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Critical Path Leads from Liquidated Damages to Penalties
17 April 2012

Tue, 17 Apr 2012 05:22:00 GMT

Critical Path Leads from Liquidated Damages to Penalties

17 April 2012

In Spiers Earthworks Pty Ltd v Landtec Projects Corp Pty Ltd (No 2) [2012] WASCA 53 Landtec Projects Corp Pty Ltd (the Principal) was the developer of a parcel of land that was to be subdivided and developed over two stages. Spier Earthworks Pty Ltd (the Contractor) was engaged to complete the first stage comprised of earthworks, drainage and the construction of one section of a laneway (the Stage 1 Works).

Among the subdivision conditions imposed by the local Shire on the Principal was number 25, which required the construction of the whole of the laneway to be completed before permission to subdivide the lots would be granted, allowing the release of titles and the sale of lots to proceed.

The Contractor was late in completing the Stage 1 Works and the Principal sought to claim liquidated damages (LDs) of $13,846 per week, as specified in the contract. The LDs were calculated having regard to loss stemming from the late receipt of proceeds of sale from the development. The Contractor claimed that the LDs were a penalty, because delay in achieving practical completion of the Stage 1 Works was incapable of causing this loss, due to condition 25. In particular, at the time the parties entered into the contract, the Principal had not made arrangements for the construction of the remainder of the laneway, such as would have satisfied that condition.

Relying on extrinsic evidence and judged at the time the contract was entered into, the majority (Murphy JA dissenting) held that the LDs were not a genuine pre-estimate of the loss flowing from the Contractor’s breach of contract in failing to complete on time. The majority determined that the Principal had no intention to achieve compliance with condition 25 before the completion of the Stage 1 Works, and that therefore at the time the contract was entered into the Stage 1 Works were not on the overall critical path of the development. Consequently the LDs were struck down as a penalty and the Principal was not entitled to claim them.

The full decision can be viewed here.

Failure to heed contractual duties of good faith and co-operation
13 April 2012

Tue, 17 Apr 2012 05:24:00 GMT

Failure to heed contractual duties of good faith and co-operation

13 April 2012

In Compass Group UK and Ireland Ltd v Mid Essex Hospital Services NHS Trust [2012] EWHC 781 (QB) Cranston J of the England High Court considered the meaning of a contractual requirement to co-operate in good faith. The claimant (Medirest) entered into a long-term facilities contract with the defendant (the Hospital) to provide catering and other services in 2008. However, by 2009 the relationship had become strained by the Hospital’s calculation of deductions due to accrued service failure points, which Medirest argued were in breach of an obligation to cooperate and act in good faith.

Clause 3.5 of the Conditions of Contract obliged the parties to “co-operate with each other in good faith and [to] take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Hospital or... any Beneficiary to derive the full benefit of the Contract.” Medirest argued that this imposed two separate but broad contractual obligations, one of which was a general duty of good faith. The Hospital contended that the obligation to act in good faith only applied to the things mentioned in the clause itself, that is, in respect of the transmission of information or to ensure that the contract’s full benefit was derived for the Hospital or its Beneficiaries.

Justice Cranston favoured Medirest’s interpretation, and held further that the duty to co-operate necessarily included a duty to work together to resolve the problems which would inevitably occur in a long term contract, and to avoid taking unreasonable actions which might damage the ongoing relationship.

Clause 5.8 of the Conditions of Contract allowed the Hospital to calculate performance failures and make deductions under a payment mechanism. As the deductions were discretionary this process was not merely a mechanical enforcement of the contract. The power to deduct was for the purpose of curbing service failures, and not to generate cost discounts, and Cranston J found an implied term requiring the Hospital to exercise its discretion in accordance with this purpose, in good faith and not in an arbitrary, capricious or irrational manner. Therefore the Hospital had a duty to avoid potentially absurd results arising from a strict application of the contract.

The Hospital failed to avoid such occurrences. Examples of absurd calculations included the deduction of £46,320 due to the presence of out of date ketchup sachets despite the fact that the offending sachets were not shown to have been supplied by Medirest, and were immediately removed upon notification. The Hospital unreasonably refused to compromise with Medirest until the latter half of 2009, thereby ultimately destroying the working relationship, and was in breach of clause 3.5 and the implied duty in respect of clause 5.8. This led ultimately to Medirest terminating the contract in accordance the contractual notice requirements, and this action was found by Cranston J to have been lawful.

The full decision can be viewed here.

Admissibility of Expert Reports in Construction Disputes
13 April 2012

Tue, 17 Apr 2012 05:46:00 GMT

Admissibility of Expert Reports in Construction Disputes

13 April 2012

The recent case of Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No. 3)[2012] VSC 99 (the Dura Case) in the Victorian Supreme Court considered when expert evidence will be admissible in the context of a construction dispute.

