Insights

07/06/18

Corporate Advisory Update - Cases May 2018

Victorian and New South Wales Supreme Courts differ on effect of contractual time limits on misleading and deceptive conduct claims: Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246

What valuation methodology should be adopted when an expert determination clause is silent on the issue?: TX Australia Pty Ltd v Network Ten Pty Ltd; Network Ten Pty Ltd v TX Australia Pty Ltd [2018] NSWSC 559

UK Supreme Court backflips on the effectiveness of anti-oral variation clauses: Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24


Victorian and New South Wales Supreme Courts differ on effect of contractual time limits on misleading or deceptive conduct claims: Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246

A recent Victorian Supreme Court has held that liability for misleading or deceptive conduct under the ACL cannot be defeated by contractual provisions seeking to impose a time limit on bringing such claims.  Conversely, decisions of the New South Wales Supreme Court to date have held that there can be time or money limits on such claims.  To date, no Australian appellate court has considered this issue and until then, the law remains unsettled and parties to Victorian contracts should carefully consider this decision before seeking to enforce purported time limits on misleading or deceptive conduct claims.

Brighton Australia Pty Limited (Brighton) was engaged by Multiplex Constructions Pty Limited (Multiplex) as a plasterwork subcontractor in a NAB building project at Melbourne’s Docklands.

Brighton argued that it entered into 2 subcontracts in reliance on representations made by Multiplex that were misleading or deceptive in contravention of section 18 of the Australian Consumer Law (ACL).  Clause 46 of the subcontracts sought to impose a time bar to prevent Brighton from bringing a claim unless it gave Multiplex a form of prescribed notice within 7 days.

A referee appointed by the Court (Referee) found that even if the alleged representations had been made by Multiplex (the Referee found that they had not), Brighton would have been “absolutely barred” from bringing the claim because it had not done so within the 7 day period stipulated in clause 46. 

Brighton submitted that clause 46 was void for illegality because it had the effect of excluding liability under section 18 of the ACL.  Brighton also relied on Henjo Investments Pty Limited v Collins Marrickville Pty Ltd (1988) 39 FCR 546 in which it was held that it wold be contrary to public policy to allow consumer protection remedies to be ousted by private agreement.

It was common ground that a clause excluding liability would not be effective in preventing a claim under section 18 of the ACL.  However, Multiplex argued that clause 46 comprised a temporal procedural limitation that did not exclude the operation of section 18 of the ACL, but merely regulated it, and was therefore enforceable.  Multiplex relied on the decisions of the New South Wales Supreme Court in Lane Cove Council v Michael Davies & Associates [2012] NSWSC 727, Firstmac Fiduciary Services Pty Ltd v HSBS Bank of Australia Ltd [2012] NSWSC 1122 and Owners SP 62930 v Kell & Rigby Pty Ltd [2009] NSWSC 1342.

Justice Riordan in the Supreme Court of Victoria stated the relevant issue to be whether the no exclusion principle:

  • is limited to the exclusion of the statutory norm in section 18 of the ACL; or
  • extended to the remedy in section 236 and in particular to the right to commence an action within 6 years after the relevant date under section 236(2).

Justice Riordan found that:

  • any attempt to restrict the remedy in section 18 by limiting the time in which an action can be brought is an “unacceptable interference with the public policy underpinning the provisions”; and
  • it would be inconsistent with the public purpose of the ACL to leave claimants uncertain about whether Courts, on a case-by-case basis, will determine contractual time limits to be so unreasonable as to be unenforceable.  

While Riordan J expressly appreciated that his conclusion differed from the decisions in the Supreme Court of New South Wales which Multiplex relied on, His Honour stated that it was consistent with the observation of Ball K in Omega Air Inc v CAE Australia Pty Ltd [2015] NSWSC 802 that it is reasonably arguable that the parties cannot contract out of the 6 year limitation period.


What valuation methodology should be adopted when an expert determination clause is silent on the issue?: TX Australia Pty Ltd v Network Ten Pty Ltd; Network Ten Pty Ltd v TX Australia Pty Ltd [2018] NSWSC 559:

This case illustrates that where an expert determination clause does not specify a valuation methodology to be adopted, it will be up to the expert to determine the appropriate methodology and the Court will not interfere with that decision.  Contracting parties who have a preference for a particular valuation methodology should ensure that the contract clearly stipulates that methodology.

