Tag Archive for: Contract Issues

Prevailing in a “Battle of the Forms”

/in

Late last year Bradbury Legal was successful in representing its client in the case of Samios Plumbing Pty Ltd v John R Keith (QLD) Pty Ltd [2019] QDC 237 (29 November 2019). The case related to a “Battle of the Forms” where the Court found that our client’s terms and conditions governed the relationship between the parties for the supply of goods, rather than the purported terms and conditions of the other party.

The Facts

Samios Plumbing Pty Ltd (Samios) sent John R Keith (QLD) Pty Ltd (JRK) their standard credit application form used to establish a credit facility. This was not an offer capable of acceptance but an invitation to treat. In February 2010, JRK sent a facsimile to Samios enclosing a cover letter, Samios’ completed credit application form as amended by JRK’s financial controller and JRK’s standard terms and conditions.

Samios’ credit application included the sentence “All goods shall be sold in accordance with the “STANDARD TERMS AND CONDITIONS” as outlined on the purchase Invoice”. This sentence was struck out and initialled by JRK’s financial controller.

Later that month, JRK received a letter from Samios stating that its credit application had been approved and JRK subsequently placed orders.

JRK contended that the credit application (accompanied by JRK’s standard terms and conditions) was an offer to enter into an agreement for the future supply of goods on credit. The amendment to Samios’ credit application meant that JRK’s offer excluded Samios’ standard terms and conditions and substituted them with JRK’s standard terms and conditions. As such, JRK argued that Samios’ letter accepted that offer and all goods supplied by Samios were subject to JRK’s standard terms and conditions.

Samios denied that the credit application was an offer to enter into such an agreement. It contended that the credit application was a request that Samios extend credit to JRK for future orders and that each purchase order from JRK was a separate offer to purchase goods. For this reason, Samios contended that all goods were supplied with a delivery docket that referred to its standard terms and conditions available on its website and that JRK accepted each offer by taking delivery of the goods.

Decision

Barlow QC of the District Court of Queensland found that:

  • it was clear from JRK sending the credit application to Samios with its standard terms and conditions that it was an offer by JRK to enter into a contract for the provision of credit for the purchase of goods in the future;
  • by striking out Samios’ term that all purchases be made on Samios’ terms and conditions and including a copy of JRK’s own terms and conditions, JRK was offering to enter into a credit agreement on its own terms and conditions;
  • Samios’ letter approving JRK’s credit application, clearly conveyed to any reasonable business person, that Samios was accepting JRK’s offer to contract on the terms stated (i.e. JRK’s standard terms and conditions); and
  • thus, the credit agreement between JRK and Samios governed the terms of all subsequent orders and supplies of goods between the parties.

His Honour also considered Samios’ submission that the provision of a delivery docket with each order which made reference to Samios’ terms and conditions constituted an offer to supply goods on those terms. His Honour determined that the delivery dockets were not an offer to enter into a contract on Samios’ terms and conditions. Rather, as JRK’s orders were made using its own purchase order form and included a copy of JRK’s standard terms and conditions, by Samios’ conduct in delivering the goods in accordance with the purchase orders, Samios’ accepted JRK’s standard terms and conditions as governing the purchase order.

Key Takeaways

The scenario described above is not uncommon. Another example of where a ‘Battle of the Forms’ can arise is where a party provides a quotation that is subject to its standard terms and conditions and then the other party provides a purchase order stating that its own standard terms and conditions apply.

To avoid the ambiguity that these scenarios create and to minimise the chances of being involved in a costly dispute, it is important that it is clear which terms and conditions govern the relationship between the parties. The case law demonstrates that if parties proceed without agreeing on which terms and conditions apply, usually it will be determined that the last terms and conditions to be exchanged govern the relationship. While in these circumstances there is no express acceptance by a party of the offer of the terms provided by the other party, the court can find that there has been acceptance by conduct.

A worthwhile consideration if you are entering into an ongoing relationship that will involve multiple transactions is an “umbrella” or “master” agreement that sets out the terms and conditions that will apply to the future orders and supplies.

If you or someone you know wants more information or needs help or advice about avoiding a “Battle of the Forms”, please contact us on +61 2 9248 3450 or email info@bradburylegal.com.au

A copy of the case can be found here:

http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QDC/2019/237.html?context=1;query=john%20r%20keith;mask_path=

 

 

ADR Processes

/in

 

ADR Processes: What are they and how do they work?

