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Thiess Contractors v Placer Granny Smith

THIESS CONTRACTORS PTY LTD V PLACER (GRANNY SMITH) PTY LTD [2000] WASCA 102

Supreme Court of WA – 14 April 2000

FACTS

Placer was the owner of the Granny Smith gold mine and in 1989 engaged Thiess to carry our open cut mining at the mine site.

The original contract was a schedule of rates contract; latent conditions lead to Thiess making windfall profits.

In 1991, Placer therefore proposed that the parties enter into a partnering arrangement with the parties to share the risk of cost fluctuations, the parties working in good faith on all matters relating to the contract, and the contract providing for a fixed profit for Thiess.

Placer terminated the contract in March 1995 and relied upon a clause that stated that Placer could terminate the contract at any time and for any reason.

Thiess issued legal proceedings claiming that the termination of the contract was unlawful.

Placer counterclaimed for damages from a breach of contract alleging that Thiess had not acted in good faith by providing an initial incorrect estimate of its genuine costs according to which Thiess was to be paid.

ISSUES

Did alleged representations by Placer that the contract would remain in place for the life of the mine lead to Placer being estopped from terminating the contract?

Did Thiess fail to act in good faith and breach the contract in that it misrepresented that its rates were genuine estimates of its costs?

FINDING

Placer only showed an intention to retain Thiess for the life of the mine. The contract always had the termination clause and it was not removed from the contract despite the requests of Thiess.

Thiess had provided incorrect estimates of its genuine costs and had breached its contractual duty to act in good faith when providing the estimates. However Placer had failed at the trial to provide proper evidence of the damages it suffered and the Court awarded nominal damages of $100.00 to Placer.

QUOTE

Ipp, Steytler & Wheeler JJ said:

“There are several provisions in the contract itself which indicate that the parties intended that mining be carried on by Thiess pursuant thereto for the life of the mine. But that intention was always subject to the termination clause.

This is apparent from the terms of the contract itself.”

IMPACT

The Court’s judgment suggests that partnering agreements will be interpreted using the usual rules of construction.

However the Court also showed a willingness to enforce contractual obligations of good faith when one party to the contract misrepresented its position to the other party.

Pirt Biotechnologies v PirtFerm

PIRT BIOTECHNOLOGIES PTY LTD V PIRTFERM LTD [2001] WASCC 96

Supreme Court of WA (Full Court) – 2 April 2001

FACTS

Pirtferm was the owner of a patent for a waste disposal process and wished to commercially develop this process. Professor Pirt and Dr Pirt, the directors of Pirtferm, entered into negotiations with Eley and Castledine to commercially exploit the patent and eventually the Pirts, Eley and Castledine executed a letter of intent.

The letter of intent included a clause stating that Pirtferm would licence the patent to Pirt Biotechnology provided that company had sufficient financial and administrative support. The letter of intent also included a clause stating that the parties at that stage did not seek a contractual obligation but wanted to clearly indicate their interests and intentions. As a result of this document being executed Pirt Biotechnologies was incorporated with the Pirts, Eley and Castledine appointed directors.

Later a draft Deed of Assignment of the patent was prepared but not executed by Pirtferm and negotiations eventually broke down with Pirtferm stating that it would not assign the patent.

ISSUES

Was there a binding contract between Pirt Biotechnology and Pirtferm?

FINDING

There was no contract, as the parties had not intended to be legally bound. The execution of the letter of intent and related negotiations indicated that the parties were still negotiating and that the parties intended to execute a written document before being legally bound. Also some terms of the letter of intent were unclear and this evidenced a lack of an intention to be legally bound.

QUOTE

Murray J said:

“By ‘intention’ in this context the law is concerned with an objective intention, imputed to the parties who are said to have contracted, from a consideration of what was said and done in the course of their dealings.

It is not a subjective intention of the parties individually, and so it will be irrelevant for any party giving evidence to say that he or she either did or did not mean to form a binding agreement. Relevant evidence will be concerned withthe terms of their agreement and what inference may be drawn therefrom.

In that context, if it should be the case that there is uncertainty about important aspects of the proposed transaction, ambiguity or the omission of important terms, that may aid the drawing of a conclusion that there was to that point no intention to form a binding legal agreement.”

IMPACT

When negotiating a commercial agreement the parties to the negotiation usually have the intention of entering into a legally enforceable agreement as a result of the negotiations.

Letters of intent by themselves are not evidence that the parties intend to contract though such a letter could be important evidence of an oral contract. All parties to such negotiations should ensure that the current status of the negotiation is understood and agreed between the parties.

