In brief - Contractual terms can place temporal and monetary limits on ACL claims

The Supreme Court of NSW has recently confirmed that limitation clauses in a professional's retainer can be effective in placing limits upon a claim made under section 82 of the Trade Practices Act (TPA) , now section 236 of the Australian Consumer Law, both as to when the claim can be made and the limit of liability.

Parties cannot "contract out" of the application of the ACL

It has long been accepted that parties could not "contract out" of the application of the TPA (now the ACL). That is, parties to a contract could not exclude the TPA from applying, or prohibit a claim from being made under the TPA.

This has often been understood also to mean that the provisions of the TPA must be given full effect. For example, the TPA stated that a claim for damages may be commenced within six years after the day on which the cause of action accrued.

It was often understood that parties to a contract could not place boundaries on the effect of the TPA, eg by reducing the six year limitation period or placing a limit on the amount of damages that could be awarded.

Engineer’s contract limits liability to two years and $5 million

In Owners Strata Plan 62930 v Kell & Rigby Pty Ltd [2009] NSWSC 1342, McDougall J considered the terms of a retainer between an owners corporation and an engineering firm, George Floth & Associates Pty Ltd.

That retainer stated that George Floth's maximum liability "whether under the law of contract, tort or otherwise" would be limited to $5 million. It also stated that George Floth would be deemed to have been discharged from all liability, again "whether under the law of contract, tort or otherwise" once two years had passed after the firm had completed its services. The client would not be entitled to commence "any action or claim" after that time.

Supreme Court finds that retainer’s monetary and temporal limits are valid

Clause 4.5 of the retainer also specifically stated that the provisions of the TPA, or of any other statute, were not excluded, restricted or modified as a result of the retainer.

Notwithstanding clause 4.5, McDougall J found that the parties had effectively specified the monetary and temporal limits of any liability that George Floth may have. As a result, the claim against George Floth could not be brought.

Architect’s retainer with council limits liability to one year and $300,000

[Declaration of interest: Colin Biggers & Paisley (CBP) acted for Michael Davies Associates Pty Ltd (MDA)]

The Kell & Rigby decision above has recently been considered by Sackar J in the Supreme Court inLane Cove Council v Michael Davies & Associates Pty Ltd & Ors[2012] NSWSC 727.

Architectural firm Michael Davies Associates Pty Ltd had a retainer with Lane Cove Council which limited its liability to $300,000. Clause 17 of the retainer also stated that MDA's liability "whether under [the] law of contract, in tort or otherwise" would cease once one year had expired following whichever was the earliest of a final invoice from MDA, the termination of MDA's services, or the date of practical completion.

Supreme Court finds that limitation period does not "contract out" of ACL/TPA

It was held by a referee's report, which Sackar J adopted in full, that the one year limitation defeated council's claims in contract and in tort, because they were made over a year after practical completion.

Sackar J went on to state that the ordinary meaning of the words in clause 17 would include liability under a statute such as a claim for misleading and deceptive conduct under the TPA.

Sackar J found that such a clause did not amount to "contracting out" of the TPA. His Honour affirmed McDougall J's finding in Kell & Rigby that such clauses reflected the parties' intention to impose temporal and monetary limits on claims under the TPA.

For this reason (and others), the council's claim against MDA under the TPA also failed.

Professional insureds should include limitation clauses in their standard retainers

Whilst these cases were determined on the specific contract wordings that applied in each case, the significance of the Lane Cove Council decision and its affirmation of Kell & Rigby is twofold.

Firstly, in providing contract review or risk management advice, insurers should strongly recommend to professional insureds that they include carefully-worded monetary and temporal limitation clauses in their standard retainers, that will apply to claims brought in contract, in tort, or under the ACL.

Secondly, when claims are brought against insureds - often in each of contract, tort and the TPA or ACL - insurers and their solicitors would be well advised to review the insured's retainer agreement carefully to look for any monetary or temporal limitation clauses which may apply.