A recent case heard by the Supreme Court of Appeal has
highlighted the dangers of assuming exclusivity in commercial
dealings and the use of certain words in your negotiations. In
fact, if the findings in this case are anything to go by, telling
the other party that a certain issue is a "deal breaker"
could allow them to strike a deal with your competitor while you
think you are still trying to reach an agreement!
In 2007, Port Macquarie-Hastings Council invited Expressions of
Interest for the purchase and development of land in the Council
area to build a supermarket. This was the second time that the
Council had tried to sell the land following a breakdown in the
original negotiations with Coles and Woolworths.
In the second round of offers, the Council ultimately preferred
the Woolworths offer and entered negotiations with Woolworths to
purchase and develop the land in question. A series of discussions
were held and various draft contracts were exchanged between
Woolworths and the Council's legal representatives.
After a lengthy period, these negotiations reached a stale mate
over contamination on the land and the parties could not agree on
how to deal with this particular issue. Woolworths was sticking to
its desired position of having the right to rescind if the cost of
remediation was excessive, which the Council rejected, and informed
the Council that the issue was a 'deal breaker'.
Without informing Woolworths, the Council entered into parallel
negotiations with Coles to purchase and develop the land and
ultimately exchanged contracts with Coles.
Were the Council's Actions Misleading?
Woolworths subsequently sued the Council and Coles claiming that
the Council engaged in misleading and deceptive conduct, and that
Coles was a party to that contravention of legislation. Woolworths
claimed that it would have eventually agreed to terms with the
Council and bought the land if it was aware of the negotiations
with Coles, and as a result the company had suffered commercial
The Supreme Court of NSW held that, despite the fact that there
was no contractual or statutory liability that the Council deal
with Woolworths exclusively, there was a reasonable expectation
that the Council would inform Woolworths that the negotiations
ceased to be exclusive, and that "the Council would not
clandestinely conduct negotiations outside the framework of the
As a result, the Court found that not informing Woolworths
amounted to misleading and deceptive conduct by the Council, and
that it had acted outside the accepted commercial standards and
norms contemplated by the law. Importantly however, it was found
that Woolworths had failed to establish that it had suffered any
economic loss or that Coles was a party to the Contravention. In
fact, the continued use of the term 'deal breaker' by
Woolworths during the impasse over the contamination issue was
found to be sufficient evidence that Woolworths would not have
proceeded to execute the contract.
No action was taken against Coles and damages were not awarded
Woolworths lodged an Appeal against the decision of the Supreme
Court, in an attempt to prove that it had suffered economic loss
and that Coles was a party to the contravention of the law. The
Court of Appeal agreed with the initial findings that Woolworths
had failed to prove that it had suffered economic loss as a result
of the Council's conduct, and that if it had known of the
negotiations with Coles it would have taken an alternate position
so the Appeal was dismissed.
The decision illustrates the importance of showing caution and
restraint and in not 'jumping the gun' when dealing with
protracted negotiations at a considerable cost to all parties.
How does this apply to your contract
This case does highlight some important points to keep in
Be aware of the terminology used in negotiations, particularly
when throwing the first stone and threatening to 'walk
away' from negotiations as it may prove to be a 'deal
breaker' when making a claim for damages;
Circumstances can arise where a party holds a reasonable
expectation that it is dealing with you exclusively. If the
relationship is not expressed in writing to be exclusive, you may
need to inform the proposed contracting party that you are also in
negotiations with other parties.
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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