Contract – implied terms – good faith – unconscionable conduct – section 21 of the Australian Consumer Law (Cth) – misleading and deceptive conduct
The significance of this case is the application of the principles of statutory unconscionable conduct and the implied term of good faith in contract termination. The court will need to be satisfied that the impugned conduct involves ‘moral obloquy’ or ‘moral taint'. For good faith obligations to be implied in a contract, they must satisfy the test as stated in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1997) 180 CLR 268.
Tridant Pty Ltd (defendant) engaged DPN Solutions Pty Ltd (plaintiff), a company wholly owned and controlled by Dannielle Nguyen, to provide it with IT consultancy services. The plaintiff was paid a contractor's fee, comprising a ‘daily base component’ and a ‘ variable component’ (expressed as a percentage) in respect of software sales and services sales. The defendant terminated the contract after agreement could not be reached with the plaintiff on a revised contractor's fee. At the time of termination, it was uncontroversial that the plaintiff, through Ms Nguyen, was on the cusp of obtaining an initial services sale from Lend Lease (who did make the initial services order two days prior to the date of termination).
The following issues arose for determination:
- Was the plaintiff entitled to be paid any amount representing the variable component on services sales made after termination?
- Was the termination notice given unconscionably so as to deprive the plaintiff of its variable component entitlement in relation Lend Lease?
- Did the defendant breach any good faith obligation?
- Did the defendant engage in misleading or deceptive conduct?
- Was the defendant estopped from denying that the plaintiff is entitled to be paid the variable component on services sales made after termination of the agreement?
- found that the plaintiff was entitled to unpaid variable commission where Ms Nguyen played a meaningful role in securing a particular software or services sale prior to termination of the agreement;
- held that the termination notice was, in all the circumstances given for a legitimate commercial purpose and was not unconscionable. The defendant's desire to ensure that salespeople were earning commission at a rate that corresponded to the value of their work was a reasonable and commercial basis for undertaking a review. Hargrave J held that no level of 'moral obloquy' or 'moral taint' has been demonstrated;
- noted that in Victoria an obligation of good faith is not implied as a legal incident of all contracts and affirmed the test in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266: in this case, an implied good faith obligation was not necessary in the circumstances to give business efficacy to the agreement and was not so obvious that it 'goes without saying';
- found that there was no misleading conduct by the defendant in failing to disclose to the plaintiff that it was minded to reduce the rate at which the plaintiff earned the variable component of its fee. The parties contracted on the express basis that ‘the commission plan would be reviewed and possibly revised 6 monthly’ and in the mutual knowledge that this is commonplace for salespersons in the IT industry; and
- rejected the plaintiff's estoppel argument.