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Contract law update 2022

Contract law update 2022: contract formation

Battle of the forms, and ticketing cases in the digital age

Contract law students are very familiar with the 'battle of the forms' (where each party to a contract claims that its own terms govern the parties' contract) and the 'ticketing cases' (where a party issuing a ticket claims that the ticket incorporated certain terms in a separate document). Both of these were the subject of appellate consideration in 2022.

The decision of the Full Court of the Federal Court in the Ruby Princess class action Carnival plc v Karpik1 is mainly known for upholding a class action waiver clause. It also, however, contains a very interesting discussion of the ticketing cases and the incorporation of provisions by notice in electronic contracts.

The court confirmed the following principles:2

  1. the terms must be made available before contract formation;
  2. reasonable notice must be given of the terms; and
  3. in so far as a party seeks to incorporate unusual or onerous terms, the party must have done all that was reasonably necessary to bring those to the other party's attention.3

In relation to the second point, Justice Derrington cautioned that: what amounts to satisfactory notice is very much fact specific, with the result that drawing guiding principles as to this issue is difficult if not impossible.4

The analysis of these principles was complicated by uncertainty as to whether the travel agent was the agent of Princess Cruises or the relevant passenger (or neither). It was also complicated by an issue as to when the contract was formed (Mr Ho did not agree to the relevant terms and conditions until nearly a year after paying his deposit); with the court appearing to prefer an analysis that was not put forward by either party (that there were two separate contracts – a booking contract and a passage contract). On the issue of reasonable notice, however, Justice Derrington (with whom Chief Justice Allsop agreed) held that adequate notice was provided of the class-action waiver clause for it to be incorporated into the contract.

Forte Sydney Construction Pty Ltd v N Moit & Sons (NSW) Pty Ltd5 was a fairly standard battle of the forms, where each party sent contracts to the other, but neither was expressly agreed before work commenced. As is often the case, the resolution of the dispute depended on a careful examination by the NSW Court of Appeal of the conduct of the parties.

Another favourite of contract law students is the decision of the High Court in Masters v Cameron'6, which applies in determining whether parties intend to be bound by a preliminary agreement pending execution of a more formal written agreement. As explained by Justice Walker of the Victorian Court of Appeal in Sully v Englisch7:

These categories describe circumstances in which:

(a) the parties intend to be bound immediately, though expressing a desire to draw up their agreement in a more formal document at a later stage;

(b) the parties intend to be bound immediately, but may wish the operation of a particular clause or term to be delayed pending the drawing up of a more formal document; or

(c) the parties intend to postpone the creation of contractual relations until a formal contract is drawn up and executed.

Since Masters v Cameron was decided, courts have recognised a fourth category — that being where the parties intend to be bound immediately by terms which they have agreed upon, whilst expecting to make a further contract in substitution for the first contract containing, by consent, additional terms.

Justice Walker emphasised, however, that these categories should not detract from the fundamental inquiry as to whether the parties intended to reach a binding agreement.

This case concerned the application of these principles to a settlement reached at a mediation. Although the matter was 'finely balanced', the court held that the parties intended to be bound by their oral settlement, notwithstanding their intention to record the settlement in a written agreement.

Carnival plc v Karpik (The Ruby Princess) [2022] FCAFC 149

When can terms be incorporated by reference?

In this case, the Full Court of the Federal Court considered whether a class action waiver clause was incorporated by reference into a contract. The court held that it was validly incorporated into the contract and therefore was not an unfair term.

Facts

This case concerned class action proceedings brought against Carnival plc and its subsidiary, Princess Cruise Lines Ltd, regarding loss or damage allegedly suffered by passengers and their families in relation to a Covid-19 outbreak on the Ruby Princess cruise ship in March 2020. The case concerned the cruise contracts signed by 695 passengers, which contained two significant clauses:

  • an exclusive jurisdiction clause in favour of the US District Courts in California; and
  • a clause waiving any entitlement to participate in any class action.