The Dura Case involved a construction project with many alleged defects. Both Hue and Dura engaged a number of experts to substantiate their claims. The experts participated in producing joint reports prior to trial and each gave evidence during the trial. It was only after this point when objections to the expert evidence were raised by either side. Dixon J deferred determination of the admissibility of the expert reports until giving final judgment. Dixon J assessed both section 79 of the Evidence Act 2008 (Vic) and the common law on this topic and summarised the findings as the four “rules” or considerations, as to when expert opinion evidence admissible:

1. Is the opinion relevant (or of sufficient probative value) (the relevance rule);

2. Has the witness properly based “specialised knowledge” (the expertise rule);

3. Is the opinion to be propounded ‘wholly or substantially based’ on specialised knowledge (the expertises basis rule);

4. Is the opinion to be propounded ‘wholly or substantially based’ on facts assumed or observed that have been, or will be, proved, or more specifically (the factual basis rule):

        a. Are the ‘facts’ and ‘assumptions’ on which the expert’s opinion is founded disclosed (the assumption identification rule);

        b. Is there evidence admitted, or to be admitted before the end of the tendering party’s case, capable of proving matters sufficiently similar to the assumptions made by the expert to render the opinion of value (the proof of assumptions rule);

        c. Is there a statement of reasoning showing how the ‘facts’ and ‘assumptions’ relate to the opinion stated to reveal that the opinion is based on the expert’s specialised knowledge (the statement of reasoning rule)?

Dixon J commented that expert evidence will not be found to be inadmissible simply because:

two or more experts have produced a report but each has identified the part they have contributed;
an expert has used an assistant to compile the report but validates the work done by the assistant;
the evidence is gathered after the subject matter has been demolished, so long as the assumptions which the expert relies on in order to make their conclusions are expressly set out in the report; and
the expert is a “member of the camp” of one of the parties to the dispute.

However, this fact will affect the weight given to the evidence. As a result of the reasoning above much of Dura’s expert evidence was inadmissible and Hue was ultimately successful in its claim for damages.

The full text of the case is available here.

International Arbitration Agreement Upheld
13 April 2012

Tue, 17 Apr 2012 05:23:00 GMT

International Arbitration Agreement Upheld

13 April 2012

The case of Joel Passlow v Butmac Pty Ltd [2012] NSWSC 225 provides another example of the courts’ willingness to hold parties to an agreement to refer their disputes to arbitration.

A claim was brought in the New South Wales Supreme Court against Butmac Pty Ltd and Automotive Holding Group (together, the Suppliers) by a customer who suffered burns due to a defective motorcycle fuel cap. In turn, the Suppliers filed a cross-claim against the Swiss manufacturer (the Manufacturer), relying on a contractual indemnity contained in the importation agreement (the Agreement) between the Manufacturer and the Suppliers.

In response, the Manufacturer applied to the Court to stay the proceedings, pointing to the arbitration regime in the Agreement. The Manufacturer relied on s 7(2) of the International Arbitration Act 1974 (Cth) and Article 8 of the UNCITRAL Model Law (the Model Law) which both provide that where proceedings in court are between two parties to an arbitration agreement, and the matter between them is capable of settlement by arbitration, the court must order a stay of proceedings upon application of a party to the arbitration agreement unless it finds that the agreement is “null and void, inoperative or incapable of being performed”.

The Suppliers submitted the arbitration agreement was void for uncertainty for two main reasons. First, they argued the arbitration regime consisted of a two-stage process, the first stage requiring the parties to pursue alternative dispute resolution (ADR) by “[agreeing] on a process for resolving the whole or part of the dispute through means other than litigation or arbitration”. The Suppliers argued this requirement was no more than an ‘agreement to agree’ and therefore uncertain. Adamson J agreed that the clause was an agreement to agree, but disagreed that it rendered the arbitration clause inoperative. Adamson J held that because the arbitration regime provided for a certain end to the ADR process, which then triggered a right to refer the dispute to arbitration under the arbitration clause, the circumstances were distinguishable from the unenforceable clauses considered by Einstein J in Aiton Australia Pty Ltd v Transfield Pty Ltd [1999] NSWSC 996 (Aiton).

Secondly, again relying on Aiton, the Suppliers argued the regime was uncertain because it did not adequately set out the arbitration procedures, nor did it make provision for the costs of arbitration. Adamson J stated that the power of arbitral tribunals under Article 19 of the Model Law to determine procedural matters extended to determinations of the process of arbitration to be followed, and to the determination of costs. Moreover, his Honour held the law of the seat of arbitration may be a source of power for an award of costs, but, even where there is no power to award costs, this would not necessarily make the Agreement unenforceable as the effect may be merely that no award of costs may be made.

Consequently, the arbitration clause was held to be enforceable and the stay was refused.

The full decision can be viewed here.

Repudiation: are you ready, willing and able to perform?
5 April 2012

Thu, 05 Apr 2012 00:27:00 GMT

Repudiation: are you ready, willing and able to perform?

