The concept of "relational contracts" is not new but has recently started to crop up more often in judgments on contractual disputes. This matters because, as we explain below, a finding that your contract is "relational" can make a significant difference to the way it is interpreted by a court.
What is a relational contract?
It's perhaps easier to start by looking at an agreement which is unlikely to be regarded as relational. A good example would be an agreement for the sale and purchase of a business. This is unlikely to be relational because the parties are usually looking for a clean break; their relationship is essentially transactional, rather than relational in nature.
Contrast that with a joint venture which is expected to last at least 5-10 years, where both parents are contributing resources and expertise – and to make it work, they need to cooperateclosely with one another on a day-to-day level. Such an agreement is much more likely to be a relational contract. There isn't a definitive test as yet, but the courts have indicated that relational contracts usually involve:
- a longer term relationship;
- a substantial degree of commitment from both parties; and
- a high degree of communication and cooperation between the parties.
In practice, relational contracts could include:
- joint ventures;
- complex outsourcings; and
- franchising and distribution arrangements.