Wallera v CGM Investments & ANOR

WALLERA PTY LTD V CGM INVESTMENTS PTY LTD & ANOR [2001] NSWSC 96

Supreme Court of New South Wales – 1 March 2001

FACTS

Wallera had franchised a carpet dry-cleaning process from CGM and Whistle. The process of electromagnetically dry-cleaning carpets (“the process”) that was used by Wallera and the use of the name “Electrodry” (“the name”) was owned by Whistle but CGM had exclusive rights to use this process and the name pursuant to a Deed of Licence. Wallera was granted an exclusive license to use the process and a right to grant sub-franchises under a Franchise Agreement (“the contract”). Wallera purchased the chemicals (Electro 1 and 2) from Whistle for many years until the price offered by another supplier was more comparable and it ceased purchasing from Whistle.

In August 1999 a notice was issued under clause 8 of the contract where CGM claimed that Wallera was in breach for not using the appropriate level of chemicals for the process as specified in the contract. Clause 8 stated that if either party failed to remedy a breach within 1 month after a notice, the contract would be terminated.

ISSUES

Whether the notice of intention to terminate, if a breach of contract was not rectified, sufficiently described the relevant breach?

FINDINGS

The notice issued in 1999 was not valid because it failed to draw Wallera’s attention to what the breach was that should be remedied. The notice referred to the required levels of chemicals but did not specify what the levels were or where there may be found.

Clause 8 implied that the notice should provide adequate notification to the Wallera of what was required to be done if the contract was not to be terminated for breach. The automatic termination in the clause was an additional indication that it was appropriate to require that the notice should be made clear what the breach was which if not remedied would lead to termination. The Notice issued by CGM therefore could not be used by CGM as a basis for terminating the contract.

QUOTE

“In the context of the clause 8 a notice must bring to the attention of the recipient the fact that it is alleged that a breach has occurred and that the franchisor requires the breach to be remedied. It must be sufficiently explicit to make it clear to the franchisee what is the breach, which the franchisor requires to be remedied.”

“… I am satisfied that the notice issued in August 1999 was not a valid notice for the purpose of clause 8 of the contract. It did not draw Wallera’s attention to what was alleged to be the breach to be remedied.”

IMPACT

If a notice in a contract purports to include a provision for automatic termination upon failure of either party to remedy a breach then the notice should specify explicitly the cause of the breach which the recipient is required to remedy.

A general reference to a breach may not be sufficient to allow the automatic termination of the contract.

Vince Schokman & ANOR v Xception Construction & ANOR

VINCE SCHOKMAN & ANOR V XCEPTION CONSTRUCTION PTY LTD & ANOR

[2005] NSWSC 297

Supreme Court of New South Wales – 4 April 2005

FACTS

Xception Construction Pty Ltd (‘Xception’) entered into a construction contract with Vince Schokman (‘Schokman’) for the carrying out of construction work at Stotts Street, Bilambil Heights in New South Wales.

On 5 May 2004 Xception served on Schokman a Payment Claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’). Schokman did not respond with a Payment Schedule and the Superintendent failed to provide a progress certificate. Schokman contended that the amount became due and payable on 19 May 2004. On 6 July 2004 Xception then provided a section 17(2) Notice of Intention to Apply for Adjudication and the matter was determined.

Section 17(2) allows the submission of an Adjudication Application where a Payment Schedule has not been received if the Claimant has notified the Respondent within 20 business days immediately following the due date for payment, of the Claimant’s intention to apply for adjudication of the Payment Claim and the Respondent has been given an opportunity to provide a payment schedule within 5 business days of receiving the notice.

Schokman then sought a declaration that the Adjudication Determination was void on the grounds that the payment claim, the section 17(2) notice was served outside the 20 business day period in breach of the Act and was otherwise not a proper and valid notice as it failed to make any reference to the Act.

Xception contended that the payment claim was due and payable on 9 June 2004, that is, 25 days after the progress claim, as expressly provided for in the Contract. Accordingly, the section 17(2) Notice was within the prescribed time.

ISSUE

Whether the section 17(2) Notice was sent outside the 20 statutory business days allowed.