5 April 2012

In Kyren Pty Ltd v Wunda Projects Australia Pty Ltd & Ors [2012] SASCFC 23, the Full Court of the Supreme Court of South Australia had to consider an appeal to the findings of the trial judge on a number of disputed issues between the Appellant (Kyren) and Respondent (Wunda) arising from a contract for the internal finishing works of a multistorey apartment building. We report on the outcome of the Full Court’s judgment on some of these issues below.

Repudiation

Kyren argued the trial judge erred in finding it had repudiated the contract. The judge pointed to six examples of conduct that together amounted to repudiation. Examples of conduct included Kyren’s failure to revise the construction program to reflect site delays for which it was responsible, and failure to ensure the superintendent acted in good faith in granting Wunda an extension of time. In agreeing with the trial judge’s findings as to repudiation, the Full Court held that, while not all of the 6 examples of conduct amounted to a breach of contract, taken together they did demonstrate that Kyren was not ready and willing to perform its contractual obligations. Accordingly, the Full Court held that Wunda was entitled to recover for the work completed at the time the contract was terminated on a quantum meruit basis.

Directions to withdraw work from scope before repudiation accepted

Kyren argued the primary judge erred in ignoring valid directions given by the superintendent withdrawing work from the scope of work before Wunda accepted Kyren’s repudiation. Kyren relied on the decision of Larratt v Bankers and Traders Insurance Co Ltd (1941) 41 SR (NSW) 215, which held the election to terminate a contract for breach puts an end to the contract only from the time of its communication; it does not operate retrospectively from the time that the repudiatory breach occurred. The Full Court agreed, with the result that Kyren’s omission of work was valid. Correspondingly, Wunda’s claim for loss of profits was reduced by the value of the works that were validly withdrawn.

Entitlement to liquidated damages

Kyren argued the judge erred in failing to award it liquidated damages between the date for practical completion and the date which Wunda accepted Kyren’s repudiation. Wunda disagreed, and argued that it would have finished by or before the date for practical completion had it not been prevented from doing so by Kyren. The Full Court agreed. Relying on the principle stated in Roberts v The Bury Improvement Commissioners (1870) LR 5 CP 310 – that a party cannot rely on a breach of contract where it was responsible for hindering its performance – the Full Court held that Kyren was not entitled to recover or retain damages for delay in completion of the contract because its own acts had prevented timely completion.

The decision can be viewed in full here.

“Held to their bargain”: Court proceedings stayed to enforce ADR clause in contract
23 March 2012

Fri, 23 Mar 2012 00:43:00 GMT

“Held to their bargain”: Court proceedings stayed to enforce ADR clause in contract

23 March 2012

A recent judgment of the NSW Supreme Court provides another example of the Court’s wide discretionary power to stay legal proceedings where the parties have, by contract, agreed to have their disputes determined by means other than litigation.

Cessnock City Council v Aviation Leisure Corporation Pty Ltd [2012] NSWSC 221 concerned disputes between the plaintiff (Cessnock) and the defendant (ALC) covering the management and operation of an aerodrome in NSW. ALC agreed to manage the aerodrome under a Management Agreement, and to lease the aerodrome from Cessnock. The lease was annexed to an Agreement for Lease, which contained provisions regarding the lease’s commencement. In addition, prior to the lease coming into effect, a licence was granted to ALC under clause 6 of the Agreement for Lease on the same terms as the lease. The Management Agreement, Agreement for Lease and lease operated interdependently such that a breach of one was a breach of the others and if one of the agreements was terminated, the others would automatically terminate.

Cessnock terminated the licence on the basis of numerous alleged breaches. Cessnock also claimed moneys owed in a letter of demand. This claim was denied by ALC. Cessnock then brought proceedings in the NSW Supreme Court. Relying on the alternative dispute resolution (ADR) clause contained in the Agreement for Lease, ALC sought an order that the proceedings be stayed permanently on the grounds that Cessnock was in breach of that clause.

The relevant clause stated:

"A party may not begin legal proceeding [sic] in connection with a dispute under this Agreement for lease unless that dispute has first been decided by a person under this clause."

Disputes under the clause were to be referred to an expert.

Justice Hammershclag referred to applicable principles, which his Honour considered to be well settled, that:

ADR clauses in a contract should be approached liberally and not narrowly;
parties should be held to their bargain; and
there is a heavy onus on the party opposing the stay where such a clause exists.

In line with these principles, his Honour also opined that the courts’ approach to the construction of phrases in ADR clauses – such as “arising under”, “arising out of” and “arising in connection with” – has become increasingly liberal. In the instant case, Hammershclag J found that the ADR clause was sufficiently wide so as to include not only disputes under the Agreement for Lease, but also disputes as to whether termination of the Management Agreement terminated the Agreement for Lease, or vice versa. Consequently, Cessnock had begun proceedings in breach of the dispute resolution clause and a permanent stay was ordered

The full decision can be viewed here.

