Litigation and Dispute Resolution

Power to the people: What the draft Biodiversity Conservation Bill 2016 means for developers and landowners

17 May, 2016

It is trite to say that a contract sets out various rights and obligations that the parties to it have. Generally, contracts will specify when these rights have to be exercised or obligations have to be performed. But what if the contract is silent on this? Last Friday the Court of Appeal handed down a significant decision on this question of contract law.

Background to the dispute: take up arms against a sea of troubles

Back in 2007, the Commonwealth Government began a process of updating the Royal Australian Navy’s conventional naval combat capabilities, which included the construction of three “Hobart Class” air warfare destroyers. These ships were to be constructed domestically by an entity established by the Commonwealth, being ASC AWD Shipbuilder Pty Ltd (ASC). ASC then entered into a number of subcontracts with other companies to construct various “blocks” for the ships. These blocks were to be constructed and then shipped to ASC, who would assemble the ships.

One of the subcontracting parties was Donau Pty Ltd, formerly Forgacs Engineering Pty Ltd (Forgacs), a Newcastle based civil and defence shipbuilder. Forgacs and ASC entered into a contract in 2009 for the construction of various blocks. The contract also provided for a formula by which Forgacs’ fees for the project were to be calculated. The project was fraught with complications and delays, and it became impossible for the parties to use the mechanism under the original contract to calculate Forgacs’ entitlement to its fees.

To try to remedy this issue, in October 2012, ASC and Forgacs executed a new contract, being the “Second Heads of Agreement” (SHOA) which, inter alia, provided for a new mechanism for calculating Forgacs’ fees. The SHOA also contained various clauses that required the parties to “re-baseline” the various performance metrics of the project. Finally, the SHOA also gave ASC a unilateral right to terminate the agreement (the effect of this being that the parties would revert back to the regime under the original contract). Critically, the SHOA was silent on when this right to terminate had to be exercised by.

The parties were unable to reach agreement on the “re-baseline” and in June 2013, ASC purported to exercise its right to terminate the SHOA. Further disputes arose as to entitlement to fees, which led to proceedings being commenced before the Supreme Court of NSW in 2016 after the completion of the project. The parties were orders of magnitude apart on the question of fees, with ASC claiming overpayment of over $20,000,000 and Forgacs claiming underpayment for a similar amount.

Multiple issues were ultimately ventilated before the Courts, including whether the SHOA came into effect, what date it substantively came into effect or “transitioned” (the two available dates on the construction of the document being in December 2012 and February 2013), and the correct construction of the SHOA as to its effect on Forgacs’ entitlement to fees. However, one key issue was whether ASC lawfully terminated the SHOA in June 2013. That is, did ASC fail to exercise their right to terminate within a reasonable time? The matter was heard at first instance before the Supreme Court of NSW by Ball J, who considered this issue.

A clock with no face: how do you work out how much time is reasonable?

It is an accepted part of contract law that where a clause of a contract does not stipulate a time frame by which something is to be done, then it must be done within a reasonable time. This has been described by the High Court of Australia in Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1 and Canning v Temby (1905) 3 CLR 419 as the implication of performance within a reasonable time. Following this approach, the rules of implying terms into a contract are seemingly invoked.

One question that necessarily arises is what is a reasonable time? Ball J, citing Cavallari v Premier Refrigeration Co Pty Ltd (1952) 85 CLR 20, noted that this was a question of fact to determine in light of the facts of the case. Critically, it was his Honour’s view that the analysis of the factual circumstances is to be conducted with reference to the facts that existed “at the time of the exercise of the right”.

On Ball J’s construction of the SHOA, it came into effect and transitioned in February 2013. On his Honour’s construction, this was also the date that the right to terminate arose. His Honour then looked at the conduct of the parties after this date. He considered that the parties had genuinely continued to attempt to negotiate the “re-baseline” between February 2013 and when ASC purportedly terminated in June 2013. His Honour found that this period of time was reasonable and that Forgacs was not prejudiced by the delay. Accordingly, his Honour found that ASC had exercised its right to terminate within a reasonable time.

Drawing a line in the sand: the Court of Appeal on measuring reasonable time

The question of reasonable time, among others, was the subject of an appeal by Forgacs (and other matters were the subject of a cross-appeal by ASC).

Last week the Court of Appeal handed down its judgment, being Donau v ASC AWD Shipbuilder Pty Ltd [2019] NSWCA 185, reversing the decision of the trial judge and finding for Forgacs on each of its key grounds of appeal. The Court of Appeal’s judgment provides for some developments in contract law on the question of reasonable time.

The President’s approach: the bell tolls for ASC’s termination

The President of the Court of Appeal agreed with Forgacs that, on the correct construction of the SHOA, it in fact transitioned in December 2012 and not February 2013. Bell P noted that, whilst the right to terminate did not arise until February 2013, the fact that the contract transitioned back in December 2012 was relevant in that it meant that the SHOA had been operating for almost six months before ASC purported to terminate. This finding necessarily impacted Bell P’s analysis of whether a reasonable time had passed.

However, Bell P also clarified the legal process with respect to an implied term for reasonable time. The President stated that the authorities do not support Ball J’s proposition that the limit of what is a reasonable time is to be determined based on what is fair to both of the parties at the time the contractual right is exercised. Rather, the factual question of what is a reasonable time is determined at the time that the right is “first capable of being exercised” (that is, when it accrues).

