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Peninsula Balmain v ABI Group Contractors

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PENINSULA BALMAIN PTY LTD V ABIGROUP CONTRACTORS PTY LTD [2002] NSWCA 211

New South Wales Court of Appeal – 3 July 2002

FACTS

Abigroup and Peninsula entered into an AS2124 building contract. In September 1999, Abigroup sought payment of a progress claim. In October 1999, Peninsula cross-claimed for liquidated damages, following a notice given by Peninsula alleging a substantial breach of contract by Abigroup and requiring Abigroup to show cause why Peninsula should not exercise a contractual right to terminate.

Abigroup purported to terminate on 1 December 1999 and claimed that Peninsula had breached the Trade Practices Act (TPA) by failing to disclose that it had an agency agreement on all matters relating to the design and construction of the project with the Superintendent who was hired by Peninsula. Thereafter another contractor completed the works.

The Judge at first instance found that Peninsula had breached the TPA by failing to disclose the existence of the agency agreement between it and the Superintendent. Peninsula appealed to the Court of Appeal.

ISSUES

Did Peninsula contravene s52 of the TPA by failing to disclose to Abigroup the existence of an agency agreement pursuant to which the Superintendent was Peninsula’s agent in all matters relating to the design and construction of the project?

FINDING

The Primary Judge erred in his finding that failure by Peninsula to disclose the agency agreement was a breach of the TPA in that for the conduct to have been misleading or deceptive, it must have been such as to mislead or deceive in some non-trivial manner. Abigroup would have had to show some positive conduct on the part of Peninsula to convey that there was nothing inhibiting the Superintendent from acting honestly and impartially in its role. It was held that the agency agreement had no relevant impact on the Superintendent’s exercise of its role to be performed in an honest and impartial manner.

QUOTE

“…the superintendent is the owner’s agent in all matters only in a very loose sense, and that, when exercising certifying functions in respect of which the superintendent must act honestly and impartially, the superintendent is not acting as the owner’s agent, in the strict legal sense.

In my opinion, this is confirmed by the consideration that the issue of a certificate by the superintendent does not bind the owner to any extent beyond what is prescribed by the building contract itself, so that the owner can challenge such certificates. If the superintendent was acting as the owner’s agent in the strict sense, the issue of the certificate would be an act done by the owner through its agent, which the owner could not then challenge.”

IMPACT

This decision confirms that the superintendent appointed under an AS2124 contract is an agent of the Principal but not in every sense. When the superintendent is exercising certifying powers it is not acting as an agent of the Principal. If the agreement between the superintendent and Principal had purported to restrict the superintendent’s power to certify then such an agreement could be evidence of misleading or deceptive conduct or a breach of clause 23 of the AS2124 Contract.

Integrated Computer Services v Digital Equipment Corporation

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INTEGRATED COMPUTER SERVICES V DIGITAL EQUIPMENT CORPORATION (AUSTRALIA) PTY LTD (1988) CA 365 OF 1986

New South Wales Court of Appeal – 23 December 1988

FACTS

This case concerned a dispute between the parties about the existence of contracts between ICS & DEC for the sale and purchase of a VAX Main Frame computer. The terms of the alleged contract were that ISC would purchase the VAX for $150,000 upon the terms that funds for the acquisition of the VAX were to be set aside the rate of $600 from the sale by ICS of The other alleged contract was that until the full purchase price was paid, ICS was to have on-line access to the VAX computer or that ICS was to have access to the VAX to the extent that it was necessary to launch a computer program. The alleged agreements  were not in writing.

ISSUE

Was there an enforceable contract between the parties despite the lack of a written agreement and the dispute about the terms of the contract?

FINDING

On the issue of formation of contract, the Court held that the question to ask is whether the conduct of the parties, viewed in light of the surrounding circumstances showed a tacit understanding or agreement.

This was found to be an enforceable contract between the parties which had been breached by DEC.

QUOTE

McHugh JA said:

“It is often difficult to fit a commercial arrangement into the common lawyers’ analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of “offer”, “acceptance”,

“consideration”, and “intention to create a legal relationship” which are the benchmarks of the contract in classical theory.” – page 15 of CA 365 of 1986

“The question in this class of case is whether the conduct of the parties viewed in the light of surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract.” – page 17 of CA 365 of 1986

“Moreover, in an ongoing relationship, it is not always easy to point to a precise moment when the legal criteria of a contract have been fulfilled. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed” – page 18 of CA 365 of 1986

IMPACT

This case shows the conflict between the legal analysis of a contractual arrangement and the business persons’ perception of a contractual arrangement. A person may be bound by an unwritten agreement provided there is sufficient evidence that the elements of a contract existed.

Cuzeno v Powercell

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CUZENO PTY LTD V. POWERCELL PTY LTD [1999] NSWCA 344

Court of Appeal of NSW – 22 September 1999

FACTS

Powercell entered into a contract with Cuzeno for building works on land owned by Cuzeno. Powercell was to be paid by becoming the registered proprietor of 9 of the 18 units to be built on the land. Powercell then entered into contracts with purchasers to sell these units.