These passengers were known as the US subgroup members and included Mr Ho, who was identified as the representative of this subgroup.

At first instance, Justice Stewart refused Carnival's and Princess's application for a stay of proceedings, on the basis that:

  • the two clauses were not incorporated into Mr Ho's contract of carriage;
  • the issue of incorporation was inappropriate to determine as a common question as to the remainder of the US subgroup members; and
  • the Federal Court of Australia was not a clearly inappropriate forum in which to determine the claims.

On appeal, the court considered:

  • whether the exclusive jurisdiction and class action waiver clauses were incorporated into the contracts of the US subgroup members;
  • whether the class action waiver clause was an unfair contract term; and
  • whether the class action waiver clause was unenforceable by operation of Part IVA of the Federal Court of Australia Act 1976 (Cth).
Judgment

Justice Derrington (with Chief Justice Allsop agreeing substantially) allowed the appeal, and ordered that the proceedings regarding the claims of Mr Ho be stayed and the matter remitted to the primary judge to determine the extent to which the decision affected the other members of the class action.

Her Honour considered the principles from contract law cases involving tickets and the incorporation of conditions by notice, to determine whether the exclusive jurisdiction and class action waiver clauses were incorporated into the contracts of the US subgroup members. Justice Derrington held that Mr Ho could have easily located the terms and conditions by following a link, and could have printed them out, read them and accepted or rejected them as he saw fit. Mr Ho was therefore provided with reasonable notice of the terms.

In particular, he was provided with adequate notice of the important terms, including the exclusive jurisdiction and class action waiver clauses. The contract was displayed in large letters on Princess's website, and was accompanied by a paragraph written in bold capitals that commenced with the words 'Important Notice to Guests' and implored Mr Ho to read the terms of the agreement.

Justice Derrington held that the class action waiver was not an unfair term within the meaning of s23 of the Australian Consumer Law. The class action waiver did not impede on Mr Ho's substantive right to bring proceedings against Princess, it merely required that he bring such a claim individually. This left Mr Ho's right to pursue his claim intact and capable of enforcement. Further, as an international corporation engaged in business across multiple jurisdictions, Princess had a legitimate interest in maintaining a class action waiver, as such a term would allow it to respond to claims in the same forum, utilising the same lawyers, experts and processes. Justice Derrington considered whether the class action waiver caused detriment to Mr Ho. Her Honour considered that it was not shown Mr Ho's claim was not worth pursuing outside of a class action, and even if this had been demonstrated, this factor would not demonstrate that the term was unfair. In addition, Princess had done everything necessary to bring the class action waiver to Mr Ho's attention. For these reasons, Justice Derrington concluded that the class action waiver was not an unfair term.

In relation to whether the class action waiver clause was unenforceable by operation of Part IVA of the Federal Court of Australia Act, Justice Derrington upheld the finding of the primary judge that the optional nature of participation in class actions preserves freedom of choice and it is not inconsistent with this for a person to enter an agreement not to be part of any proceedings. Further, under the Act, a group member is entitled to opt out before the date fixed by the court and before receiving the notice, and this is consistent with a person agreeing in advance to exercise that right when it becomes available.

In dissent, Justice Rares decided that the class action waiver clause was unenforceable because it offended public policy. This was because Pt IVA of the Federal Court of Australia Act did not allow persons to contract out of being group members before the commencement of a class action. Justice Rares also held that, for this reason, as well because the Federal Court was not a clearly inappropriate forum and Mr Ho would have a clear juridical advantage in remaining as a group member, the exclusive jurisdiction clause was unenforceable.

Forte Sydney Construction Pty Ltd v N Moit & Sons (NSW) Pty Ltd [2022] NSWCA 186

Battle of the forms: what are the terms of a contract where neither party expressly accepts the other's terms?

In this case, the NSW Court of Appeal considered the contractual basis on which certain excavation and construction works were completed. The central question for the court was whether the contract asserted by the appellant, Forte Sydney Construction Pty Ltd, or the respondent, N Moit & Sons (NSW) Pty Ltd, governed the works, where neither party had expressly accepted the draft contracts.

