Contract interpretation – misleading and deceptive conduct
The Full Court of the Tasmanian Supreme Court has provided guidance on the interpretation of inconsistent and ambiguous contract provisions. Courts will endeavour to give effect to the parties' contractual document as a contract. However, the subjective intention of the parties is not a relevant consideration, although false representations that lead to a difference between the subjective intention and the true contract provisions may be relied upon to provide statutory relief to an aggrieved party.
David and Robyn Kronenberg (appellants) entered into a domestic building contract with Stephen Bridge (respondent) for the construction of a house on the appellants' land. As a result of a payment dispute, the respondent eventually ceased construction work on the house. The parties disputed whether the contract was a fixed sum or 'cost plus'.The appellants subsequently had the house completed by another builder. Following completion of the works, the appellants sued the respondent claiming, among other things, damages for:
- breach of contract; and
- the loss and damage suffered as a result of the respondent engaging in misleading and deceptive conduct.
At first instance, Tennent J held that no binding contract existed as the parties failed to reach agreement on the contract sum. Tennant J went on to find that, although the respondent had engaged in misleading and deceptive conduct, the appellants had failed to demonstrate the corresponding loss and damage they had suffered.
The appellants appealed the first instance decision to the Full Court of the Supreme Court, arguing that the trial judge had erred in a number of her findings.
Blow CJ gave the primary judgment, with whom Porter and Pearce JJ agreed. Blow CJ held that the trial judge erred in failing to give effect to the parties' document as a contract. His Honour found that the express provisions of the contract indicated the contract was priced on a 'cost plus' basis, and that no implied terms changed the nature or the scope of this form of contract sum.
His Honour cited various authorities concerning interpretation of the contract provisions with approval, the key principles being:
- when parties intend to enter into a contract, but there are inconsistent promises or difficulties in interpretation, then the courts if possible, ought to give effect to the intention of the parties to contract, despite the difficulties;
- in determining the meaning, the court must take an objective approach by reference to objective facts and not subjective intention;
- the objective facts include the text, and also surrounding circumstances known to the parties and the purpose and object of the transaction; and
- special conditions to a standard form contract prevail over inconsistent provisions in the standard form.
Blow CJ accepted that the respondent's evidence that the appellants substantially agreed with the proposal of a 'cost plus' contract and that, as a result, the words 'as a cost plus contract' were written and initialled by the parties on the contact next to the contract sum. Accordingly, the essential element of the price was found to have been agreed between the parties and a valid contact was held to exist.
His Honour went on to reject the argument by the appellant that the contract contained implied terms that placed a reasonableness or a cap on the 'cost plus' contract sum. His Honour found the contract contained no such provision, and on this basis a claim for payment of the actual costs incurred did not amount to breach of contract.
In considering the secondary claim by the appellants that the respondent engaged in misleading and deceptive conduct, his Honour upheld the reasoning of the trial judge that the respondent engaged in misleading and deceptive conduct by providing an unfounded low quote. However, Blow CJ found that the trail judge erred by failing to accept that, where the appellants have established on the balance of probabilities that they lost the chance of entering into a more advantageous construction contract, they are entitled to damages for loss of that chance.
His Honour held that, but for the misleading and deceptive conduct, sooner or later the appellants would have entered into a fixed price contract with another builder for an equal or perhaps cheaper price, and accordingly the appellants were entitled to the difference in contract price. However, his Honour reduced the damages for loss of chance by the variations that would have nevertheless been awarded ($16,000) and the chance of entering into such a contract (80%).