Australia: Sophisticated parties, legal advice given, effect of signed document changed by the Court to reflect parties’ true intention

Critical Path
Last Updated: 8 December 2010
Article by Tom Heading

Introduction

Welcome to the December 2010 edition of Critical Path.

In this edition we:

  • consider the effect of amending contract documents during contractual negotiations without drawing the amendments to the attention of the other party to the transaction
  • investigate various models for construction management contracting
  • report on recent case law from the Queensland Supreme Court which suggests that a claimant can now deliver two identical payment claims in certain circumstances under the Building and Construction Industry Payments Act 2004, and
  • examine a decision of the New South Wales Court of Appeal which discusses the grounds upon which an adjudicator's decision can be challenged.

We hope you find these articles interesting as well as informative. If you have any questions regarding their content, please contact us.

James Morgan-Payler

Partner and Editor of Critical Path

Sophisticated parties, legal advice given, effect of signed document changed by the Court to reflect parties' true intention

In Thiess Pty Ltd v. Flsmidth Minerals Pty Ltd [2010] QSC 6, Thiess Pty Ltd (Thiess) was engaged to design and construct three calciners, which are thermal treatment processors, for an aluminium plant. Thiess engaged Flsmidth Minerals Pty Ltd (Flsmidth) to carry out most of the design work.

The calciners were defective, as some structural members of the calciners failed. Thiess commenced proceedings against Flsmidth seeking to recover $23.6 million in damages. Following negotiations in respect of these proceedings, the parties entered into a settlement deed and a side deed.

There was an agreed limitation in the side deed on Thiess' rights in respect of the proceedings according to certain liability insurance indemnifying Flsmidth. There were two policies that were potentially available to Flsmidth to indemnify it against its liability to Thiess in the proceeding. There was a policy issued by QBE, for which the cover for any one claim was limited to $20 million. There was also a policy issued by Liberty, for which the cover was $40 million for any one claim, in excess of the $20 million covered by the QBE policy.

It was common ground between the parties that the side deed expressly limited Flsmidth's potential liability in the proceedings to the extent to which it was indemnified by only the QBE policy. Thiess contended that this was a mistake and it was the common intention, or at least its intention, that the limit should be the indemnity available under both the QBE and Liberty policies and that the side deed ought to be rectified. Thiess mistakenly believed that because the Liberty policy was a follow form policy (being an excess insurance policy applying the same terms as the underlying insurance policy), then Liberty would be obliged to pay if QBE had indemnified the insured.

During the negotiations, the parties and their solicitors circulated numerous versions of the draft settlement deed and side deed. The limitation of liability issue was initially included in the settlement deed. Flsmidth's solicitors sent an updated version of the side deed, including this limitation of liability clause, by email to Thiess' solicitors showing the amendments in mark up. As this was a new clause, the entire wording of the limitation of liability was shown in mark up. There was no indication that the limitation clause had changed from the settlement deed to limit Flsmidth's liability to just the cover in the QBE policy. The covering email to the amended deed made no mention of this change.

Finding in Thiess' favour, the Supreme Court of Queensland held that it was the common intention of the parties that a reference to the QBE policy naturally included a reference to both the QBE and Liberty polices. The side deed was rectified to reflect this common intention.

The message from this case is that when formalising the terms of a deed or contract, any changes made when preparing the document must expressly be brought to the attention of the other party to ensure that those terms are enforceable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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This article is part of a series: Click Construction Management Contracting – how would you like yours? for the next article.
Authors
Tom Heading
 
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