Restitutionary interests: “neither policy nor logic stands against assignability” – but on the facts assignment fails
20 March 2012

Tue, 20 Mar 2012 01:11:00 GMT

Restitutionary interests: “neither policy nor logic stands against assignability” – but on the facts assignment fails

20 March 2012

The High Court of Australia has recently held that a restitutionary interest is capable of assignment. In Equuscorp Pty Ltd v Haxton [2012] HCA 7, the appellant (Equuscorp) sought to retrieve money had and received by a number of respondent investors, including Haxton, pursuant to loan agreements relating to certain failed investment schemes (loan agreements). The loan agreements were assigned to Equuscorp by Rural Finance Pty Ltd (Rural), as part of which Rural purported to assign a right to claim in restitution. However, the loan agreements were made in furtherance of an illegal purpose, because no valid prospectus had been registered breach of the Companies Code (Code) regulating the issue of prescribed interests.

In assessing whether Equuscorp could claim the money the High Court addressed three issues: (a) whether Rural would have had a right to claim restitution; (b) if so, whether the right was capable of assignment; and (c) if so, whether the right had been effectively assigned.

In a joint judgment, the majority of the Court (French CJ, Crennan, Kiefel JJ – Heydon J dissenting) found against Equuscorp on the first issue. The loan agreements, while not essential to the overall investment, made the investment scheme more attractive to potential investors. It would contradict the object of the Code if Rural had been able to recover against the very persons the Code sought to protect. Consequently, there was no restitutionary right that could be assigned. Notwithstanding this conclusion, the majority and Heydon J continued to consider the other issues. Haxton contended that a restitutionary claim for money had and received was not a chose in action but a bare right of action, and therefore was not capable of assignment in any event. However the majority acknowledged the widened scope for assignability on the basis of the House of Lords decision in Trendtex Trading Corporation v Credit Suisse [1982] AC 679: where the assignee has a “genuine commercial interest in the enforcement of the claim of another” they are entitled to enforce that assignment.

As the restitutionary claim for money was purportedly assigned along with contractual rights and was “inescapably linked” to the performance of the loan agreements, it was held not to be a bare right of action. Furthermore, the assignment of purported contractual rights indicated a “legitimate commercial interest” on the part of the assignee in acquiring the restitutionary rights.

In relation to the third issue, the majority concluded that on the facts the hypothetical restitutionary interest was not properly assigned.The deed of assignment attempted to assign all legal and other rights for the debts and interests under the loans. Restitutionary actions to recover money had and received under the loan agreements were not actions to enforce the agreements, because they were illegal and hence unenforceable.

The full judgment can be viewed here.

Enforcement of international arbitration awards in Australia – Further Update
20 March 2012

Tue, 20 Mar 2012 00:38:00 GMT

Enforcement of international arbitration awards in Australia – Further Update

20 March 2012

Following our previous update on this topic as a result of the Federal Court’s decision in Castel Electronics (a summary of which can be read here), the Western Australia Supreme Court of Appeal has also recently considered the operation of the International Arbitration Act 1974 (Cth) (IAA) and its interaction with State arbitration legislation, in this case the Commercial Arbitration Act 1985 (WA) (CAA). In Rizhao Steel Holding Group Co Ltd v Koolan Iron Ore Pty Ltd [2012] WASCA 50, the key issue was whether the primary judge erred by dealing with an application for enforcement of non-foreign international arbitration awards under the CAA, when arguably the only source of jurisdiction for enforcement of such awards was the IAA.

Martin CJ, with whom the other members of the Court of Appeal agreed, dismissed the appeal, holding that the appellant (Rizhao) had adopted a forensic strategy of not raising this jurisdictional point before the primary judge, when it could and should have done so, and hence it was not a point that could properly be taken on appeal. Nonetheless, his Honour took the opportunity to consider a number of Rizhao’s substantive arguments.

Until amendment in July 2010, s 21 of IAA allowed parties to an international arbitration agreement to exclude the operation of the UNCITRAL Model Law on International Commercial Arbitration (Model Law) and agree to settle their dispute by other means. The amendment to s 21 means that parties to an arbitration to which the IAA applies can no longer exclude the Model Law. The parties in this case entered into iron ore sales contracts before July 2010 that had purported to exclude the operation of the Model Law, opting instead for the resolution of disputes pursuant to the CAA.

Rizhao contended that the correct construction of the unamended s 21 was that “settlement” of a dispute occurred when an arbitral award was delivered and that consequently the parties could not contract out of the provisions of the IAA dealing with any subsequent processes, such as enforcement of awards and judicial review. Accordingly, so Rizhao submitted, since the primary judge sought to enforce the awards under the CAA, the primary judge acted outside of the permitted jurisdiction. In rejecting this argument, his Honour stated (at [111]) that the award was “… not an end in itself, but merely a means by which the ultimate goal of obtaining satisfaction of that party's claims might be achieved”; the steps following delivery of the award were also part of achieving satisfaction of the claim.