The original contract between Powercell and Cuzeno was later amended to provide that Powercell would be paid money instead of owning the 9 units. The trial judge found that Cuzeno also agreed to take responsibility for the existing contracts for the purchase of the units. One purchaser, Grasso, sued Powercell for breach of contract and Powercell claimed damages from Cuzeno.

ISSUES

Was the change to the original building contract an unsuccessful novation and thus unenforceable?

Did the fact that the change to the original contract was not in writing render it unenforceable?

FINDING

The change to the building contract was not a novation. The parties agreed to make Cuzeno responsible for dealing with the purchase of land from Powercell and did not intend to novate the purchase contracts.

There was part performance of the change to the original contract as Powercell’s solicitors made requests for Cuzeno to sign new contracts with the purchasers. Part performance may overcome the lack of a written contract.

QUOTE

Priestly JA said:

“I do not think there is any rule of contract law, which prevented Cuzeno from agreeing with Powercell to take over Powercell’s contract with Mr Grasso. Such an agreement would bind Cuzeno to take over, that is become the vendor in, the contract with Mr Grasso, and to take all necessary steps to bring that about. If Cuzeno should prove to be unable to achieve the result it had agreed with Powercell, that would mean it would be in breach of it’s contract with Powercell. In other words, by such an agreement, Cuzeno was assuming the risk that Mr Grasso might not agree to contract with it on the same terms as those in the contract with Powercell and leaving itself open to the consequences if he did not.”

“In my opinion, in the present case, the bringing to an end on 19 July 1996 of the land and building contracts of 27 March 1996, the entry on 19 July 1996 into the new building contracts and the subsequent letters by Powercell’s solicitor to its purchasers of 1 August 1996 were all acts which fall within the description of being “unequivocally and in their own nature referable to some contract of the general nature of” as that found by the judge to have been on the 19 July 1996. Accordingly in my opinion the judge did not err in deciding, in regard to the question the parties have left for his decision, that as a matter of substantive law there had been part performance by Powercell of its agreement with Cuzeno, and Cuzeno should not be allowed to rely upon section 54A of the Conveyancing Act.”

IMPACT

When amending or varying a contract it is important to consider the effect of the change or variation on third parties.

In this case Powercell had been successfully sued by a purchaser and was lucky that it was able to convince the court that Cuzeno had agreed to take responsibility for the purchasers.

Biotechnology Australia v Pace

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BIOTECHNOLOGY AUSTRALIA P/L V. PACE (1988) 15 NSWLR 130

New South Wales Court of Appeal – 30 November 1988

FACTS

Dr Pace was employed by Biotech as a senior research scientist. The letter of offer for employment provided that Biotech would “…confirm a salary package of A$36,000 per annum, a fully maintained company car and the option to participate in the company’s senior staff equity sharing scheme.”

When he was employed Dr Pace became aware that no such scheme had been established.

The staff equity sharing scheme was never established and Dr Pace eventually left the employ of Biotech. Dr Pace sued for breach of contract as Biotech had failed to provide shares under a staff equity sharing scheme.

ISSUES

Was the promise to Dr Pace of an option to participate in a non existent share scheme capable of being part of the employment contract?

FINDING

The promise of an option to participate in a then non-existent equity sharing scheme was dependent on the circumstances of the particular employment relationship and was incapable of being valued according to any existing or reasonable standards. Therefore the promise was illusionary and did not give rise to an enforceable contractual obligation

If the promise of an option was a term of the contract, the promise was so vague and uncertain as to be unenforceable. It was unclear how and when Dr Pace would be entitled to equity in Biotech.

QUOTE

Kirby P said:

“The problem for the court is that the term is just too uncertain of content. It depends for fulfillment upon the decision of one party to the agreement only, namely the appellant. There is no external standard which can be appealed to in order to fix an appropriate or reasonable equity participation scheme, even assuming that to be what was intended or what the law would impute to the appellant. The appellant is not and never was a publicly listed company.

Accordingly, there was no external standard by which shares in the enterprise could be determined authoritatively. It has not shown in the evidence that there was any standard or market reference point for a participation scheme in the equity of a company such as the appellant.” – page 137 of (1988) 15 NSWLR 130

IMPACT

When negotiating contracts the parties need to clearly define the important terms of the contract. In this particular case thestaff equity sharing scheme was important for Dr Pace, but he took no steps to ensure that his entitlement to equity in Biotech was  clarified.

If a particular term is important for one or both parties then care should be taken to ensure that the term is clear and enforceable before finalising negotiations to contract.

This publication is intended to be a topical report on recent cases in the construction, development and engineering industries. This publication is not intended to be a substitute for professional advice, and no liability is accepted. This publication may be reproduced with full acknowledgement.

Jim Doyle

Tel.: 1800 888 783

jdoyle@doylesconstructionlawyers.com
www.doylesconstructionlawyers.com