 

In many construction contracts, it is common to have a clause that deals with the process the parties will go through if a dispute arises. These clauses attempt to provide an alternative dispute resolution (ADR) process to litigating over every dispute that arises. While there are some disputes that are suited to being litigated (such as where a specific legal remedy is needed, the subject matter involves the legal rights of the parties or the issues are legally complex), many can be resolved through an ADR processes. ADR processes, if effective, can reduce the time and cost of disputes for parties.

 

This article discusses the different types of ADR processes and Part II will address some of the common pitfalls of ADR clauses that render these clauses unenforceable.

 

Types of ADR processes:

 

When it comes to construction disputes, there are several standard types of ADR processes. These include:

 

  • Negotiations between senior executives or authorised representatives;
  • Mediation;
  • Arbitration; and
  • Expert determination and appraisal.

 

Negotiations

 

Negotiation between senior executives is the most simple and informal dispute resolution process. The senior executives or authorised representatives meet and discuss the dispute that has arisen. Using their best endeavours, the authorised representatives can talk about how the dispute may be resolved and attempt and find any potential compromises. While the discussions may not necessarily resolve the dispute, it gives the parties a chance to hear the other side and understand the issues faced by the other party. This can help narrow the issues that are in dispute between the parties, saving significant time and money if the dispute escalates to litigation.

 

Mediation

 

The next step in the ADR ladder is mediation. Mediation is slightly more formal than negotiations between the parties’ authorised or senior representatives. This is because mediation involves appointing a third party (the mediator) to meet with the parties and work to resolve the dispute. The mediator will discuss the positions and interests of each party and try to find common ground on which the parties can agree and tries to help facilitate a resolution of the dispute.

 

One of the biggest benefits of mediation is the fact that it is so flexible in the resolutions that can be generated in response to a dispute. For instance, parties can find creative or unorthodox solutions to their problems which would not be available if the dispute were to be litigated. At mediation, the parties have the control over the resolution of the dispute and can work together to create a solution that is potentially more appropriate than a court order.

Arbitration

 

Arbitration is a common dispute resolution process in the building industry. Between commercial parties, arbitration can be an effective alternative to court because it operates much like a Court. The Commercial Arbitration Act 2010 (NSW) sets out the various matters relating to domestic commercial arbitrations including the arbitrator’s powers and the appeal process. The decisions of arbitrators are binding and the resulting awards can be enforced by the Courts.

 

Arbitrations can sometimes be as expensive and time consuming as litigation. This is because of several factors such as the cost of hiring an arbitrator and decisions are often appealed. However, some of the benefits of choosing arbitration include that it can be confidential and allows the parties to have more control over the rules and procedures that resolve the dispute. Subject to any overriding arbitration legislation or rules, the parties can essentially decide how they want the determination to run, how many arbitrators they want involved or any grounds of appeal.

 

Expert Determination

 

Another ADR process discussed in this article is expert determination. Expert determination can be binding, or non-binding (dependent on the rules of the particular expert agreement or contract that sends the parties in dispute into that forum). Unlike arbitration, there is no statutory framework for expert determination or appraisal. Therefore, it is the contract that will guide the expert and their decision. Using an expert to make a final and binding decision is useful, as the majority (if not all) building disputes will rely on expert evidence to determine issues such as program, defects or rectification costs.

 

Using non-binding expert determination can prevent or reduce the need for a court to consider these technical issues and can simplify the litigation process. A potential drawback for expert determination is that it can be very difficult to challenge. Provided the expert has understood the scope of their obligations and the issues they need to review, it often will not matter if the expert made a mistake, a gross over or under valuing or if irrelevant considerations were considered. As stated by the NSW Supreme Court in TX Australia Pty Limited v Broadcast Australia Pty Limited [2012], the fundamental question is whether the exercise performed by the expert in fact satisfies the terms of the contract.

 

It is not uncommon for a dispute resolution clause to have multiple different ADR processes available to the parties. For example, parties may be required to enter negotiations with each other and then must proceed to mediation or arbitration. Therefore, it is important to understand the aspects of each different ADR process so that you can choose the one most appropriate for your business. Each ADR process has its benefits and its drawbacks and will be more effective for certain types of disputes. In the Part II of this article, we will look at dome of the common pitfalls of ADR clauses. Particularly, how you ensure that the clause is enforceable, the key aspects of the ADR clause, and what are the common issues that arise when negotiating an ADR clause.