Rizhao also argued that, after its commencement in July 2010, the amended s 21 applies to all agreements providing for international arbitration, irrespective of when they were entered into. Again, Martin CJ rejected this, commenting that the legislature did not intend that the amendment would operate retrospectively where vested rights had accrued prior to the amendment. Referring to the rule of statutory interpretation to this effect established by Dixon CJ in Maxwell v Murphy (1957) 96 CLR 261 at 270, his Honour noted that parties who had excluded the Model Law and who had arbitrations on foot would be adversely affected if the amending law acted retrospectively. In this matter, for instance, the parties had appointed an arbitrator and incurred considerable expense in the conduct of the arbitral proceedings under the CAA, and each party had a vested right to the completion of that process.

The full decision can be viewed here.

Arbitrator’s failure to flag novel and decisive argument sees Award set aside
20 March 2012

Tue, 20 Mar 2012 00:28:00 GMT

Arbitrator’s failure to flag novel and decisive argument sees Award set aside

20 March 2012

In Sugar Australia Pty Limited v Mackay Sugar Ltd [2012] QSC 38, the Queensland Supreme Court considered whether the failure by an arbitrator to provide a party with an opportunity to address a point which was critical to his reasoning amounted to misconduct by a denial of natural justice.

In 2006, Sugar Australia Pty Ltd (Applicant) and Mackay Sugar Ltd (Respondent) entered into a joint venture agreement (JVA) for the operation of a sugar refinery, which included an obligation on the Respondent to supply sugar to the refinery from an adjacent mill that it owned. An additional sale contract was then entered into between the parties in 2007 for the supply of sugar to the refinery by the Respondent for a term of three years. After the expiration of the three years, the parties negotiated a short extension. Some 15 months later, a dispute arose when the Respondent failed to supply an agreed amount of sugar to the refinery. The Applicant claimed that this failure was a breach of the sale contract for which it should be compensated. The Respondent argued that the sale contract had expired, and that the relevant supply was instead governed by the JVA, which contained less stringent terms. The parties referred the dispute to arbitration. The arbitrator found there had been no breach of contract, and the Applicant then applied to the Supreme Court for an order setting aside the award pursuant to s 42 of the Commercial Arbitration Act 1990 (Qld) (Act).

McMurdo J held that the effect of the arbitrator’s reasoning was that after the expiration of three years, there was in fact no contractual term at all obliging the Respondent to supply sugar to the Applicant. Neither the Respondent nor the Applicant had put its case on this basis. Whilst the arbitrator’s opinion of the contract was not necessarily incorrect, McMurdo J held, citing Goff LJ in Interbulk Ltd v Aiden Shipping Co Ltd (The “Vimeira”) [1984] 2 Lloyd’s Rep 66 at 74-5, that it was unfair to decide a case against a party on an issue that had never been raised in the case without drawing the party’s attention to it so the party may have an opportunity to deal with it, either by calling further evidence or by addressing argument on the facts or the law to the tribunal.

Her Honour agreed with the Applicant that it could not have reasonably anticipated the reasoning of the arbitrator, and therefore, ought to have had an opportunity to make submissions on the point. By failing to provide that opportunity, the arbitrator failed to provide natural justice, and this amounted to misconduct within the meaning of s 42 of the Act. Her Honour remitted the matter to the arbitrator under s 43 of the Act to reconsider the dispute accordingly.

The full decision can be viewed here.

High Court of Singapore follows Victorian example on right to liquidated damages accrued pre-termination
9 March 2012

Fri, 09 Mar 2012 09:29:00 GMT

High Court of Singapore follows Victorian example on right to liquidated damages accrued pre-termination

9 March 2012

A recent decision of the High Court of Singapore has found that the law of Singapore relating to liquidated damages (LDs) conforms to that of Australia and the United Kingdom. In LW Infrastructure Pte Ltd v Lim Chin Contractors Pte Ltd [2011] SGHC 163 Lim Chin Contractors (LCS) failed to complete the works under a subcontract by the date for practical completion. LW Infrastructure (LW) terminated LCS’ employment under the contract and claimed LDs in a subsequent arbitration.

Relying on an incorrect interpretation of a House of Lords decision in British Glanzstoff Manufacturing Co Ltd v General Accident, Fire and Life Assurance Corp Ltd [1912] SC 591 (British Glanzstoff), the Arbitrator rejected LW’s claim stating that LDs can only be claimed where a contractor has been given the right to complete the works under contract. On appeal LW argued that the British Glanzstoff principle only applied where termination occurred before the date for practical completion, and that termination of a contract does not affect rights already accrued.

Judge Prakash accepted LW’s argument in respect of the British Glanzstoff principle. In deciding in favour of LW, the judge referred to the full Supreme Court of Victoria’s ruling in SMK Cabinets v Hili Modern Electrics Pty Ltd [1984] VR 391 (available here) that LDs already accrued are unaffected by subsequent prevention. In that case the principal was permitted to claim LDs up to but not beyond a variation made after the date for practical completion. Similarly, in the present case, LW was permitted to claim LDs up to but not beyond the date of termination.