FINDING

The Court found that Xception’s section 17(2) notice was out of time.

QUOTE

At paragraph 12 and 14, Einstein J stated:

[12] “The Contract between the parties to these proceedings is silent as to when an amount under the payment claim is due and payable where no progress certificate is issued. Accordingly, the Act steps in to fill the gaps: Beckhaus Civil Pty Limited v Council of the Shire of Brewarrina [2002] NSWSC 960 at [60].

[14] The correct analysis of what occurred is as follows: the payment claim was made on 5 May 2004; 10 business days thereafter took the material date when the payment claim became due and payable to 19

May 2004;

[Xception] out of time in notification of intent to apply for adjudication application. pursuant to s 17(2)(a) the statutory 20 business days allowed for [Xception] to notify [Schokman] of its adjudication application should have been served on or before 16 June 2004 under the Act.”

IMPACT

The option to apply for Adjudication when a Payment Schedule is not given, must be strictly within the statutory timeframe.

Doyles Arbitration Lawyers

Villani & ANOR v Delstrat & ANOR

VILLANI & ANOR V DELSTRAT PTY LTD & ANOR [2002] WASC 112

Supreme Court of Western Australia – 16 May 2002

FACTS

This proceeding involved an application by Mr. & Mrs Villani to set aside the award of an arbitrator for misconduct by failingto decide substantial pleaded issues between the parties. Mr. & Mrs Villani had engaged Delstrat to build a house for them inAscot  Waters.

A dispute arose between the parties as to the date for practical completion and as provided in the contract, the matter was referred to arbitration. The Villanis submitted that there had been an oral agreement in the contract that the house would be finished no later than September 2000.

The arbitrator did not at any stage expressly deal with the Villani’s claim that a term of the contract relating to practical completion on or before 20 September 2000 had been breached or that damages therefore flowed from that breach.

ISSUES

Did the arbitrator ignore or fail to consider or decide a material issue in dispute during the arbitration?

If so, did that failure amount to misconduct under the Commercial Arbitration Act?

If it did amount to misconduct, should the court exercise its discretion to set aside the award?

If the award was set aside, should the matter be remitted to the same arbitrator or should the arbitrator be removed?

FINDING

It was held that by providing no reasons for excluding certain documents and not determining whether certain documentsformed part of the contract, the arbitrator had failed to determine all the necessary issues and controversies within the arbitration.

The issue as to the completion date was a material fact which may have influenced the award.

The failure to determine all issues in dispute in an arbitration can amount to misconduct because the procedure may have affected the outcome in some material way.

The award was set aside and the matter remitted to the same arbitrator as there were no reasons put forward as to why he should be removed. The arbitrator was familiar with the evidence and had already determined many of the matters in controversy between the parties.

QUOTE

“It is not of course necessary for an arbitrator to deal with every issue which arises, or every argument or submission put forward. An arbitrator must, however, deal with the substance of a claim or counterclaim, particularly those matters which will materially affect the result.”

IMPACT

Failure by an arbitrator to take into account something that may have affected the outcome of the arbitration in some material way amounts to misconduct on the part of the arbitrator.

The court has a discretion to set aside the whole or part of the arbitrators award. The failure of the arbitrator to decide an important issue in dispute adversely affected the outcome of the entire arbitration process.

Victoria Park Golf Club Inc v Brisbane City Council

VICTORIA PARK GOLF CLUB INC V BRISBANE CITY COUNCIL [2001] QSC 225

Supreme Court of Queensland – 29 June 2001

FACTS

The Council was the owner (on trust) of land used for a golf course. The golf club operated a clubhouse on the land and its members had entitlements to use the golf course. During the early 1990’s the Council and the members of the golf club wanted to formalise their legal relationship. In April 1996 the Council adopted a recommendation that negotiations be conducted withthe golf club for a lease of the land from the Council to the club and a separate agreement that the members of the club have some  exclusive rights to use the golf course.

During 1999 a Mr. S acted on behalf of the Council in negotiations for the relevant contracts. The Council sent a documenten titled “Proposed Lease and Block Playing Times” to the club in September 1999 and a member of the club signed this document to state  that the proposal would be put to members of the club. Other matters delayed a final decision about the future of the golf  course but eventually in 2000 the Council decided to withdraw the document of September 1999.

