Risks with informal contracts

Under Australian law, contracts are interpreted by an objective standard – i.e. what would a reasonable person have understood the parties to have meant by their words and conduct, in light of the surrounding circumstances.   This is often not an easy task in the case of informal (unwritten) contracts, which is one of the main reasons that lawyers routinely recommend that contracts are documented in writing.  

In REA v Hardingham, the High Court needed to decide the scope of an oral agreement for the taking of property photographs for a real estate website. The issue was whether the photographs could only be used for the duration of the vendor’s marketing campaign, or whether they could also be uploaded to RP Data’s website as a historical record of the property.

The trial judge held that use of the photographs was not limited to the marketing campaign.  On appeal, the Full Court disagreed, holding that the photographs were taken for the purposes of the marketing campaign and no broader right to use the photographs should be implied.

The High Court rejected the Full Court’s approach, and concluded that no reasonable person would understand that use of the photographs was limited to the marketing campaign.  To the contrary, a reasonable person would understand that it was common practice over many years, and required by REA’s terms, for real estate photographs to be uploaded by REA to RP Data’s site as a historical record.

You can read the decision here.