Judge Prakash concluded that a claim for LDs may be brought where a contract has been terminated, provided that the LDs relate only to the period between the date for practical completion and the date the contract was terminated, subject to the terms of the contract.

Furthermore, events which occur after termination will not usually affect a party’s ability to claim in respect of rights already accrued under the contract, again, subject to contract (for example, see McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, available here). As the contractual right to LDs accrued upon the occurrence of delay and therefore before termination, LW could claim LDs up until the date of termination notwithstanding the possibility that the total delay of the project may be altered by events after termination.

Judge Prakash was unwilling to undertake the fact finding required to vary the award, and remitted the matter to the Arbitrator to re-determine the claim based upon the law as stated.

The full decision can be viewed here.

Misleading or Deceptive Conduct: Update
9 March 2012

Fri, 09 Mar 2012 09:17:00 GMT

Misleading or Deceptive Conduct: Update

9 March 2012

Two recent cases have considered aspects of the law relating to misleading or deceptive conduct under section 52 of the Trade Practices Act 1974 (Cth), now section 18 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)).

The first of these two cases, Education Equity Pty Ltd v Austock Funds Management Ltd & Anor [2012] VSC 69 (which can be accessed here), considers whether silence can amount to misleading or deceptive conduct within the meaning of section 52.

In this case the ‘silence’ was a failure to disclose a change to legislation which meant that a particular childcare licence was no longer transferrable, but instead had to be cancelled and reissued when the transaction occurred.

Pagone J of the Supreme Court of Victoria, following the High Court’s decision in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357, noted that silence or non-communication of information will not always entitle a party to make a claim for misleading or deceptive conduct. Rather, silence can amount to misleading or deceptive conduct only where a party had a reasonable expectation of being informed. Whether such a reasonable expectation exists depends upon a consideration of the impact of the failure to inform in its circumstances and context. In this case, Pagone J held that there was nothing on the facts to suggest that the plaintiff had a reasonable expectation of being informed. This was because, while the mechanism for achieving the objective of the parties’ agreement – namely the acquisition of a childcare licence – could no longer be achieved by way of transfer, “the parties were always ready, willing and able to ensure that the objective sought to be achieved would in fact be achieved” (per Pagone J at [22]). Further, his Honour noted that the evidence showed that the omission of the legislative change was of no relevance and had no impact on the parties’ decision to enter into the transaction.

The second case, Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15 (which can be accessed in full here), is notable in that it considers the impact of post-contractual misleading or deceptive conduct and the damages which flow from that conduct.

This case involved a number of fraudulent misrepresentations by the appellant, Mr Thomson (Thomson). The trial judge at first instance, and the Full Court on appeal, accepted that these fraudulent misrepresentations resulted in the respondent, STX Pan Ocean Co Ltd (STX), unnecessarily continuing a commercial shipping lease with Thomson’s company, Bowen Basin Coal Group Pty Ltd, for an additional 11 days after the statements were made.

As the misleading or deceptive conduct was clear, the issue became what the measure of damages should be. The Full Court agreed with the trial judge’s conclusion that STX was not entitled to the damages associated with entering into the transaction, as the conduct occurred after this point. In relation to the additional 11 days the contract was on foot, the Full Court held that the relevant measure of damages was the loss of profits which STX could have reasonably expected to earn on the ships but for the misleading or deceptive conduct. As STX had yet to lead evidence on its lost profits the quantum of the damages was remitted to the trial judge for reconsideration.

Uncertainty in Multi-Tiered Dispute Resolution Procedure
9 March 2012

Tue, 13 Mar 2012 02:16:00 GMT

Uncertainty in Multi-Tiered Dispute Resolution Procedure

9 March 2012

A recent decision of the Commercial Court of the English Queen’s Bench Division has highlighted the need for clear drafting in multi-tiered dispute resolution clauses.

Sulamerica CIA Nacional De Seguros SA & Ors v Enesa Engenharia SA & Ors [2012] EWHC 42 (Comm) concerned disputes under two construction all-risks insurance policies (together, the Policies) covering a major hydro-electricity project in Brazil. The insureds made claims for physical damage and consequential losses arising from incidents on the project. The insurers denied liability under the Policies and referred the resulting disputes to arbitration. The insureds then commenced proceedings seeking to restrain the insurers from proceeding with the arbitration, arguing that the Policies made mediation a condition precedent to the commencement of arbitration.

His Honour Mr Justice Cooke found, firstly, that despite an express agreement for the Policy to be governed exclusively by the laws of Brazil, the arbitration agreement was to be treated as distinct from the Policy, and had its closest and most real connection with law of the chosen seat of arbitration, being England. Consequently, the Court had supervisory jurisdiction over the arbitration agreement, of which the mediation clause was held to form part. The Court was therefore able to determine whether the terms of the mediation clause and arbitration clause, when read together, required the insurers to attempt to first resolve the disputes under mediation before referring them to arbitration.