Eastern Metropolitan Council v Four Seasons Construction

EASTERN METROPOLITIAN COUNCIL V. FOUR SEASONS CONSTRUCTION PTY

LTD [1999] WASC 167

Supreme Court of WA – 9 September 1999

FACTS

The Council and Four Seasons entered into a building contract that included an arbitration clause.

A dispute arose between the parties and the dispute was referred to arbitration.

An attempt by the Council to stay the arbitration was unsuccessful.

The arbitrator sent a letter to the parties setting out a tight timetable for the conduct of the arbitration. However the letter did not set out how the arbitrator intended to approach the arbitration. In particular, the letter did not indicate whether the arbitrator intended to decide the dispute on the papers or conduct a hearing.

The Council was also concerned that Four Seasons had not served adequate Points of Claim.

ISSUES

Should the Court make orders as allowed by section 47 of the Commercial Arbitration Act in relation to interlocutory aspects of the arbitration or stay the arbitration until adequate Points of Claim had been served on the Council?

FINDING

The arbitrator should be first given a chance to address the concerns of the Council before the Court considered making supervisory orders. The application was adjourned for seven days.

QUOTE

Master Sanderson said:

“I think that two things arise out of s 47. First, it must be read in conjunction with s14 [of the Commercial Arbitration Act] so that it is not the function of the court to simply take over the conduct of the interlocutory proceedings of the arbitration and ignore the way in which the arbitrator intends to approach the reference.

Rather it seems to me, that the power is a supervisory power that should be exercised only so far as it is necessary to ensure that the arbitration proceeds in a proper manner. …

Without going through the authorities, it is clear that there is a broad supervisory power in the Court which should be exercised if it becomes apparent that the arbitration is proceeding in a way which is likely to give rise to an application to set aside the award.”

IMPACT

An arbitrator is subject to supervision by the Court.

However the Court will only exercise its supervisory powers if necessary to ensure that the arbitration is run properly and that no issues will arise which could lead to an application to set aside the award of the arbitrator.

BHP Steel v ABB Engineering Construction

BHP STEEL (RP) PTY LTD V ABB ENGINEERING CONSTRUCTION PTY LTD [2001] WASC 73

Supreme Court of WA – 20 March 2001

FACTS

BHP DRI was constructing a plant at Port Hedland and ABB was a head contractor for part of the works at the plant.

Monaveen was ABB’s subcontractor and it proposed to purchase the steel it needed to complete the works from BHP Steel.

Both BHP DRI and BHP Steel were part of the BHP group of companies and BHP DRI wanted BHP Steel to supply Monaveen with the necessary steel. However BHP Steel had concerns about extending credit to Monaveen to allow it to purchase the necessary steel and it therefore had discussions with ABB about some security being provided to assure BHP

Steel that it would be paid for steel supplied to Monaveen. While these negotiations were conducted BHP Steel supplied some steel to Monaveen. Eventually Monaveen became insolvent after the subcontract was terminated and $266,922.00 remained owing to BHP Steel.

BHP Steel issued proceedings against ABB claiming breach of contract, misleading and deceptive conduct, estoppel andnegligence and alleged that ABB had promised that it would pay BHP Steel for the steel if Monaveen did not pay for  the supplied steel.

ISSUES

Had there been a contract between BHP Steel and ABB with ABB promising to pay BHP Steel if Monaveen did not pay for steel supplied by BHP Steel?

Had there been representations made by ABB that it would pay BHP Steel any outstanding balance if Monaveen did not pay or all the steel supplied?

FINDING

The Court found that ABB never promised to pay BHP Steel directly if Monaveen did not pay for supplied steel.

The negotiations between the parties never led to an agreement that ABB would pay BHP Steel if Monaveen defaulted inpayments to BHP Steel. At best ABB stated that it would require Monaveen to ensure that BHP Steel was paid before it  paid Monaveen. There was also no evidence that ABB had represented to BHP Steel that it would pay BHP Steel if Monaveen did not pay for steel supplied for the work at the plant.

QUOTE

Owen J said:

“The agreement apparently reached between the defendant [ABB] and Monaveen is that Monaveen will satisfy it (the defendant) about payment of invoices due to the plaintiff [BHP Steel] prior to Monaveen becoming entitled to payment of moneys from the defendant.

It would be difficult to construe the letter as evincing an intention by the defendant to be bound contractually to the plaintiff to do anything at all. … I am not saying that the provision of comfort to one providing credit can never and the legal effect of the transaction were promissory or merely representational.”

IMPACT

When negotiating it is important to understand whether statements made by the other party are promises or simply acknowledgements of your concerns.

In this case ABB had stated during negotiations that it sympathized with BHP Steel’s concerns about Monaveen’s credit worthiness but it never promised to do anything to ensure that BHP Steel would be paid for the steel it supplied.

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