Contractual interpretation: What did we even agree upon?

/in ,

It is the question as old as human trade and commerce: when we made that agreement, what did we mean?

This is a deceptively simple question. It may appear to parties with amicable relations that the meaning of a document is clear, but when a dispute opens up, what tends to happen is that each party will stretch every definition to suit its purposes.
As will become clear, courts are still grappling with difficult questions about how an agreement should be interpreted, and what evidence put forward by the parties can be considered to discern its meaning.
We consider some basic principles to do with contractual interpretation, and look at a recent example of the circumstances in which courts will look at negotiations between the parties and the effect this has on the meaning of the agreement.

Basic principles

Where there is a written contract between two parties that are legally represented and commercially experienced, the law will likely consider this contract to be the complete statement of their legal rights and obligations. In some cases, a contract may be both oral and in writing, but proving this is onerous.
As a result, where there is a dispute, the contract is the first thing that the lawyers and judges will consider. The contract is considered to reflect how the parties intended to allocate risk.
When looking at a contract, the court will assess and interpret the contract to give effect to what is called the objective intention of the parties. This is not what was actually in the minds of the parties. Rather, it is what a reasonable person, a third-party bystander, would understand the words or actions of the parties to show about the parties’ intention.
In the commercial context, this means the court will look at the words used in drafting the contract and determine what they mean to a reasonable businessperson informed about the circumstances of the case.

But wait there’s more

What is said above does not mean that the actions of the parties are irrelevant. Far from it.
In fact, it is sometimes necessary for courts to consider the surrounding circumstances of an agreement, so that they can determine what the intentions of the parties are with respect to what exactly constitutes the agreement and what its terms mean.
This might seem contrary to the court’s tradition of only looking at the contract. However, it will generally only be done when there is ambiguity in the words of the contract.
For example, in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, the High Court stated that it is not what the parties think about their rights and obligations that govern contractual relations. Rather, it is the words and conduct of each party that would lead a reasonable person in the position of the other party to believe.
Ten years later, the High Court again commented on the use of evidence outside the contract in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640. In this case, the High Court said that evidence of the parties’ actual (subjective) intentions is not relevant to construction. What is relevant is the evidence of surrounding circumstances known the parties.
External circumstances can be considered by the courts when interpreting contracts between disputing parties.

So how does this all work?

If courts are supposed to consider the contract as the full statement of the parties’ rights and obligations, but they are able to look at circumstances beyond the contract, how does a judge determine what is the agreement?
Firstly, the contract is still the primary document that is interpreted. The evidence considered by a court of what has been said or what has happened outside of the contract cannot be used to give the contract a meaning that is contrary to what the contract clearly states.
Put another way, evidence outside of the contract cannot be used to add to, vary or contradict the language of the written contract. This is the case no matter how unjust or inconvenient the written terms are. This makes sense, as effective relations depend on the meaning of an agreement being fixed and clear.
Permitting outside factors to change the meaning of a contract introduces significant uncertainty. As any businessperson will know, where there is uncertainty there is conflict. A party could for example attempt to impose its own view on the meaning of the document. External conduct is used to make the meaning of the contract clearer, not to change it. In practice, however, the line between these two can be very difficult to draw.
Secondly, matters outside of the contract become relevant only where there is ambiguity or more than one meaning in what is inside the contract. Words may have different meanings in different contexts, so the context is important in choosing the right interpretation.
To this end, courts may consider the commercial purpose of the contract, the market and industry in which it arose, and the factual background of the agreement. All of this can shed light onto what the parties “must have” intended when they drafted the contract.
It is important to note that courts will only consider outside circumstances that are known to both parties.
However, courts will only consider these factors if the meaning of the written document is not clear. Negotiations that occurred prior to the signing of the agreement are also rarely considered, for the simple reason that they do not often show what was agreed.