The golf club sued for specific performance of agreements allegedly outlined in the document of September 1999.

ISSUES

Did Mr. S have authority to bind the Council and make a contract with the golf club?

The golf club argued that Mr. S had actual authority to bind the Council and if he did not have actual authority he had ostensible or apparent authority to bind the Council.

FINDING

The Council’s recommendation of April 1996 only authorised Council officers to negotiate with the golf club and therefore Mr. S did not have actual authority. Also there was no evidence that the Council indicated to the golf club that Mr. S had authority to bind the Council and therefore Mr. S did not have ostensible or apparent authority to bind the Council.

The Court also found that the document of September 1999 was not sufficient evidence of a concluded agreement.

QUOTE

Moynihan J said:

“…[O]stensible or apparent authority arises from a representation made or permitted by a principal to a third party that an agent has authority.

The agent is essentially an agent to the transaction. …

This case is not an example of a corporate principal permitting an employee or officer to enter into contracts in the ordinary course of its business so founding an inference that he is authorised to do so.”

IMPACT

The golf club failed to prove that it was reasonable for it to believe or assume that Mr. S had authority to bind the Council. Relevant factors included: (1) that this was not the case of a corporate principal permitting its officers to enter into contracts in the ordinary course of business; (2) the unusual and important nature of the transaction.

Readers will be aware that corporate principals (particularly large companies) often develop internal procedures to prevent officers entering into contracts above specified amounts (eg. without first seeking the approved of the contracts manager). If an errant officer enters into a contract outside those procedures, the company may nevertheless be exposed. The other party may be able to claim that the officer had ostensible authority to enter into the contract.

Companies should always be vigilant to this prospect and ensure that officers are kept regularly informed of authority limits and the potential consequences of exceeding them (eg. through regular training).

Varnsdorf v Fletcher Constructions

VARNSDORF PTY LTD V FLETCHER CONSTRUCTIONS LTD [1999] VSC 9

Supreme Court of Victoria – 1 February 1999

FACT

Varnsdorf was the lead contractor and Command and Fletcher were sub-contractors. Varnsdorf referred a dispute to arbitration.

Fletcher made allegations against Command in its witness statements and Command then served a notice of dispute after the thirty day time limit specified in the contract.

Command made an application to the Court for an extension of time to serve the notice of dispute. Section 48 of the Commercial Arbitration Act allows the Court to extend the time for doing any act linked to an arbitration.

ISSUES

Should the Court extend the time for Command to serve its Notice of Dispute on Fletcher?

FINDING

The arbitration was for a substantial dispute and Command would lose a large claim against Fletcher if the extension was not granted. Also there was no evidence of any prejudice to Fletcher if the extension was granted by the Court.

QUOTE

Beach J said:

“The amount at stake in these arbitration is large. Some measure of that is to be gained for the fact that accordingly to Megens’ affidavit Varnsdorf has already expended some $3 million in legal and other costs in preparing for the arbitrations and Fletcher has already expended the sum of approximately $2 million. Clearly great prejudice could be caused to Command if it was precluded from pursing its claim against Fletcher only by reason of the fact that it failed to serve its notice of dispute in time.” Paragraph 8(3) of [1999] VSC 9

“Command or its then solicitor – had I hasten to add that the solicitors presently acting for Command only came into the matter a comparatively short time ago – is solely responsible for delay in serving the notice and there can be no valid justification for its or his failure in that regard. But it has not been contended that that delay has caused any prejudice to Fletcher, nor in my opinion could it have been.” Paragraph 8 (5) [1999] VSC 9.

IMPACT

A Court will be willing to grant an extension of time to serve a Notice of Dispute provided the party seeking the extension would suffer a great prejudice and the other party is not prejudiced by the delay.

Two Lands Services v Gregory Robert Cave

TWO LANDS SERVICES PTY LTD V GREGORY ROBERT CAVE [2000] NSWSC 14

Supreme Court of NSW – 10 February 2000

FACTS

Cave was employed by Two Lands as a finance consultant in the mortgage origination business.