This case is an important discussion of what constitutes acceptance of a contract, where the parties have not expressly accepted any specific draft contract.

Facts

Forte and Moits both worked in the business of construction and had worked on other developments together previous to this dispute. They shared the following exchange in regard to excavation, anchor and shotcrete work at a site in Ryde, NSW (the works):

  • 17 April 2018 – Forte sought a fee proposal from Moits for the works.
  • 23 April 2018, 7 May 2018, 10 May 2018, 11 May 2018, 17 May 2018, 18 May 2018 – Moits sent various iterations of tender submissions to Forte, quoting for the works.
  • 21 May 2018:
    • 9:50am – Forte rejected Moits's most recent tender submission, providing a 'Letter of Engagement' and subcontract document with different terms from Moits's tender submission ('Forte Subcontract');
    • 12:15pm – Moits provided its 'Final Tender Submission' to Forte; and
    • 6:00pm – Forte provided a revised 'Forte Subcontract' for execution to Moits.
  • 25 May 2018 to November 2018 – Moits commenced and carried out the works as a subcontractor to Forte.

There were a number of material differences between Forte's subcontract and Moits's final tender submission. The final tender submission provided that the disposal of contaminated material would be on rates per tonne additional to the lump sum quoted, whereas the Forte subcontract provided that Moits could not charge at all for the disposal of such material. Further, the Forte subcontract 'Letter of Engagement' stated that 'If, for any reason, this document is not signed and returned, [Forte] will assume acceptance by the Sub-contractor, of all the terms and conditions as set out in the Contract and Scope of Works'. The parties disagreed as to whether the Forte subcontract or final tender submission governed the works. The contracts had differing consequences for the parties' entitlements to payment.

The primary judge held that Moits's final tender submission was the contractual basis for the works. His Honour characterised Forte's subcontract sent at 9.50am and Moits's final tender submission sent at 12.15pm on 21 May 2018 as offers, and found that Moits did not accept the Forte subcontract because it did not sign or return the 'Letter of Engagement' sent at 9.50am.

The primary judge considered that in providing the revised subcontract at 6pm, Forte attempted to unilaterally impose upon Moits the obligation to provide all of its services that were part of its final tender submission, but ignore the extra over rates for the disposal of contaminated material, and other exclusions and conditions. The judge found it fanciful to suggest that Moits would have accepted a contract that defied commercial common sense. His Honour concluded by finding that Forte, in requesting and permitting Moits to commence the works on 25 May 2018, engaged Moits on the terms of its final tender submission, and entered judgment for Moits.

Judgment
 

Did the 'Final Tender Submission' or 'Forte Subcontract' govern the works?

The crux of the appeal was Forte (the appellant) challenging the primary judge's decision that Moits's (the respondent) inal tender submission governed the works. The court unanimously upheld the appeal, finding that the Forte subcontract was the only contract standing between the parties when the respondent commenced the works on 25 May 2018, and that the respondent's conduct in starting the works, even without formally signing and returning the letter of engagement, constituted acceptance of the Forte subcontract's terms.

Silence and conduct as acceptance

Citing Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, the court found that while an offeror may not stipulate that silence will be taken as acceptance of the offer, acceptance may be tacit, or implied by conduct, as opposed to being express, and that the silence of an offeree in conjunction with other circumstances of the case may indicate that they have accepted the offer. Further, their Honours held that an offeree who has omitted to accept an offer but has nonetheless taken the benefit of that offer will be bound by the contract. The court continued, citing Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32, that the conduct of the parties may indicate that although their negotiations did not proceed in the manner contemplated to the point of contract formation, they did intend to contract in the circumstances. At [92], the court held 'where an offer is neither expressly accepted nor expressly rejected, the subsequent conduct of the offeree in performing in accordance with the terms of the contract which was contemplated in the offer will generally indicate to a reasonable person in the position of the offeror an intention to accept the offer'.

