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Landoro v Jensen

LANDORO PTY LTD V. JENSEN PTY LTD APPEAL NO: 5783 OF 1998

Court of Appeal – QLD – 20 August 1999

FACTS

Landoro entered into a sub-contract with Jensen for work at the Brisbane Casino and Hotel site. Landoro told Jensen that it had cash flow problems and needed to be paid promptly.

Jensen later agreed to pay $185,000 to Landoro for accelerating the work, and Jensen was told that the acceleration would strain the financial resources of Landoro. Landoro went into administration after Jensen refused to pay for variations or for the acceleration.

Landoro issued legal proceedings against Jensen for breach of contract and misleading and deceptive behavior.

ISSUE

Landoro wanted to amend its claim to include in its claim for damages to include the costs incurred by Landoro in going into administration and its costs of getting finance for litigation.

FINDING

While the claim for costs incurred by Landoro going into administration and getting finance were unusual, the court found that the claims were arguable and allowed the amendments to the claim for damages.

QUOTE

Davies JA said:

“As to the claims for administration costs generally and, specifically in overseeing this litigation, as damages for breach of contract, I agree with what Demack J has written.

Central to both of these claims, and indeed also to the claim for the costs of litigation finance, is the allegation, in effect, that the respondents knew that unless the appellant was paid promptly for the work or acceleration, it would be unable to continue to operate and, it follows, might have to reach an agreement with its creditors of the kind which it did.

Moreover, as Demack J points out, in effect, there is no difference in kind between damages of the first category and those of the second. And it may also be said of both that they were steps taken in order to mitigate greater loss.” “Those or similar arguments may, in my view, also be advanced to support recovery of the cost of litigation finance.

The respondents’ breaches caused the money to be owing; and, if they knew that Landoro would be unable to operate without that money, it is arguable that they must have know that, in that event, it would be unable to finance litigation to recover it either from its own resources or through ordinary avenues of borrowing.

This argument assumes, as the appellant has contended, that litigation finance comes at a higher price than ordinary business loans. It is the extra cost of that finance, caused by the appellant’s foreseen impecuniosity, which is arguably recoverable”.

 IMPACT

This decision suggests that if a principal knows that a contractor is having cash flow problems, and promises to pay money owing promptly, a claim for breach of contract or misleading and deceptive conduct may include damages for any insolvency costs of the contractor.

Fernkiln PL v Australian Building Industries

FERNKILN P/L V AUST BUILDING IND P/L [1999] QCA 179

Queensland Court of Appeal – 25 May 1999

FACTS

Australian Building Industries owned land in Townsville that it proposed to develop as a commercial site. Fernkiln was a roofing manufacturer that was interested in leasing a purpose built building in Townsville. Australian Building Industries gave Fernkiln a design and construct proposal to construct the building and lease it to Fernkiln. Fernkiln responded by sending Australian Building Industries a letter of intent that proposed terms for a lease. The solicitors for Australian Building Industries send a counter offer about the terms of the lease. No contract documents were signed and eventually Fernkiln decided it no longer required the building. In the meantime Australian Building Industries had with the knowledge of Fernkiln commenced building works on the property and spent $300,000.00 on the works.

Australian Building Industries completed the building and sued Fernkiln for breach of contract and alleged that Fernkiln was estopped from denying there was a contract.

ISSUES

Was there a binding contract between Australian Building Industries and Fernkiln?

If there was no contract was Fernkiln estopped from denying the contract because of its actions in allowing Australian Building Industries to work on the site?

FINDING

The Court held that there was no binding agreement between the parties as there were still outstanding matters of importanceto be agreed between the parties and the parties had intended to be only bound after the execution of a formal agreement.

The Court held that the facts did not prove that Australian Building Industries had relied upon conduct by Fernkiln to assume that there was a contract between the parties.

The evidence suggested that Australian Building Industries had simply commenced work and hoped that it could negotiate a contract with Fernkiln.

QUOTE

Pincus J.A. said

“It may be thought that there are two opposing considerations: one, that courts should not presume to make or complete parties’ bargains, and two, that courts should not always let a parties’ reasonable understanding, encouraged by the other side, that a contract has been or will be made be disappointed by a refusal to fill in gaps.” paragraph 4 of [1999] QCA 179.

IMPACT

When negotiating contracts it is important to ensure that a formal contract has been agreed between the parties before commencing work OR that the party doing the work has received a written acknowledgment of liability to pay for work completed from the other party.

While it may be convenient to commence work before the execution of a contract there is a risk that the negotiations will be unsuccessful and payment for any work dependent on the good faith of the other party or a successful legal proceeding.

Clearly this is not satisfactory for either party.