The employment contract included a restraint of trade clause which provided that Cave would not work for a competitor for twelve months and would not contact any referrers used by Two Lands for twelve months. Two Lands developed a list of referrers and graded these referrers by the likelihood that the referrer would refer clients to Two Lands.

Cave left the employ of Two Lands and went to work for another company in the mortgage origination business. Cave also took a copy of the list of referrers which included their grades as assessed by Two Lands. There was evidence that Cave contacted some of the referrers on the Two Lands’ list.

Two Lands issued proceedings to enforce the restraint of trade clause.

ISSUES

Was the restraint of trade clause unenforceable for being unreasonable or against public policy?

FINDING

When considering the nature of Two Lands’ business and the nature of Cave’s employment both the restriction on contacting referrers and on being employed by another mortgage originator were reasonable and the restraint of trade clause was not against public policy.

QUOTE

Santow J said:

“Turning to the scope of the relevant restraints as they apply to the particular claimed breaches, the referrer restraint does not fit aptly with the earlier quoted test proposed by Professor Blake. Here, one is not dealing with replacement or supervision of one  blue-collar worker with another, readily able to master the job.

Rather we are dealing with the replacement of a referrer relationship that requires considerable time and effort to establish and whose fructification in terms of referrals requires a relatively long lead-time. Indeed if Professor’s Blake’s test of the time taken for a reasonably competent new employee to master the job were applied, that time period when related to the referrer would necessarily have to take into account both the period of time required to create the relationship and the time for it to fructify; twelve months would not be an unreasonable estimate of that period.”

IMPACT

When considering whether restraint of trade clauses are enforceable it is important to note the nature of the relevant industry and the nature of the position held by the employee.

Turner Corporation v Austotel

TURNER CORPORATION PTY LTD V AUSTOTEL PTY LTD (1994) 13 BCL 378

FACTS

Turner Corporation Pty Ltd (‘Turner’), as Builder, entered into a “Building Works Contract – JCCA 1985 with Quantities” with Austotel Pty Ltd (‘Austotel’), the Proprietor. The Architect certified an entitlement to Austotel to liquidated damages and ascertained damages in the sum of $2,250,000 calculated at the rate of $75,000 per week from the period 3 October 1991 to 1 May 1992, being the Date of Practical Completion certified by the Architect.

During the course of the project Turner requested an instruction from the Architect regarding the provision of a gas leak detector. The Architect provided an instruction five months later which was after the Date for Practical Completion. Turner claimed an extension of time of seven days to the critical path as a result of the late provision of instructions, which was granted. In addition, Turner was awarded $13,500 per day, namely, $94,500 being delay costs for that seven days.

Further, Turner asserted it was not only entitled to an extension of time to the Date for Practical Completion arising from the delay in provision of instructions, thus minimizing the time for which it might be liable for liquidated damages for failure to achieve practical completion by the Date for Practical Completion, but that achievement of its contractual obligation of Practical Completion by the extended Date for Practical Completion was prevented by the late receipt of those instructions.

This latter aspect was said to result in the Proprietor not being entitled to recover any sum by way of liquidated damages pursuant to the provisions of the contract because it had prevented performance.

ISSUE

Whether prevention principle applies in relation to failure to perform contractual obligation to bring works to practical completion by agreed date as a result of asserted preventing act for which proprietor is responsible.

FINDING

The Court found that the prevention principle had no application due to the existence of the clause entitling the contractor to an extension of time in respect of preventative acts by Austotel. Further, the prevention principle did not apply to JCCA form of contract.

QUOTE

Cole J reasoned as follows:

“that under the JCCA form of contract the prevention principle has no application in relation to failure to perform the contractual obligation to bring the works to practical completion by the Date for Practical Completion as a result of an asserted preventing act for which the Proprietor is responsible. Essentially that is because that act is one beyond the control of the Builder, or flows from a variation, and each entitles the Builder to an extension of time to the Date for Practical Completion equivalent to the delay which it would suffer in bringing the works to Practical Completion.”

Further: “If the Builder, having a right to claim an extension of time, fails to do so, it cannot claim that the act of prevention which would have entitled it to an extension of time for Practical Completion resulted in its inability to complete by that time.