The court construed the appellant's provision of the Forte subcontract to the respondent as a rejection of the final tender submission, because it contained inconsistent terms, and characterised all of the parties' communications from that point as negotiations on the terms of the Forte subcontract (thereby rejecting the primary judge's finding that Forte had unilaterally imposed terms). From that basis, and in the absence of signed acceptance of the Forte subcontract, the court held that a reasonable person in the position of the appellant must have understood the conduct of the respondent in commencing the works on 25 May 2018, to be done in acceptance of the offer embodied in the Forte subcontract. Finally, even though the appellant had accepted variation claims made by the respondent (which the respondent claimed were based on the final tender submission), the court held this was not an admission the contractual arrangements were based on that final tender submission. The court entered judgment for the appellant.

Sully v Englisch [2022] VSCA 184

Whether a binding agreement to settle made at mediation – oral agreement on key terms – intention of parties to be immediately bound when contemplating future, detailed written agreement.

In this case, on appeal, the Supreme Court of Victoria considered whether the parties had reached a binding settlement agreement at mediation.

The court allowed the appeal and held that the objective intention of the parties was that the agreement reached at mediation was binding.

This case sets out the relevant legal principles to be applied in determining whether parties have agreed to be immediately bound by an agreement they have reached. It highlights the importance at a mediation of signing written terms that expressly state whether they are intended to be immediately binding.

Facts

The applicant in this matter brought proceedings in the Victorian Civil and Administrative Tribunal (VCAT) against the respondent for misleading and deceptive conduct.

  • In March 2020, VCAT made an order in favour of the applicant.
  • On 20 April 2020, the respondent filed a notice of appeal.
  • In June 2020, the parties were ordered to attend a judicial mediation.
  • On 3 September 2020, the mediation took place and was facilitated by Judicial Registrar Keith.
  • At the mediation, the parties reached an agreement to settle, but did not prepare any written terms of settlement on the day of the mediation.
  • The parties agreed that the respondent's solicitor would draw up various documents, including terms of settlement, an amended notice of appeal, consent orders allowing an appeal, and a joint memorandum to the Court of Appeal.
  • The mediation was left 'open' by the Judicial Registrar at its conclusion and the proceeding was listed for a directions hearing in September.
  • In correspondence following the mediation, the parties disagreed on the terms that had been settled at it.
Judgment

Justice Walker stated that there was no dispute between the parties about the relevant legal principles to be applied in determining whether parties have agreed to be immediately bound by an agreement they have reached. Her Honour adopted the trial judge's articulation of the relevant principles:

  • 'The ultimate question to be answered is what each party, by its words or conduct, would have led a reasonable person in the position of the other party to believe';
  • it is to be determined objectively;
  • it is to be fact based, with regard to all surrounding circumstances, including from the parties' correspondence and commercial context;
  • parties' subjective intention is not determinative, though it may be relevant; and
  • regard may be had to the subsequent conduct of the parties, in some circumstances.

Justice Walker considered, in this case, that regard could be had to the subsequent conduct of the parties, as they agreed they would prepare a written document setting out the terms of the agreement. Her Honour referred to the case of Masters v Cameron and discussed the three categories of contract set out in this case, noting that the courts have subsequently recognised a fourth category. However, it was stated that these categories are 'taxonomic and should not distract from the fundamental inquiry with which the Court is engaged'.

Justice Walker allowed the appeal, concluding that the applicant had discharged their onus of providing that the parties intended to be immediately bound by the agreement they reached on the day of the mediation.

 

Footnotes

  1. [2022] FCAFC 149.

  2. See, in particular, at [170] and [206].

  3. Denning's famous 'red hand' test from Thornton, cited at [192]: an unexpectedly stringent or harsh exclusion clause would have to be presented in red writing with a red hand pointing to it for sufficient notice to be given to the customer.

  4. At [170].

  5. [2022] NSWCA 186.

  6. [1954] HCA 72; (1954) 91 CLR 353.

  7. [2022] VSCA 184 at [62].