The relevant mediation clause provided, in part, that: “the parties undertake that, prior to a reference to arbitration, they will seek to have the Dispute resolved amicably by mediation”. Cooke J referred to earlier authorities dealing with the issue of certainty in dispute resolution clauses, including the decision of the NSW Supreme Court in Aiton Australia Pty Ltd v Transfield Pty Ltd [1999] NSWSC 999 and also the English Technology and Construction Court decision of Holloway v Chancery Mead [2007] EWHC 2495, in which His Honour Mr Justice Ramsey derived three requirements for an alternative dispute resolution clause to be binding. These three requirements are:

the process should be sufficiently certain, in that the parties should not have to reach agreement at any stage before matters could proceed;
the administrative process for selecting any required third party, such as a mediator, and related terms as to appointment and fees, had to be defined; and
the process needs to be set out so that the details are sufficiently certain.

His Lordship found that these requirements had not been satisfied on the terms of the mediation clause before him. There was no unequivocal commitment to engage in mediation, the procedure was inadequately defined and was uncertain and there were no provisions for the selection of a mediator. Accordingly, His Lordship held that the mediation was neither binding nor a condition precedent to arbitration.

The decision can be read in full here.

A disagreeable truth? Intention and knowledge in the tort of procuring a breach of contract
16 February 2012

Thu, 16 Feb 2012 00:43:00 GMT

A disagreeable truth? Intention and knowledge in the tort of procuring a breach of contract

16 February 2012

The decision of the Full Court of the Federal Court of Australia in LED Technologies Pty Ltd v Roadvision Pty Ltd [2012] FCAFC 3 has provided guidance on the relationship between knowledge and intent when determining the liability of a third party accused of inducing or procuring a breach of contract.

This tort, also known as interference with contractual relations, occurs where a third party intentionally procures or induces one of the parties to a contract to breach it. In such circumstances, the wronged party to the contract can bring a claim for damages against the third party who procured the breach.

In the case before the Full Court, LED Technologies Pty Ltd (LED) entered into a contract whereby Valens Co Ltd (Valens) supplied automotive lamps based on moulds owned by LED. It contained a term that Valens would undertake not to sell or manufacture for sale lamps created from the moulds to others in Australia and New Zealand (the clause). Valens breached the clause by distributing lamps made from the same moulds to Roadvision Pty Ltd and Baxters Pty Ltd (the respondents).

Consequently, LED brought an action against the respondents for damages, alleging that the respondents had induced Valens to breach its contract with LED. One of the questions before the Full Court on appeal was whether the respondents were wilfully blind or recklessly indifferent as to whether their conduct procured the breach.

Besanko J of the Full Court observed that the substance of the tort is intention and that knowledge of the breach is an aspect of intention, rather than a separate element. It was irrelevant that Valens was a willing party to the breach; a third party will be liable if they possessed actual knowledge of the breach, or if they were wilfully blind or recklessly indifferent. Negligence, even gross negligence, is insufficient.

While the principals of the respondents were aware that LED claimed to be the beneficiary of the clause, their conduct did not demonstrate the required standard of knowledge. Even though they did not make reasonable enquiries about whether Valens was unlawfully using LED’s moulds, the “innocent and plausible reason” for a reduced price – that Valens wanted to secure business – was relied on to negate the claim that the principals had made a “conscious decision not to discover a disagreeable truth or simply did not care.”

The full decision can be viewed here.

Adjudicator fails to afford natural justice to parties when determining jurisdiction
15 February 2012

Tue, 14 Feb 2012 21:49:00 GMT

Adjudicator fails to afford natural justice to parties when determining jurisdiction

15 February 2012

In Rail Corporation of NSW v Nebax Constructions [2012] NSWSC 6, the New South Wales Supreme Court considered a challenge to an adjudicator’s determination on the basis that the parties had been denied natural justice.

The NSW Rail Corporation (RailCorp) issued a tender for construction work at 25 of its railway stations. Although each station was effectively a separable portion which was to be valued individually for the purpose of the tender, the contract expressly stated that the tender was for a single, lump-sum contract.

Nebax submitted a payment claim that included five tax invoices relating to certain separable portions. However, each invoice was stated to be a claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act). RailCorp issued separate payment schedules which disputed the amounts owing and Nebax applied for separate adjudications in relation to each invoice. A single adjudicator was appointed in relation to all of the applications.

RailCorp argued that the adjudicator did not have jurisdiction because the Act prohibited Nebax from submitting more than one payment claim for each reference date. The adjudicator acknowledged that the work was pursuant to a single head contract, but held that the reference to separable portions meant that there were in effect 25 separate contracts. As a result, he decided that he was authorised to proceed to hear the adjudication applications. However, neither party had taken this view of the contract.