A party to a contract cannot rely upon preventing conduct of the party where it failed to exercise a contractual right which would have negated the effect of the preventing conduct. … the act of the proprietor does not prevent performance of the contractual obligations within time: it entitles the Builder to apply for a contractual variation extending time for performance.  Here the Builder claimed an extension of seven days arising from the alleged act of prevention. It was granted the time it claimed. Thereafter, so it seems to me, it cannot assert that it was prevented from completing on time … in consequence of the alleged prevailing act. … The act of the Proprietor does not prevent performance of the contractual obligations within time: it entitles the Builder to apply for a contractual variation extending time for performance.”

IMPACT

The prevention principle has no application to the JCCA form of contract due to the existence of an extension of time clause entitling the Builder to an extension of time in respect of the preventative acts by the Proprieter. Further, Builders who fail to comply with the notice requirements for extensions of time may remain liable for liquidated damages while losing their right to extension of time for the acts in question.

Turner Corporation Limited v Austotel

TURNER CORPORATION LIMITED V AUSTOTEL PTY LTD (1992) CLD100015 OF

Supreme Court of NSW – 3 April 1992

FACTS

By contract in the form JCC A 1985, Turner agreed to construct a hotel for Austotel.

Turner issued proceedings against Austotel for declarations and orders relating to extensions of time and payment under the contract, damages for breach of the contract and other matters.

In response, Austotel sought an order that the proceedings be stayed pursuant to section 53(1) of the Commercial Arbitration Act 1984 (NSW). This provision allows for a party to an arbitration agreement to seek a stay in legal proceedings to allow an arbitration to be conducted.

The relevant clause of the contract provided that one party could serve a notice of dispute on the other party. If the dispute was not resolved a party could elect to issue proceedings or refer the dispute to arbitration. In this case Austotel served on Turner a notice to refer the dispute to arbitration.

ISSUES

The Court had to decide whether there was an arbitration agreement within the meaning of the act.

FINDING

The court held that clauses 13.1 and 13.2 of JCC-A and B constitute an arbitration agreement for the purposes of the Commercial Arbitration Act.

QUOTE

Giles J said:

“If the parties have agreed that disputes are to be referred to arbitration should one of them so elect, that is aptly described as an agreement to refer the disputes to arbitration. To treat an agreement of that nature as an arbitration agreement for the purposes of s 53 of the Act is consistent with the evident objective of requiring those who have chosen to have their disputes determined by arbitration to be bound by that choice. Indeed to exclude agreements of that nature for other purposes of the Act might leave an arbitration consequent upon a notice of referral to arbitration such as that for which clause 13.02 provides unregulated by the Act because there could be no arbitration agreement other than that flowing from the original contract” – pages 14 and 15 (1992) CLD100015 of 1992

“In my opinion, cl 13 of the contract constitutes an arbitration agreement for the purposes of S53 of the Act because Turner and Austotel agreed that disputes between them would be referred to arbitration if one of them gave to the other a notice of referral to arbitration (and complied with clauses 13.02.01 & .03), that being in my view an agreement to refer disputes to arbitration.” – page 19 (1992) CLD100015 of 1992

IMPACT

The decision of a party to refer a matter to arbitration using the JCC A 1985 contract may be deemed to be a decision to refer a matter to arbitration for the purposes of the Commercial Arbitration Act.

If an contractual clause allows a party to elect to advance a dispute by litigation or arbitration, then the clause is an arbitration clause and a stay of litigation will be granted provided that the other party has not issued proceedings before the election to refer the dispute to arbitration.

Turiff Construction v Regalia Knitting Mills

TURIFF CONSTRUCTION LTD V REGALIA KNITTING MILLS LTD (1972) DIGEST OF CASES 257

Official Referees Court (United Kingdom) – 22 November 1971

FACTS

Turiff, who had successfully tendered for a building project, was asked to commence preparation work immediately while negotiations were conducted to agree to the terms to be included in a formal contract; Regalia was to purchase the land and obtain the necessary permits in the meantime.