For example …

Cherry v Steele-Park [2017] NSWCA 295 was a case that turned on the meaning of a deed of guarantee. Specifically, whether this deed of guarantee required the guarantor to pay the damages that resulted from the failure of their company to complete a contract for sale of land. The guarantor argued that the deed only covered the amounts promised for extending the contract’s completion date. The difference was around $145,750.
The case appeared to challenge the principles talked about above.
The argument was around whether the meaning of term had to be ambiguous before a court would admit evidence outside of the contract to explain its meaning. What happens when a term that appears to have a plain meaning “becomes” ambiguous only when outside material is introduced?
The answer is that as long as the evidence is relevant as information about the genesis or purpose of the transaction, it can bear on the contractual language and can be considered. Then the court will make a conclusion about whether the written terms are clear or ambiguous.
In Cherry v Steele-Park, Cherry wanted to include in evidence emails exchanged between the parties, that represented negotiating positions that were communicated between the parties. (As a side note, it was important that both parties knew about these emails when entering the contract.)
The Court considered the emails. However, the case ultimately reinforces not challenges the conclusions talked about above. The interpretation of the clause given by the court ultimately did not bend to what was said in these emails.
Rather, the Court considered as primary the terms and the structure of the contract, including the definitions and the generality of their language. The interpretation put forward by Cherry was some but clearly not all of the guarantee.
The Court concluded that the emails did not defeat “the wide words in the Guarantee”. The emails showed that there may have been a commercial purpose to make a limited guarantee. However, this context could not overcome the content of the Guarantee. Or, as Leeming JA stated, “such context – even relatively powerful evidence of context such as the present – does not warrant doing the violence to the general language of the document executed by them that they require.”
It was in effect a warning, that regardless of how persuasive evidence of negotiations is, it will not limit or take away from what is stated in a contractual document.

Conclusion

Prevention is always better than the cure. In the early stages of a commercial agreement, a little expense given to ensuring a contract tabled between the parties truly expresses your intentions goes a long way to preventing protracted disputes.
Problems can arise even between parties with a great relationship, and as discussed, once a problem does arise courts will be very reluctant to look beyond the written document that was exchanged. What this written document says will be of paramount importance, so it is worth the extra attention.
If you or someone you know wants more information or needs help or advice, please contact us on +61 2 9248 3450 or email info@bradburylegal.com.au

CHANGE HAS ARRIVED

/in

Amendments to the Building and Construction Industry Security of Payment Act are finally in force

Late last month changes to the Building and Construction Industry Security of Payment Act 1999 (Act)’ (‘the Act’) came into effect under the Building and Construction Industry Security of Payment Amendment Act 2018 (‘the amendments’), passed in November 2018.
The overarching purpose of the amendments is to address issues of insolvency and late-payments within the industry. They aim to alleviate the impact of these issues on small businesses and subcontractors by promoting cash flow and greater transparency in the contracting chain.
Our regular readers may recall, we have been discussing these changes and their potential consequences over the course of the year, but here is a refresher now that the amendments are in force.

What do the changes mean again?
As of 21 October 2019 the amendments are effective and apply prospectively to all building and construction as contracts covered by the Act, entered into on or after this date.
The changes are extensive and place significant new responsibilities on parties within the NSW building and construction industry. In broad terms, the legislative changes cover the following points:

Investigation, Enforcement and Penalties

Officers of the Department of Finance Services and Innovation have been given a suite of new powers to investigate monitor and enforce compliance with the Act, including but not limited to powers of entry to premises to gather information.
Directors and managers may now be personally prosecuted in circumstances where a corporation has committed an offence, under new provisions introducing the concept of executive liability.
Tougher maximum penalties have been applied, particularly when supporting statements are not supplied.

Adjudication

Confirming previous decisions of the Court, the amendments confirm jurisdictional errors made by adjudicators are now reviewable by the Supreme Court, with the power to effectively ‘carve’ out the invalid sections of adjudicator’s decisions.
The amendments also provide parties with an option to withdraw their application for adjudication in circumstances where the adjudicator is not yet appointed. In circumstances where the adjudicator has been appointed, parties are still able to object to the adjudication application being determined.

Progress Claims and Progress Payments

The amendments have removed the concept of the reference date in making a progress claim, and the due date for payments to subcontractors has been reduced from 30 business days to 20 business days.
The amendments again require payment claims to state that they are in fact payment claims made under the Act.

Conclusion

The changes have far reaching consequences for parties operating within the building and construction industry. It is important for all parties operating within the industry to be aware of the changes and the way in which the amendments may affect their rights and obligations under building and construction contracts.
For an in-depth review of each amendment please see our detailed review on the changes here.
If you or someone you know wants more information or needs help or advice in relation to NSW’s security of payments legislation, please contact us( 02) 9248 3450 or email info@bradburylegal.com.au.