Confusion over IT contract renewal proves costly

When drawing up contracts with automatic renewal clauses it is important to ensure that you fully understand what is being agreed.

Failure to do so can prove costly, as demonstrated in a recent case before the High Court. It involved an IT company and a bank that had entered into an agreement.

There was a clause stating that the agreement would renew automatically for a period of three years on each anniversary of the renewal date unless either party gave 90 days notice of its intention to terminate.

The renewal date was 30 July, 2009. The bank gave 90 days notice to terminate the agreement on 30 July 2010. The IT company said that once the renewed contract had begun in 2009, it could not be terminated until the end of the three-year period, which would be 30 July 2012.

The court found in favour of the IT company. It held that the relevant clause in the agreement clearly referred to the subsequent renewal period as being three years. Anniversary in the context meant three-year anniversary.

Please contact Jon Alvarez if you would like more information about the issues raised in this article or any aspect of contract law.