The Supreme Court of Queensland has held that certain ‘payment multipliers’, which were applied to raw figures to determine the parties’ compensation were not subject to audit. Applegarth J considered issues of contractual interpretation, rectification and misleading and deceptive conduct.
The case illustrates that to avoid legal disputes parties should contractually define any entitlement to compensation and avoid clauses that leave compensation undetermined until after the project is completed.
The court also indicated that should the parties attempt to have their agreement rectified, courts will consider both the objective and subjective intentions of the parties in determining their common intention.
Finally, the court reasoned that in complex projects, historical figures will not be useful in projecting actual costs. For this reason, a failure to disclose that a financial audit has not been undertaken, prior to entering into the contract, does not amount to misleading or deceptive conduct unless a reasonable expectation of disclosure is made out.
Thiess John Holland ("TJH") and Parsons Brinkerhoff Australia ("PBA") entered into a Collaborative Consultancy Agreement ("CCA") for the design of an infrastructure project. A dispute arose as to the construction of a clause stating that PBA would be ‘reimbursed at actual cost subject to audit’ and a subsequent clause which provided that a payment multiplier could be applied to the actual costs.
PBA argued that the payment multipliers were not subject to audit and should be applied to actual costs to determine the parties’ compensation. His Honour agreed.
Applegarth J emphasised that questions of contractual interpretation are not resolved by competing contentions about which interpretation is ‘more commercially sensible’. Rather, they are resolved by reference to the words and structure of the relevant agreement. Here, the contract, when read as a whole, resulted in an interpretation that the payment multipliers would be applied to actual costs and would not be subject to audit.
As an alternative, PBA submitted that the contract should be rectified to reflect the common intention between the parties that the multipliers were fixed. After reviewing the evidence, Applegarth J held that there was a common intention that the agreed multipliers would not be audited. His Honour reviewed the legal principles that govern rectification claims based on common intention and made the following points:
- Actual intentions of the parties are relevant in determining common intention and must have been disclosed;
- Courts will consider the communications and conduct of the parties, though evidence of the parties’ subjective intention, including statements about their understanding of what was agreed, is admissible, and may be decisive;
- Where the parties’ subjective intentions are inconsistent with their communications and conduct, they will carry little weight in the determination of actual intention;
- Whilst evidence from a party about subjective intention is admissible, the test is what an objective observer would have thought the intentions of the parties to be.
Finally, the court held that TJH failed to make out a claim for misleading and deceptive conduct. The court held that unless a reasonable expectation of disclosure is made out, a failure to disclose that an audit has not been undertaken does not amount to misleading or deceptive conduct.
The court stated that it was unreasonable to expect that PBA’s financial records had been audited since actual costs could not be determined by relying on an ‘auditor-type analysis with reference to historical records’. In any case, the evidence showed that TJH did not in fact expect an audit and were content to accept that the multipliers were ‘advanced in good faith by PBA’.
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