Turiff indicated that Regalia’s sending of a letter of intent would be regarded as an acceptance of an offer to commence such work on terms that it would be paid for even if a formal contract did not eventuate. The proposed contract was to be a design and construct contract.

ISSUES

Should Regalia be found liable to pay for preliminary works carried out by Turiff arising out of abortive negotiations for the construction of the mill?

FINDING

The Court found that there was a distinct contract for the payment of the preliminary work. This contract was enforceable even though negotiations for the formal contract had broken down.

QUOTE

The referee said:

“The plaintiffs indicted that they would regard receipt of a letter of intent as an acceptance of their offer. Such a letter was signed and sent and as it did not indicate negative acceptance of the offer, upon its receipt the offer was accepted and the ancillary contract came into existence.

It was not possible to find anything in the letter to convey to the recipients that the ancillary contract was rejected.

There had been nothing in the letter to convey to the plaintiff’s anything other than acceptance of the ancillary contract.” – page 260 of (1972) Digest of Cases

IMPACT

Parties to contract negotiations must ensure that during the negotiations they clearly define the rights and responsibilities of all parties.

This is particularly important if one or both parties will be expending money or resources before the formal execution of a contract. In such a situation the responsibility for such money or resources should be clarified in writing as soon as possible.

Tszyu v FightVision

TSZYU V FIGHTVISION PTY LTD [1999] NSWCA 323

Court of Appeal of NSW – 13 September 1999

FACTS

Tszyu, a boxer, and his trainer, Lewis entered into a written contract for three years with an option of two years. The contract was signed in January 1992 with Classic Promotions the promoter of Tszyu. In November 1992, Classic Promotions ceased trading and Mordey, the principal of Classic promotions, set up Fightvision to carry on the boxing promotion business.

Mordey claimed that the original contract had been novated by discharge after discussions with Tszyu and Lewis and a new contract between Fightvision, Tszyu and Lewis had been created.

In January 1995, Fightvision purported to exercise the option for two years. Tszyu refused to continue the contract and was sued for breach of contract. Fightvision also sued Fenech, another boxer, and others claiming they had induced Tszyu to breach the contract.

ISSUES

Had the contract between Tszyu and Classic promotion been novated or replaced by a new contract?

Had Fenech induced Tszyu to breach the contract with Fightvision?

FINDING

There was sufficient evidence to show that the parties had agreed that the original contract would be replaced with a new contract with Fightvision to replace Classic Promotions.

Fenech was not aware of the contract between Tszyu and Fightvision and could not intend to induce Tszyu to breach that contract.

QUOTE

The Court (Sheller JA, Stein JA, Giles JA) said:

“In our opinion, the submission that Mr. Mordey’s words to Mr. Tszyu and Mr. Lewis were insufficient to establish novation seeks to read too much into the way in which these parties carried out much of their contractual relationships and activities.

Stated simply, Mr. Mordey was the promoter and Mr. Tszyu was the boxer. The corporations involved were merely vehicles for the promoter to promote Mr. Tszyu’s fights. It is unsurprising that Mr. Mordey did not know of the legal term “novation”.

What non-lawyers would? Mr. Mordey did know, however, that it was desired to wind promotions down (or up it doesn’t matter) and have Fightvision become the exclusive promoter of Mr. Tszyu’s bouts. He told Mr. Tszyu and Mr. Lewis of this, and they were agreeable. It was informal, but it had the result, that all parties to the 17 January 1992 contract agreed that there should be a new contract with Fightvision in place of promotions”.

“The position may be stated, we think, as follows: The plaintiff must prove that the defendant intentionally procured the breach. The requirements that the defendant have sufficient knowledge of the contract is a requirement that he have sufficient knowledge to found an intention to interfere with contractual rights. Ignorance of the existence of the contract or of its terms born of inadvertence or negligence is not enough. On the other hand, reckless indifference or wilful blindness to the truth may lead to a finding of necessary intention”.

IMPACT

A written contract may be novated by the oral discussions and conduct of the parties. In this case the Court held that there was sufficient evidence to show that the parties agreed to enter into a new contract by replacing Classic Promotions with Fightvision. It should not be assumed that a written contract cannot be altered by further discussions between the parties.