Express and implied terms in 2024
The first step in resolving a contractual dispute will usually be to determine the terms of the contract. This can be contentious where a contract is formed by the exchange of correspondence, as shown by the decision of the New South Wales Court of Appeal in Medical Device Technologies Pty Ltd v Health Administration Corporation [2024] NSWCA 142. Identifying the point of contract formation is vital as communications after this point cannot retrospectively form part of the contract.
In Medical Device Technologies, certain proposed terms and conditions were first included via a hyperlink to a communication that, in all other respects, appeared to be communication of acceptance to a prior offer. As such, the court declined to find that the terms and conditions contained in the hyperlink were part of the agreement. The court also pointed to the purchaser failing to state expressly that the purchase would be on their terms (ie the terms and conditions set out in the hyperlink) when ruling that a reasonable businessperson would have concluded the contract was on the terms provided by the seller.
As a point of interest, in Medical Device Technologies the court determined at what point in the ongoing chain of communication the agreement crystalised, by considering what would make commercial sense regarding the parties' subsequent conduct. This aspect of the reasoning was later clarified by the court in Michael Hill Jeweller (Australia) Pty Ltd v Gispac Pty Ltd [2024] NSWCA 211 where it was stated at [216] '[t]here is good reason to maintain a tight rein on the admissibility of post-contractual conduct, even as evidence as to the formation of a contract. In most cases such evidence will constitute a direct challenge to the objective determination of the existence of a contract'.
In Royal Pines Projects Pty Ltd v Brightman [2024] QCA 147, the Queensland Court of Appeal explored the scope of the implied duty to co-operate. In this case, the developer sold off-the-plan units in an apartment building. The contracts required the developer to provide at least 14 days' notice of the settlement date; practically, this was to allow purchasers to arrange pre-purchase inspections for the purposes of obtaining finance approval. Following the giving of notice, the developer delayed in allowing the purchaser's valuers to access the property.
While the contract was not explicitly 'subject to finance', it did contemplate purchasers obtaining finance and the court agreed that the primary judge could take judicial notice of the fact that purchasers would require finance to complete the sale. The court also concluded that the developer, acting reasonably, must allow the purchaser the full 14 days promised to access the properties the subject of the purchase. Thus, the delay in allowing the valuers access to the property was in breach of that implied term.
In considering what acts might be required by the implied duty to co-operate, the court noted the distinction between:
- acts that are necessary for the performance of an obligation under the contract; and
- acts that are merely necessary to entitle a contracting party to a benefit under the contract.
This case fell into the latter category, and the court followed the statement of Justice Mason in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 (at 607) as follows:
In such a case [ie the second category], the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction [which would apply to the first category] as on the intention of the parties as manifested by the contract itself.
Medical Device Technologies Pty Ltd v Health Administration Corporation [2024] NSWCA 142
Incorporation of terms contained in purchase order
The New South Wales Court of Appeal held that terms and conditions contained within a purchase order hyperlink were provided by the purchaser after the point of contract formation and were not incorporated as terms of the purchase agreement.
The case demonstrates the importance of the context surrounding the formation of the contract to findings of incorporation of contract terms.
The case concerned two agreements between Medical Device Technologies Pty Ltd (MDT) and the NSW Health Administration Corporation (NSW Health) to supply, in April 2020, 384 ventilators during the COVID-19 pandemic, at a cost of $20.79 million.
NSW Health and MDT entered into a series of negotiations to finalise the first agreement for 148 ventilators:
- MDT issued a quotation and requested a formal purchase order from NSW Health;
- NSW Health requested MDT's payment terms;
- MDT stated that payment was on the terms of the quote;
- NSW Health requested further details, including a tax invoice;
- MDT provided a tax invoice and its bank details; and
- NSW Health sent through a purchase order, which included a hyperlink to the purchase order terms and conditions at the bottom, and paid half the first invoice amount.
After the first agreement had been negotiated, MDT advised that 200 further ventilators were available:
- NSW Health requested a tax invoice, pricing and terms for these ventilators;
- MDT provided this invoice;
- NSW Health sent a purchase order number, 'to secure' the ventilators, and paid half the second invoice amount; and
- NSW Health issued the second purchase order in May.
MDT delivered the ventilators in June. The ventilators were defective, and NSW Health sought to reject the ventilators, terminate the agreements and demand a refund.