Bell P also considered whether there was any distinction between whether the authorities varied on the question of a reasonable time passing for the performance of an obligation as distinct from an exercise of a right. Ultimately, his Honour noted that this is a “question of fact and law” which may vary based on the nature of the obligation or the right, but no special rules apply for rights as opposed to obligations per se.

After considering the authorities, Bell P neatly summarised the legal position as:

“The legal meaning of what is a reasonable time is to be ascertained as at the date of the contract, although what will be reasonable as a matter of fact will inevitably fall to be assessed by reference to the circumstances as at the date on which the right is first capable of being exercised (or the date on which the obligation falls to be performed), viewed in the context of the contract as a whole.”

The effect of this is that any conduct of ASC and Forgacs after February 2013 (namely, their continued negotiations to re-baseline) was not relevant to the question of determining whether a reasonable time had passed.

His Honour observed the following:

  • it was open to ASC to reserve its right to terminate or negotiate a “standstill” agreement to the SHOA. ASC did neither;
  • the parties had been operating under the SHOA since it transitioned in December 2012, nearly six months before the purported termination;
  • there was a need to terminate quickly as the longer the regime under the SHOA operated the more difficult it was to revert back to the original contract; and
  • the parties had an obligation to use “reasonable endeavours” to “re-baseline” by December 2012 and failing this ASC had the unilateral right to terminate (which meant that negotiations could go on indefinitely at ASC’s discretion).

Bell P concluded that:

“A commercial party such as Forgacs, involved in a multimillion-dollar procurement contract, and having negotiated the [SHOA] in a manner that required, by implication, ASC’s right to terminate the [SHOA] to be exercised within a reasonable time of that right arising … was entitled to hold ASC to that promise.

… A “reasonable time” had long since passed when ASC purported to exercise its right to terminate.”

Emmett AJA agreed with Bell P on this issue, meaning that this part of the judgment forms part of the majority of the reasoning of the Court of Appeal.

Basten JA’s approach: a bastion for orthodox contractual interpretation

Basten JA reached the same conclusion as Bell P (and Emmett AJA) on the issue of reasonable time, but did so using a different methodology to Bell P.

His Honour found that there are two approaches to the basis of requiring an exercise of a contractual right (or obligation) within a reasonable time. The first is implying such a term, which is the approach that Bell P appears to have taken. The second is to treat the exercise as simply a matter of contractual interpretation.

His Honour recognised there may be a degree of artificiality in this distinction, but emphasised that framing the question as one of implication “is to remove the focus of attention from the [objective] intention of the parties at the time of entering into the agreement”. The contract is to be interpreted as it would be understood by an independent observer and “at least where there is uncertainty” by reference to the context and information available to the parties.

This leads to a situation where it is not appropriate to take post contractual events into account, and his Honour noted that this is what Ball J did by referring to continued negotiations between Forgacs and ASC after February 2013.

His Honour then turned to the question of construction of the SHOA, Basten AJA agreed with Bell P that the SHOA transitioned in December 2012 and proceeded to note the following:

  • there was a six week period between execution of the SHOA and the transition date in December 2012 which, had the parties “re-baselined”, could have brought the transition date forward;
  • the parties had to use “reasonable endeavours” to “re-baseline” by December 2012, which indicates that it may not have be achieved by that date. ASC’s unilateral right to terminate arose in February 2013, which leads to an inference that ASC would only commit to a new fee regime if “re-baselining” was achieved by February 2013 and they accordingly held a right to terminate if the “re-baseline” was not achieved;
  • ASC’s right was unilateral and entirely within its discretion. ASC did not need to make any further enquiries or obtain further information. It was up to ASC to make an assessment when its right to terminate arose whether it wanted to terminate or proceed; and
  • the terms of the contract and the circumstances indicated that the right to terminate must have been exercised promptly.

Accordingly, his Honour held that ASC ought to have elected to use their right to terminate, if they were going to do so, by no later than April 2013 (giving time for board approval for termination).

Where does this leave us on the details? Between the devil and the deep blue sea

So how to do we resolve this dilemma? Where does this leave the methodology on determining reasonable time?

At first glance the distinction drawn by Basten JA between implication and interpretation may be a false dichotomy: there will still be some element of “implying” in the requirement of reasonable time. As Basten JA acknowledges, his distinction is more to emphasise the importance of keeping the focus of the exercise on the objective intention of the parties at the time the contract was entered into. That is the orthodox approach to contractual interpretation: you use the four corners of the contract to objectively determine what a reasonable time is (subject to referring to external material to resolve ambiguities).

Bell P’s approach gives much more room to reference external factors, but not to those that arose after the relevant right accrued or obligation crystallised. Noting Emmett AJA’s agreement with Bell P on this point, the case can be said to stand for the following on the issue of reasonable time:

  • the legal meaning of what is a reasonable time is determined as at the date the contract was executed;
  • the factual question of whether a reasonable time has passed is considered as at the date the right accrued; and
  • the context of the contract as a whole must be considered.

Time will tell whether there is wind in the sails of the distinction raised by Basten JA, or whether it is more of an academic distinction to try and keep the focus on orthodox principles of contractual interpretation.

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

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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 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

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.

Published by Justin Pennay
10 August, 2023