Year in review

Australian disputes 01 Feb 2018 Contract and Tort

Year in Review - 2017

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Interpreting contracts when words are deleted

In Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12, the High Court decided that words deleted from a standard form contract could be taken into account as an aid to construction where they identified a matter rejected by the parties. The case also demonstrates the importance of identifying the commercial purpose when construing an ambiguous contract.

The original parties to a lease were prevented from entering into a sale of land by planning restrictions. As an alternative, they entered into a lease for 99 years. Clause 13 of the lease noted that the landlord intended to sell the land to the tenant and went on to say that the land was leased to the tenant for 99 years, with rent fully paid up front. Clause 4 of the lease provided:

AND [the tenant] also will pay all rates taxes assessments and outgoings whatsoever excepting land tax which during the said term shall be payable by the Landlord or tenant in respect of the said premises (but a proportionate part to be adjusted between Landlord and Tenant if the case so requires).

Ecosse acquired the land in 1993, took over as landlord and paid rates and land tax. In 2013 it sued the tenant for recovery of the rates and land tax between 2005 and 2013, relying on clause 4. The tenant argued clause 4 required it to pay imposts levied on it as the tenant, but did not require it to pay imposts levied on the landlord as the owner of the land.

It was common ground that the relevant provisions were ambiguous, which meant that they should be construed according to what a reasonable business person would understand them to mean, having regard to the commercial purpose sought to be achieved by the parties. The majority of the High Court (Kiefel, Bell, Gordon and Gageler JJ) concluded that the clear commercial intention of the parties was to recreate, as far as possible using a lease, the conditions that would have followed a sale. If a sale had been effected, the tenant would have been responsible for rates, taxes and other outgoings and so the majority concluded that clause 4 should be interpreted to give effect to that intention.

The Court was critical of the way that the lease was drafted, but the decision confirms that deletions are relevant to the construction of a contract.

Factors vitiating contracts: undue influence, unconscionable conduct, duress

In Thorne v Kennedy [2017] HCA 49 the High Court held that binding financial agreements (a pre-nuptial and a post-nuptial agreement) were voidable on the ground of unconscionable conduct pursuant to the Family Law Act 1975 (Cth). The majority also set aside the agreements on the ground of undue influence.

The decision is of wider relevance as it clarifies the doctrine of undue influence and explains how it differs from statutory unconscionability and duress.

Undue influence can be established either by means of a presumption or by evidence of the particular circumstances. The High Court held that the presumption of undue influence no longer exists in the relationship of fiancé and fiancée. The Court explained that, where there is undue influence, the will of the innocent party is not independent and voluntary, because it is overborne. The party seeking relief need not be reduced to an automaton, but the capacity of the party must be "markedly sub-standard". Undue influence can still occur where a party has received independent legal advice.

Unconscionability requires that an innocent person be subject to a special disadvantage that seriously affects the person’s ability to make a judgment as to their best interest, and that the other party unconscientiously take advantage of that disadvantage.

Here, a 67 year old male property developer with substantial assets met a 36 year old woman with limited English on the internet. A few weeks before their wedding, the husband took the wife to see an independent solicitor about signing a pre-nuptial agreement under which, among other things, the wife would receive a "piteously small" amount if the couple separated. The solicitor advised the wife not to sign the agreement, but she signed it nevertheless in the face of her husband's threats to call off the wedding if she refused to sign. Within four years, the couple had separated and the wife sought orders setting aside the pre-nuptial agreement (as well as a post-nuptial agreement in similar terms).

The High Court considered that the facts as found involved unconscionable conduct and undue influence. On the question of undue influence, it was open to the primary judge to conclude that the wife considered that she had no choice or was powerless other than to enter the agreements: the extent to which she was unable to make "clear, calm or rational decisions" was so significant that she could not aptly be described as a free agent. On the question of unconscionable conduct, the wife was labouring under a special disadvantage, in part created by the husband due to the urgency with which the pre-nuptial agreement had to be signed. The husband took advantage of the wife's vulnerability to obtain agreements which were entirely inappropriate and involved "gross inequality".

The High Court did not resolve the question of duress, leaving unsettled whether duress requires unlawful threats or conduct, or whether illegitimate or improper conduct is sufficient.

Recovering directly from an insolvent defendant's insurer in New South Wales

Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) was intended to enable a plaintiff to access the proceeds of a defendant's insurance by creating a statutory charge over money payable by the insurer under an insurance contract to the defendant for their liability to pay damages, compensation or costs. However the provision was subject to criticism due to uncertainties with its practical operation.

The Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) commenced on 1 June 2017. The Act is intended to give effect to the recommendations of the New South Wales Law Reform Commission in "Report 143: Third party claims on insurance money".

In accordance with the Law Reform Commission's recommendation, the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) avoids using any form of statutory charge, but is drafted to enable plaintiffs, with leave, to bring proceedings directly against the insurer to recover up to the amount of any available insurance. Under s 4 of the Act, in such proceedings the insurer would "stand in the place" of the insured person, meaning that, subject to the Act, the parties "have the same rights and liabilities, and the court has the same powers, as if the proceedings were proceedings brought against the insured person."

The first Supreme Court decision applying the Civil Liability (Third Party Claims Against Insurers) Act 2017 is Zaki v Better Building Constructions Pty Ltd [2017] NSWSC 1522, which was handed down on 10 November 2017. Justice Campbell granted leave to the claimant to bring proceedings against the insurer.

The matter in dispute was whether the onus was on the claimant to prove that the proposed claim was within time, or on the insurer to prove that it was out of time. Considering the provision in its statutory and historical context, Campbell J held that the provision does not alter the general law position and accordingly, the insurer bears the onus to prove that a claim is out of time under the Limitation Act 1969 (NSW).

Misfeasance in public office claim succeeds on appeal

Claims in tort for misfeasance in public office are notoriously challenging. A claimant must prove a misuse of an office or power, that the officer did so either with the intention of harming a person, or knowing that the action was in excess of the power, and that the plaintiff suffered material damage as a result of the misuse of power. Nevertheless, in Nyoni v Shire of Kellerberrin [2017] FCAFC 59, the Full Federal Court upheld a claim for damages for misfeasance in public office which had been rejected at first instance, and remitted the assessment of damages to the primary judge.

Mr Nyoni operated the only pharmacy in Kellerberrin, Western Australia. The Shire had received complaints relating to the pharmacy. When the Shire's CEO found out that the pharmacy's electricity would be disconnected, he notified the Department of Health and the Pharmaceutical Council. When the Shire learned that Mr Nyoni was not at fault for the disconnection, it failed to notify either authority. Subsequently, both authorities blamed Mr Nyoni for the disconnection and threatened disciplinary action.

The Court held that the CEO had exercised the power to make a complaint on behalf of the Shire. This was done maliciously as part of a continuing campaign on behalf of the Shire to persuade authorities to take disciplinary action against Mr Nyoni so that he would be replaced as operator of the pharmacy. As a consequence, Mr Nyoni suffered economic and reputational harm.

This decision on appeal is a reminder of the need for careful attention to the defence of claims by unrepresented litigants, even when dismissed at first instance. The majority considered that the CEO's conduct in making and pursuing complaints to other governmental authorities was done in his capacity as a public officer and for the purpose of harming Mr Nyoni.

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The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying it to specific issues or transactions.

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