At first instance, NSW Health argued that the terms it included in the two purchase orders were incorporated into the agreements and MDT had breached these terms. It contended that the purchase orders were a counteroffer containing additional terms to MDT's invoice, and MDT accepted that offer by its conduct in delivering the ventilators.
The primary judge rejected the contention that the hyperlinked terms in the purchase order were incorporated, finding that a reasonable person in the position of the parties would not consider acceptance was caused by delivery, as NSW Health would then have no legally enforceable commitment from MDT to deliver the ventilators. NSW Health appealed this finding.
One of the issues before the New South Wales Court of Appeal was whether the terms hyperlinked in NSW Health's purchase orders were incorporated into the agreement.
Justice Payne (Justices Stern and Harrison agreeing) upheld the primary judge's finding that the additional terms were not incorporated into the contract. The court held that in view of all the circumstances, the parties did not intend for NSW Health's purchase order terms and conditions to be incorporated. The purchase orders would objectively be understood as confirmation of the orders, rather than supplementary agreements. The court emphasised the following factors in reaching this conclusion:
- the negotiations occurred during a time of urgent need to secure ventilators in a pandemic;
- NSW Health made no suggestion that the purchase would be on its terms, asking the seller to state the payment arrangements and issue an invoice;
- NSW Health's request for terms and pricing during the second agreement negotiations would have been unnecessary if it thought the first purchase order terms and conditions governed the first agreement and, applying Brambles Holdings Ltd v Bathurst City Council(2001) 53 NSWLR 153, the primary judge was correct to find that this post-contractual conduct was admissible in determining whether a contract had been formed; and
- NSW Health's partial payments at the end of April, before the second purchase order had even been issued, were clearly made with the intent of securing an enforceable promise to deliver the ventilators.
Royal Pines Projects Pty Ltd v Brightman [2024] QCA 147
Implied contractual promise to respond promptly
The Queensland Court of Appeal held that a contract between a property developer and the respondent buyers contained an implied duty to co-operate so as to give the other party the benefit of the contract. By promising at least 14 days' notice of settlement in circumstances where the respondents might need to obtain finance, the appellant impliedly promised to allow reasonable access for valuers within that 14-day period and failure to do so was a breach of this term.
This case underscores the importance of fulfilling the implied contractual promise to co-operate, including by responding promptly to requests that could impact the ability of the other party to perform.
The appellant developer sold off-the-plan units in an apartment block to the respondents under standard form contracts. The contracts required the appellant to provide at least 14 days' notice of the settlement date, and the notice was to be given at a time reasonably determined by the appellant. The contracts also contemplated that the respondents might obtain finance from a lender to complete the purchase.
After providing notice requiring settlement on 16 July 2024, the appellant delayed in allowing the respondents' valuers to access the properties. As a result, the buyers had only seven days from inspection to settlement and were unable to obtain finance in time for settlement.
The respondents commenced proceedings against the appellant in the Supreme Court of Queensland, contending that, by denying or delaying access, the respondent breached its implied obligation to co-operate, and therefore could not insist on a 16 July 2024 settlement.
The primary judge resolved matters in favour of the respondents and found that the implied duty to co-operate required the appellant to permit the respondents' valuers access to the properties within a reasonable time after request, so as to allow the respondents the full 14-day period stipulated by the contract to prepare for settlement.
Royal Pines appealed this decision.
The issues for the Court of Appeal to consider included:
- whether the primary judge erred by implying the duty to co-operate;
- whether the primary judge erred in finding that any such implied term was breached; and
- whether the primary judge erred in concluding that there was sufficient evidence to find that any breach of contract by the appellant caused the buyers to be unable to complete by 16 July 2024.
On the first issue, the court found:
- the contract promised at least 14 days for the respondent buyers to prepare for settlement;
- the court could take judicial notice of the common practice of obtaining finance for purchasing properties;
- the appellant could not reasonably determine to give a notice that would mean the respondent buyers had less than 14 days to access the properties; and
- the primary judge did not err in finding that, by promising at least 14 days' notice of settlement in circumstances where the respondents might need to obtain finance, the appellant was impliedly promising to allow reasonable access for valuers within that 14-day period.
On the second issue, the court found that the appellant's weeklong delay in responding to requests for access was unreasonable and breached this implied term.
As to the third issue, the court agreed with the primary judge that, given the limited timeframe before settlement, the respondents' evidence of urgently seeking relief, and the steps taken by valuers to inspect properties as soon as allowed, there was a real risk that the breach would cause the respondents to be unable to obtain finance in time.
The appeal was dismissed with costs.