INCORPORATING UNSIGNED AND UNSIGHTED DOCUMENTS INTO CONTRACTS OF SERVICE – APPEAL UPDATE

Legal Directions

Surfstone Pty Ltd & Anor v Morgan Consulting Engineers Pty Ltd [2016] QCA 213

Background

In proceedings filed in 2014, the plaintiffs (City Beach) alleged negligence against Morgan Consulting Engineers Pty Ltd (MCE) relating to a warehouse engineered by MCE for City Beach in or around 2003. City Beach contended that from around April 2009, the internal concrete slab floors of the warehouse exhibited signs of rotation and deflection which was caused by MCE’s negligence. City Beach sought judgment against MCE in the sum of approximately $1.24 million, interest and costs.

MCE denied any negligence and pleaded in its defence that MCE’s fee proposal included the ACEA Guideline Terms of Agreement (the Guideline Terms) which at clause 4.3 included a time based limitation of liability to preclude proceedings being brought by City Beach against MCE after one year from the completion of the services. MCE contended that the contract entered into by the parties prevented City Beach bringing the proceedings against MCE, the services having been completed in 2005 (nine years prior to the proceedings having been instituted).

Decision at first instance

In May 2015, the Court, prior to a trial of the proceeding, heard argument on whether the Guideline Terms were incorporated into the contract between the parties and if so, whether clause 4.3 operated as a bar to City Beach bringing the proceedings against MCE.

MCE’s fee proposal contained the following passage:

The commission would be generally in accordance with the ACEA Guideline Terms of Agreement…

The Guideline Terms were not attached to the fee proposal, were not requested by City Beach and were not provided to City Beach by MCE. The parties did not reduce the contract to a signed agreement, but rather acceptance was constituted through the performance and payment of services as evidenced by invoices.

The evidence before the Court from the chief executive of the ACEA (now Consult Australia), a director of MCE and two architects, was that the Guideline Terms were in common use at the time, were commonly not appended to fee proposals and were easily accessible.

City Beach unsuccessfully argued that the use of the words ‘generally in accordance with’ in the fee proposal were vague and insufficient to incorporate the Guideline Terms into the contract. The fee proposal addressed matters not fully dealt with by the Guideline Terms, such as the total amount of the fee and the times at which invoices were to be submitted. In this context, His Honour concluded that a reasonable person would understand that the expression ‘generally in accordance with’ was used in the sense of ‘for the most part’ because not all matters were finally dealt with in the Guideline Terms. His conclusion was that, as a matter of construction, the fee proposal incorporated the Guideline Terms, including clause 4.3, by way of the reference to them in the fee proposal.

The learned primary judge referred to a number of authorities dealing with the situation where one party offers to contract with another on terms which include those set out in an identified (albeit unsigned) document and adopted the proposition that:

The fundamental question is whether the offeror (the defendant) is reasonably entitled to conclude that the acceptor (the plaintiff) has accepted the terms in the document, including the exemption clause. That conclusion should be reached where the second party has had a reasonable opportunity to consider the terms, including the exemption clause, and has behaved in a way which manifests acceptance of the document as recording contractual terms.

The learned primary judge heard in evidence that there was enough time after receipt of the fee proposal for City Beach to obtain a copy of the Guideline Terms and for City Beach to have obtained legal advice about their suitability and in accordance with his adopted proposition above, concluded that:

A reasonable person in the position of the plaintiffs would have concluded that, at the time that the Fee Proposal was accepted, the defendant intended to enter into a contract to provide the relevant engineering services, only on the terms identified in the Fee Proposal; and a reasonable person in the position of the defendant would have concluded that the plaintiffs agreed to contract on those terms. Those conditions extend to the Guideline Terms, including clause 4.3.

The learned primary judge also considered whether for MCE to rely on clause 4.3, it was necessary for it to have taken some step specifically to draw City Beach’s attention to the clause. The learned primary judge found that the limitation clause was appropriate for this type of contract and, although onerous from the point of view of City Beach, it was not a clause that was ‘not reasonably to be expected’. He concluded that the use of Guideline Terms was sufficiently common to make it unnecessary for MCE to have brought clauses such as clause 4.3 specifically to the attention of City Beach. On this alternate approach, the learned primary judge concluded that clause 4.3 was also incorporated into the contract between the parties.

On 19 October 2015, the Court dismissed City Beach’s proceedings against MCE.

Decision on appeal

City Beach appealed the learned primary judge’s decision and on 26 August 2016, the Court of Appeal dismissed City Beach’s appeal and ordered City Beach pay MCE’s costs.

Justice Morrison provided the reasons with which Justice McMurdo and Justice Atkinson agreed. The contentions raised by City Beach on appeal were as at first instance and the Court of Appeal endorsed the learned primary judge’s decision in every respect. In upholding the learned primary judge’s decision, the Court of Appeal has reinforced that a decision as to the terms incorporated into a contract will turn on the facts, in this case:

  1. As to construction with reference to the features of the fee proposal – the features of the fee proposal enunciated by His Honour made it clear that a reasonable person would read the fee proposal as meaning that MCE’s offer to perform the structural and civil engineering services was on the basis that their contract would be governed by the Guideline Terms, as well as, or modified by, any terms set out in the fee proposal; and
  2. As to whether the time based limitation of liability clause 4.3 was one reasonably to be expected in contracts of the kind in question (acceptance of the document makes the clause binding even if the person does not know its terms or even that it is contained in the document) – ample evidence was provided that it was a clause that might be expected in such a contract.

The Court of Appeal’s conclusion in upholding the learned primary judge’s decision was that the Guideline Terms were incorporated in the fee proposal (including clause 4.3) and that it was unnecessary for MCE to have specifically drawn clause 4.3 to City Beach’s attention, or do anything more in that regard.

Implications

The High Court of Australia has previously found that parties are ordinarily bound by the terms contained within the body of written agreements that they have signed, irrespective of whether they have read the agreement or been made aware that it contains unusual or onerous terms. The present case says that parties are also bound by terms contained in documents incorporated by reference into agreements formed without any signature, irrespective of whether they have read the document or received it from the other party, provided it was otherwise accessible to them and provided the terms are not ones “which no one would anticipate in a contract of the type in question”.

Authored by Anthony Henley, Partner and Julia Davidson, Senior Associate, Brisbane


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