A clash between the Seven and Nine networks over a former Spice Girl has led to some interesting findings about the termination of a contract and in what circumstances a contract will still be considered valid and enforceable.

Facts

Former Spice Girl Mel B was engaged in a contractual agreement with Network Seven for her exclusive television services from 1 February 2012 to 31 January 2013. There was an option in this contract for Seven to extend the contract for Mel B’s exclusive television services for the following year as well.

In December 2012, Seven agreed with Mel B’s management company, Orsis, to exercise its option to extend the contract to 31 January 2014. This was confirmed in writing by way of an “option exercise letter”. This letter also stated that Mel B’s services would no longer be required on one of its shows, Dancing with the Stars, but that she would be continuing to participate as a judge on X Factor.

In January 2013, Orsis advised Seven that Mel B had visa and custody issues, and therefore would not be able to reside in Australia and appear on X Factor. Seven responded that it would try to consider ways for X Factor to work around these difficulties.

On 14 March 2013, Orsis and Mel B entered into a written agreement with Nine, under which Mel B agreed to act as a judge on Australia’s Got Talent. This role apparently required less time in Australia and Mel B was able to travel to and from Sydney as required. Mel B’s manager, Mr Belafonte, agreed to keep Nine “in the loop” about conversations he was having with Seven. He even sought an indemnity from Nine in respect of costs, including legal expenses, in the event of a claim by Seven about Orsis and Mel B providing services to Nine. He kept his dealings with Nine entirely confidential from Seven.

Seven applied to the court to have the option to extend Mel B’s contract enforced, and therefore to prevent Mel B from providing services to Nine before 31 January 2014. The position that it put to the NSW Supreme Court was that, although it accepted that Mel B would not be able to fulfil her original commitments due to her children’s visa issues, “what [it] said and did would not have conveyed to any reasonable person in the position of [Mr Belafonte] that the agreement was at an end.”

Orsis, Mel B and Nine responded that if, under the varied agreement, Seven was not obliged to employ Mel B on Dancing with the Stars in Australia and that at the same time she could not work for any other television station during 2013, the arrangement amounted to an unreasonable restraint of trade, which was unenforceable as it was against public policy.

Decision

The Court rejected Mel B, Orsis and Nine’s arguments. It held that “on any objective view”, Seven, Orsis and Mel B had an intention to contract on the terms in the option exercise letter. A number of factors, including several emails between Mr Belafonte and Seven, and the fact that Mr Belafonte had sought indemnities from Nine in respect of the agreement with Seven, supported this finding.

The fact that “no language of release, let alone mutual release” had been used by any party further strengthened Seven’s position. The Court made an objective assessment of whether the cumulative dealings between all parties disclosed any intention for termination of the contract. It found that this was not the case. The contract was selfevidently valuable to Mel B, and Mel B’s services were self-evidently valuable to Seven and Nine. On this basis, “exclusivity of Mel’s services was both a contractual and commercial given”.

Seven successfully demonstrated that it had exercised the option. It was therefore entitled to exclusivity of Mel B’s services until the end of January 2014.

Bottom line for employers

The Court’s findings demonstrate that in determining whether a contractual option has been exercised, a court will look at the entire dealings between the parties. Unless the contract specifically requires the option to be exercised in writing, this will include oral dealings, and dealings with any relevant third parties.

If there is an intention to terminate a contract, this should be expressly stated in writing to avoid any future ambiguity or dispute.