Commercial Law – Cancellation of Contract – Re-Payment of Deposit – Advertising Marketing

Debra D. Stoneking

The case of Ogilvy & Mather Ltd v Silverado Blue Ltd [2007], concerned issues relating to the claimant’s right of cancellation of a contract subject to any losses incurred by the defendant. The claimant was an international advertising, marketing and public relations agency. It contracted with the defendant, a visual effects production company, to produce a commercial for Unilever.

Under clause 14 of the contract of engagement, the agency was entitled to cancel the whole or any part of the production. In the event of such a cancellation, the defendant was entitled to recover sums in respect of work carried out, up to the receipt of the notice of cancellation.

It was agreed, as part of the contract terms, that the commercial was to be produced within a specified time frame. The contract price was payable in two instalments, one in advance of the start date and the balance once the commercial was completed. The first instalment was paid by the claimant shortly after the contract was signed. However, it emerged less than two weeks later that market research conducted on the production was unfavourable. Therefore, the claimant cancelled the agreement with the defendant.

The claimant commenced proceedings against the defendant in respect of the first instalment. The claimant argued that they had asserted their rights in accordance with clause 14 to cancel the contract. In response, the defendant contended that the contract had not been cancelled but had merely been delayed or postponed.

Issues arose as to the point at which the agreement had been cancelled. If the agreement had not been cancelled, it had to be established whether the defendant had been entitled to offset any sums against the first instalment otherwise payable to the claimant.

The court held that in this case, the agreement had been cancelled effectively in accordance with clause 14 of the contract. The claimant therefore had a right to return of the deposit, however, subject to any claims that the defendant had under the cancellation clause.

The defendant had not discharged the burden of proof in establishing losses that had extinguished or diminished the claimant’s right to recovery of the deposit. They had not been able to show that they had incurred any specific losses prior to the contract being cancelled. Accordingly, judgment would be in favour of the claimant, and therefore the defendant was ordered to pay back the deposit.

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© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.

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