CONSTRUCTION Alert: Exclusion clauses – are they in your contract or out?

Oct 26 2015

Publications

In the recent decision of Surfstone Pty Ltd & Anor v Morgan Consulting Engineers Pty Ltd [2015] QSC 290 the Supreme Court of Queensland held that an onerous limitation of action clause was incorporated by reference into a contract, notwithstanding that the incorporated document was unsigned and not provided to the party against which it was applied.

The facts

Surfstone Pty Ltd and Corkdon Pty Ltd (Surfstone) entered into a contract with Morgan Consulting Engineers Pty Ltd (MCE) for the provision of civil and structural engineering services for the construction of a distribution centre for surf clothing retailer City Beach.

The contract was formed in 2003 by Surfstone’s acceptance (by its agent, the project architect) of MCE’s fee proposal.  The fee proposal was a relatively brief document that contained, amongst other things, the following text:

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

The fee proposal did not have attached to it a copy of the ACEA Guidelines. Clause 4.3 of the ACEA Guideline Terms relevantly provided: 

“The Consulting Engineer shall be deemed to have been discharged from all liability in respect of the Services, whether under the law of contract, tort or otherwise, … on the expiration of one year from the completion of the Services”.

Surfstone was not provided with a copy of the ACEA Guidelines, nor did it read or sign them.  MCE also did not take any steps to specifically bring clause 4.3 of the ACEA Guidelines to Surfstone’s attention.

The issue for the Court was whether the ACEA Guidelines (particularly clause 4.3) were incorporated into the contract.  If so, Surfstone would be barred from bringing a claim in negligence against MCE as the services under the contract were completed in 2005.     

The decision

Justice Peter Lyons held that, as a matter of construction, the ACEA Guidelines, including clause 4.3, were incorporated into the contract.  It was held that the word “generally”, in the context of the whole contract meant “for the most part”.  Therefore, a reasonable person in Surfstone’s position would have understood that MCE was to provide the services, for the most part, in accordance with the ACEA Guidelines.  The phrase “generally in accordance with” simply meant that not all matters in the ACEA Guidelines were finally dealt with in the contract.

Justice Peter Lyons went on to consider whether any further and special notice was needed in regards to clause 4.3 of the ACEA Guidelines due to its onerous nature.  After considering the authorities, Justice Lyons formulated the following principles:

1.     “The fundamental question is whether the offeror is reasonably entitled to conclude that the acceptor 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.”

2.     “In other cases, where the clause is one reasonably to be expected in contracts of the kind in question, acceptance of the document makes the clause binding, even if the acceptor does not know its terms, or even that it is contained in the document.”

3.     “If the clause is not one reasonably to be expected, then something more is required by way of provision of information about the clause to the acceptor before the contract is formed. What information will be required will depend on the circumstances, but particularly on the terms of the clause.”

Justice Peter Lyons considered that having regard to the facts of the case, the first of these principles was to be applied.  To a reasonable observer in the position of MCE, Surfstone had reasonable opportunity to consider the terms of the contract.  Surfstone behaved in a manner which would cause a reasonable observer to conclude that they had agreed to the terms of the fee proposal, which fully incorporated the ACEA Guidelines, including clause 4.3.   Therefore, MCE did not need to take any special steps to bring clause 4.3 of the ACEA Guidelines to the attention of Surfstone.

Are limitation of action clauses reasonably to be expected in engineering contracts?

Justice Peter Lyons then considered, in the alternative, the second of the above principles.  The question was whether clause 4.3 of the ACEA Guidelines was “to be expected” in an engineering contract.   On this point, Justice Lyons held that, whilst clause 4.3 is onerous from the point of view of Surfstone, it was not a clause that “was not reasonably to be expected”. 

Practical considerations

In practice, clients may be bound by onerous terms found in an external document if they are incorporated into the fee proposal or quote (which eventually forms the contract if accepted) by reference. This may be the case, notwithstanding the fact that:

  1. the client was not provided with a copy of the terms;
  2. the client did not read the terms;
  3. the client did not sign the terms;
  4. the client was not specifically given notice of any onerous or unusual terms; or
  5. the reference incorporating the terms into the contract seems “vague and imprecise”.

The decision serves as a reminder to always obtain and review copies of any documents referred to in a quote or fee proposal, and to obtain legal advice if necessary.

Written by:

Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au

Tom McKillop | Senior Associate | +61 7 3338 7530 | tmckillop@tglaw.com.au