Seven, Nine and Ten were parties to a Shareholders’ Agreement in relation to their respective one third investment in TX Australia Pty Ltd (TXA) (SHA).  On 14 June 2017, the directors of Ten resolved to appoint voluntary administrators and on 30 June 2017 receivers and managers were appointed to the assets of Ten.  TXA took the view that this constituted an event of default in relation to Ten under the SHA (which then triggered a compulsory disposal regime under which Ten was deemed to have offered its shares to Seven and Nine).  The SHA provided that in the absence of agreement between the parties, the price for the TXA shares held by Ten (as a defaulting shareholder) would be “a price determined by [TXA’s] auditor” who was to “act as an expert and whose decision will be final and binding” (clause 10.2(b)(ii)).  However the SHA did not specify a standard or methodology for determining “price”.

PWC (as TXA’s auditor) determined the value of Ten’s shareholding in TXA to be nil, using a market value methodology.  TXA as agent for Ten then offered the shares to Seven and Nine for a total of $1.00 and Seven and Nine accepted the offer.  Ten then argued that PWC should have determined the price based on a “fair and reasonable value” rather than a “market value”.

Stevenson J in the Supreme Court of New South Wales refused to find that clause 10.2(b)(ii) was void for uncertainty.  There was no “contractual vacuum” but rather the SHA left it to PWC to determine the methodology to be adopted.

Stevenson J also held that where parties have not directed an expert to adopt a particular methodology, it was not for the Court to interfere in an expert’s decision as to the methodology to be adopted.

In any case, His Honor found that PWC was correct to apply a “market value” pricing methodology because:

  • determination of “fair and reasonable” involves consideration of what is fair or reasonable in light of the individual circumstances of the vendor and purchaser.  However in this case, where the shares would be sold to a third party if Seven and Nine had not accepted the offer, the circumstances of that third party might also have to be considered.  This could give rise to a very wide ranging inquiry and variation, which was unlikely to be what the parties intended;
  • even if the parties had intended that a “fair and reasonable” methodology be used, it is unlikely they would have chosen the auditor as the expert.  While PWC was well suited to determine the market value (as it would have a detailed understanding of the financial position of TXA), it would be less suited to the more wide-ranging task of determining the fair and reasonable price;
  • the above construction of “price” was also consistent with how “price” was used elsewhere in the SHA.

UK Supreme Court backflips on the effectiveness of anti-oral variation clauses: Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24

The UK Supreme Court has recently followed the US approach to find that anti-oral variation clauses mandate the process for varying a contract.  In so doing, the Court has backflipped on the previous approach in the UK (and also in Australia) that such clauses were not effective in precluding oral variations.  There is now a difference of approach between UK and Australia in relation to these clauses, and it is important to note that oral variation of any contracts governed by English law would be permitted.

This UK Supreme Court case involved an “anti-oral variation” clause in a licence which provided as follows:

“This Licence sets out all of the terms as agreed between MWB and Licensee. No other representations or terms shall apply or form part of this Licence. All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.”

There has been an ongoing debate about whether such clauses are effective or not.

English law had seemed to take the position that such clauses were not effective, because freedom of contract allowed parties to enter into any agreement at any time (including a variation of an agreement) and that freedom could not be thwarted by a clause in an earlier agreement (for example, Globe Motors Inc v TRW Lucas Variety Electric Steering Ltd [2016] 1 CLC 712). 

However, in this case, the UK Supreme Court majority has chosen instead to follow the US approach that such clauses mandate the process of variation.

In Australia, since the High Court decision in Liebe v Molloy (1906) 4 CLR 347, Courts have been prepared to find on sufficiently persuasive factual evidence that, notwithstanding an agreed writing requirement, the parties by express oral agreement or by contract implied from conduct have agreed to impose further or different rights and obligations on each other from those contained in the original contract.  What is sufficient evidence will depend on the particular circumstances, but all the usual requirements of formation must be present, including certainty of terms and real consideration for the variation.  Courts would look to factors such as the circumstances of the alleged variation agreement, including the authority of the person involved and the language used and whether objectively it can be concluded that the parties intended to vary the agreement without the previously agreed formality.

More recent Australian cases have expressly referred to the prior English approach (see for example Hussain v CSR Building Products Limited, in the matter of FPJ Group Pty Ltd (In Liq) [2016] FCA 392 (Edelman J) and Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91 which cited with approval the Court of Appeal decision in Rock Advertising that was overturned by the UK Supreme Court (at [35]).

 

Our Experts
-
Partner
+61 2 9263 4188
+61 410 541 779
Knowledge Lawyer
+61 2 9263 4029
+61 402 346 595

Categories

Areas of Expertise

Share This

AddThis: