to the conduct of the parties after the arrangement, to cast light on the meaning of the communications and on whether they intended to be contractually bound.
  • Actual subjective intention to contract is a factor for determining whether a contract exists but it is not determinative.

Justice Hammerschlag considered written and oral correspondence between Mel’s management company and Seven, and then concluded that the option had been exercised as varied.

Had the Seven Agreement been discharged?

The second question for the Court was whether the Seven Agreement had been discharged after the exercise of the option. Justice Hammerschlag noted the following principles regarding discharge of contracts:

  • Once a party has established that a contract exists, there is a presumption that it continues until discharged.
  • A contract may be discharged by abandonment or termination, amongst other things.
  • Abandonment occurs if both parties treat their contract as at end even if no contract to discharge it can be spelt out.
  • A contract terminating an earlier contract is like any other contract: its formation, construction and termination are governed by the general law of contract formation.

Justice Hammerschlag concluded that an objective assessment of the dealings between the parties in February 2013 did not disclose an intention to bring the Seven Agreement to an end.

Justice Hammerschlag summed up the proceeding as follows:

"Under the [Seven] Agreement, Mel has an obligation to provide her exclusive services to Seven and Seven is entitled to her performance of this obligation. Seven seeks no more than her compliance with a negative promise not to provide services to its competitor, which promise is part of a fair and freely negotiated bargain made recently.

Were she to perform under the [Seven] Agreement, Seven would be obliged, and has expressed a willingness, to pay her in accordance with the contract, notwithstanding recent events. However, while she remains unready and unwilling to perform, she is not entitled to any remuneration under the contract … It is all in her own hands."

Justice Hammerschlag granted Seven the injunction it sought.