McWilliam v Hunter [2022] NSW SC 342

3 June, 2022

A party to a contract may be precluded from enforcing a contractual right if it has acted in a way that is clearly inconsistent with that right. This is known as the doctrine of election. Last Friday the New South Wales Court of Appeal applied the principles of election to a complex factual scenario in the decision of Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2019] NSWCA 185.

Let’s get unequivocal: understanding the doctrine of election

The doctrine of election comes into play in situations where a party must choose between alternative remedies or inconsistent rights.

A common example of a situation where a party is faced with a choice between inconsistent rights is where that party’s right to terminate the contract is enlivened – the party can either choose to exercise its right to terminate the contract or it can choose to affirm the contract and insist on performance of the contractual obligations.

Once the party has made its choice clear (either by express words or by its conduct), there is no going back – it must live with it. Thus a clear election to continue with the performance of the contract is generally regarded as final and irrevocable. However, subject to the operation of an estoppel, nothing prevents the party from subsequently terminating the contract if its right to terminate re-enlivens (for example, if the other party commits a later terminable breach).

There are two elements of an election to continue with performance:

the party knows that its right to terminate the contract has enlivened; and
the party makes it clear that it has chosen to insist on performance of the contract through its unequivocal words or conduct.

According to the courts in Australia, the “unequivocal” in this context means that the party’s words or conduct is only consistent with the exercise of one right and inconsistent with the other. As one might expect, the party’s subjective intention is irrelevant to the question of whether it has unequivocally elected to insist on the performance of the contract.

There is unlikely to be any controversy in a situation where the party with the right to terminate expressly insists that the other party performs its obligations under the contract or otherwise tells the other party that it wants to continue the contract. This constitutes a blatant election and the party will be precluded from subsequently terminating the contract (unless the right to terminate re-enlivens).

However, practically speaking, in most cases there will be no such express communication. Rather, the issue will turn on whether the party’s conduct is such that it is only consistent with continued performance of the contract and entirely inconsistent with its termination.

**Ships in the night: overview of the dispute in Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2019] NSWCA 185**

In essence, the proceedings concerned a contractual dispute between Donau Pty Ltd (Donau), formerly Forgacs Engineering Pty Ltd, and ASC AWD Shipbuilder Pty Ltd (ASC).

In 2009, ASC contracted Donau to construct various blocks of three “Hobart Class” air warfare destroyers (Original Contract). Once the blocks were constructed they were to be shipped to Adelaide to be assembled by ASC.

Under the Original Contract, Donau was to be paid its fees pursuant to a complicated performance-based formula. However, the project suffered from a number of design changes, defects and delays (many of which were outside of the control of either Donau or ASC). As a result, the Original Contract soon become unworkable and Donau and ASC executed a new contract, the Second Heads of Agreement (SHOA). The intention of the SHOA was to simplify the parties’ contractual relationship and provide more certainty to their obligations, especially with respect to the mechanism for determining Donau’s fee entitlements. Another important aspect of the SHOA is that it streamlined the work scope approval process when compared to the Original Contract.

Under the SHOA, ASC had a unilateral right to terminate if the parties had not re-baselined their performance metrics by 28 February 2013. It was common ground that the parties had not completed the re-baseline by that date. ASC then purported to terminate the SHOA on 7 June 2013.

The two threshold issues in dispute in the proceedings were whether the operative provisions of the SHOA (including the new fee payment mechanism) had come into effect (referred to as the Transition Date in the SHOA) and, if so, on which date did Transition Date fall. On these issues, Bell P and Basten JA held that the Transition Date occurred on 14 December 2012 and thus the SHOA came into effect on that date.

One of the key remaining issues was whether ASC’s purported termination on 7 June 2013 was invalid because ASC had elected to affirm the SHOA.

The Court of Appeal shines a light through murky waters

Donau submitted that ASC had lost the right to terminate the SHOA because it had engaged in conduct that objectively demonstrated its intention to continue with the SHOA. In support of this, Donau pointed to the fact that ASC continued to follow the work scope approval process under the SHOA following the accrual of its right to terminate on 28 February 2013, rather than reverting to the work scope approval process under the Original Contract. Donau argued that this amounted to unequivocal conduct that could only be consistent with a decision to continue to follow the SHOA.

Bell P, with whom Basten JA and Emmett AJA agreed on this issue, found that ASC’s conduct was equivocal. This is because ASC had long departed from the work scope approval process under the Original Contract and had been following the work scope approval process under the SHOA informally for some weeks before the SHOA actually took effect. Affirming the reasoning of Ball J at first instance on this issue, Bell P held that the fact that ASC continued to follow the SHOA’s work scope approval process after 28 February 2013 was equally consistent with a decision to continue following this informal process as it was to affirm the SHOA.

Furthermore, Bell P considered that the following factors prevented ASC’s conduct from the necessary unequivocal status to sustain a claim of election:

the parties continued to attempt to re-baseline the performance metrics after 28 February 2013;
the parties had a long history of operating outside of the precise terms of their contractual arrangements; and
it was an implied term of the SHOA that ASC had a reasonable time after that date to exercise its right to terminate, but it was unknown to the parties at the time when that time would expire.

However, as explained in our recent article, the Court of Appeal ultimately held that ASC’s purported termination of the SHOA was invalid because it was not exercised within a reasonable time.

Take home tips

Insofar as possible, if you have a right to terminate a contract, you should expressly communicate your intentions to the other party as soon as possible after the right to terminate enlivens.

If you are unsure of whether to terminate the contract or persevere with it and you want to buy time to consider your options, you should consider entering into a standstill agreement with the other party to preserve your right to terminate while you try to resolve the situation.

McCabes acted for Donau throughout the dispute with ASC, including at first instance before the Supreme Court and before the Court of Appeal.

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Litigation and Dispute Resolution

Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan

29 August, 2023

Government

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes

18 August, 2023

Litigation and Dispute Resolution

Expert evidence – The letter of instruction and involvement of lawyers

The recent decision in New Aim Pty Ltd v Leung [2023] FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.