McDougall J held that there was a single contract and that the adjudicator erred. Further, his Honour held that as neither party was given notice of the adjudicator’s intention to determine the jurisdiction point in the way that he did, nor offered an opportunity to be heard on the point, the parties were denied natural justice in a material way. His Honour concluded that, had the parties been given prior notice of the adjudicator’s reasoning, submissions from RailCorp may have persuaded the adjudicator to change his mind. Accordingly, the adjudication determination was void.

The case can be read in full here.

Court enforces an informal building contract, but builder still loses out
10 February 2012

Fri, 10 Feb 2012 05:51:00 GMT

Court enforces an informal building contract, but builder still loses out

10 February 2012

A recent decision of the Supreme Court of the ACT has underlined the importance of ensuring clear communication when negotiating or ending a contract. In Mareva Building Consultants v Zevon [2012] ACTSC 18, Katzmann J was required to determine whether a legally binding contract had been formed between the parties for the construction of a new house, in circumstances where there was no formally executed document. The builder (Mareva) argued that there was a contract, and that the owners’ (Mr & Mrs Zevon’s) ultimate refusal to proceed constituted a repudiation of that contract, entitling Mareva to damages for loss of profits.

Katzmann J applied the rules from the High Court case of Masters v Cameron (1954) 91 CLR 353 in holding that a detailed quote by Mareva, and the subsequent acceptance of this quote and request for the drawing up of a formal building contract by the Zevons, formed the basis of an intention to be bound prior to the execution of a formal, written contract: the parties intended to be bound immediately by their agreement, knowing that it would be drawn up in a more formal document at a later date.

When financing failed to materialise, the Zevons asserted that the contract was subject to finance and was therefore no longer binding on them. However, Katzmann J found that the Zevons had never communicated such a condition to Mareva during negotiations, and consequently it did not form part of the contract. Accordingly, the Zevons were held to have repudiated the contract when they refused to proceed.

Despite this finding, her Honour also held that Mareva was unable to claim damages because it did not explicitly accept the Zevons’ repudiation and terminate the contract. Rather, when the Zevons decided not to proceed with the contract, they instead offered Mareva an alternative building project elsewhere, which Mareva accepted. Katzmann J therefore found that both parties had abandoned the original contract and showed no intention that it was to be further performed. This meant that Mareva was unable to establish that its loss was attributable to any breach of contract on the part of the Zevons.

The full decision can be viewed here.

news

Critical Path Leads from Liquidated Damages to Penalties17 April 2012

Failure to heed contractual duties of good faith and co-operation 13 April 2012

Admissibility of Expert Reports in Construction Disputes13 April 2012

International Arbitration Agreement Upheld13 April 2012

Repudiation: are you ready, willing and able to perform? 5 April 2012

“Held to their bargain”: Court proceedings stayed to enforce ADR clause in contract23 March 2012

Restitutionary interests: “neither policy nor logic stands against assignability” – but on the facts assignment fails20 March 2012

Enforcement of international arbitration awards in Australia – Further Update 20 March 2012

Arbitrator’s failure to flag novel and decisive argument sees Award set aside 20 March 2012

High Court of Singapore follows Victorian example on right to liquidated damages accrued pre-termination9 March 2012

Misleading or Deceptive Conduct: Update9 March 2012

Uncertainty in Multi-Tiered Dispute Resolution Procedure9 March 2012

A disagreeable truth? Intention and knowledge in the tort of procuring a breach of contract16 February 2012

Adjudicator fails to afford natural justice to parties when determining jurisdiction15 February 2012

Court enforces an informal building contract, but builder still loses out10 February 2012

Critical Path Leads from Liquidated Damages to Penalties
17 April 2012

Failure to heed contractual duties of good faith and co-operation
13 April 2012

Admissibility of Expert Reports in Construction Disputes
13 April 2012

International Arbitration Agreement Upheld
13 April 2012

Repudiation: are you ready, willing and able to perform?
5 April 2012

“Held to their bargain”: Court proceedings stayed to enforce ADR clause in contract
23 March 2012

Restitutionary interests: “neither policy nor logic stands against assignability” – but on the facts assignment fails
20 March 2012

Enforcement of international arbitration awards in Australia – Further Update
20 March 2012

Arbitrator’s failure to flag novel and decisive argument sees Award set aside
20 March 2012

High Court of Singapore follows Victorian example on right to liquidated damages accrued pre-termination
9 March 2012

Misleading or Deceptive Conduct: Update
9 March 2012

Uncertainty in Multi-Tiered Dispute Resolution Procedure
9 March 2012

A disagreeable truth? Intention and knowledge in the tort of procuring a breach of contract
16 February 2012

Adjudicator fails to afford natural justice to parties when determining jurisdiction
15 February 2012

Court enforces an informal building contract, but builder still loses out
10 February 2012