Beyond Paper: the Power of Implied Agreements

In business, contracts are the backbone of agreements, ensuring clarity and accountability. But what happens when a contract isn't written down? The case of Kingsbeer Transport Ltd v Martin Brower New Zealand sheds light on this question, revealing important insights for business owners.

Setting the Scene

Kingsbeer Transport Ltd (KTL), a small trucking company based in Tauranga, had a longstanding relationship with Martin Brower New Zealand (MBNZ), a global logistics company serving McDonald's restaurants in New Zealand. There had been a long-standing relationship between the parties, with KTL having been responsible for the transportation “runs” between Auckland and Gisborne/Whakatane since 2011. These had been governed by a contract.

In January 2018, MBNZ recommended KTL take on the Auckland to Rotorua and Bay of Plenty “runs”. KTL were interested in taking on the new transportation runs, but it would require significant financial investment, such as a truck and two trailers. Any potential lessor of these vehicles would need confirmation of the status of KTL’s contract with MBNZ. Further, renting temporary equipment at a higher cost would cause increased short term costs of taking on this further work.

KTL were dealing with Mr Andrew Millin, the Distribution Manager for MBNZ. Mr Millin assured KTL that they would provide a five year contract, and that a written contract outlining this term, along with compensation for short term costs. The first run was to be on the 29th of January. There was no written recording of this conversation. On 15 January 2018, Mr Millin was made redundant. KTL continued to perform their ostensible obligations under the contract, and continued to incur costs under the belief they would be compensated, and provided a five year written contract, as per their oral agreement with Mr Millin (who they took to be an authorized agent of MBNZ). MBNZ subsequently rejected that any such agreement had taken place, and refused to issue a contract to that effect. As a result, KTL advised it would cease its runs on 30 June 2018.

This suggestion from MBNZ to KTL (to take on additional "runs"), was done without providing a written contract, leading to a legal dispute.

The Plot Unfolds

Despite assurances from a MBNZ manager, no written contract materialised. KTL incurred costs under the belief of a five-year agreement, only for MBNZ to deny any such commitment. KTL sued MBNZ, asserting a “partly-written, partly-oral contract” for a five year period, covering the additional Bay of Plenty/Rotorua runs, alleging breaches, including failure to provide a written contract and to cover short-term costs.

KTL sought damages and payment of short-term costs.

Key Findings

The Court ruled that although no written agreement existed, a binding contract was inferred and based on MBNZ's conduct. Mr. Millin, the MBNZ manager, had "ostensible authority" to negotiate, creating a reasonable expectation of a contract. MBNZ failed to fulfill obligations to provide a written contract within a reasonable period, and pay the short term-costs. Similarly, the court found that the performance of these obligations was in fact essential, thus the breach did give KTL a right to cancel the contract.

Takeaways for Business Owners

1. Clarity is Key: Always document agreements in writing to avoid misunderstandings.
2. Understanding Authority: Be mindful of the authority your representatives convey to others through their actions.
3. Intent Matters: Even without a written contract, if both parties intend to be bound, legal obligations may arise.
4. Avoiding Disputes: Ensure all parties are clear on terms and responsibilities to prevent costly legal battles.

Conclusion

While legal cases may seem complex, their lessons are invaluable for business owners navigating contracts and agreements. By understanding the principles of authority and intention to be bound, you can safeguard your business interests and ensure successful partnerships. This is also another caution to larger businesses to avoid the temptation of trying to screw over the little guy.

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If you would like to talk to someone who can assist with matters relating to this article, please contact:

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James Turner (partner)

DDI: 09 966 3603

Email: jturner@mcveaghfleming.co.nz

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Fulton Ryan (Solicitor)

DDI: 09 415 4477

Email: fryan@mcveaghfleming.co.nz

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