Australia: The battle of the forms continues

Last Updated: 18 October 2018
Article by Jacqui Doyle and Andrea Wilson
Most Read Contributor in Australia, October 2018

The 'battle of the forms' is a tale as old as time with counterparties often exchanging contractual terms (quotes, invoices, purchase orders, contracts and the like) in an attempt to ensure that their preferred terms prevail.

Often, through this exchange, discrepancies are left unresolved and the parties are left arguing as to the proper terms of the contract when a dispute arises.

This type of conflict is generally resolved by the 'last shot' doctrine, which provides that the battle is won by the person who fires the last shot (i.e. the person who sends the final document in the series of exchanges leading to the conclusion of the contract).

However what happens when the parties conclude a contract and then enter into a subsequent contract for the same works without rescinding the first – does the 'last shot' doctrine still apply?

In the recent case of Stepanoski v Aslan [2018] NSWSC 1160, Emmett AJA was asked to consider this very question and found that, despite the parties originally entering into one type of construction contract, a Cost Plus Contract, their subsequent Lump Sum Contract reigned supreme.

This article looks at how Emmett AJA reached this conclusion and the important takeaways for contracting counterparties.

Facts of the case

Mr and Mrs Stepanoksi engaged Mr Aslan to construct two residences on their land in Chatswood. It was not disputed that on 14 October 2014, the parties signed a Cost Plus Contract to complete the construction works, however, after the Cost Plus Contract was entered into the parties subsequently entered into a Lump Sum Contract for the same works.

At the time of signing the Cost Plus Contract, the "estimated" cost of the works was $1,080,000. The Lump Sum Contract price was also $1,080,000.

A dispute then arose as to:

  • when the Lump Sum Contract was actually signed
  • when its terms were effective from
  • whether it was intended to overrule the Cost Plus Contract.

Mr Aslan initially contended that the Lump Sum Contract was not intended to replace the Cost Plus Contract to any extent and that it was, in effect, no more than a sham. However Mr Aslan later revised his position alleging that:

  • the Lump Sum Contract was only effected from January 2015 (alleging this was when it was signed)
  • on or around the time the Lump Sum Contract was signed a further oral agreement was made that qualified the written arrangements between the parties, in that the parties agreed that the Cost Plus Contract was to remain binding on the parties and the cost of the project would be greater than the amount stated in the Lump Sum Contract.

On the other hand the Stepanoski's alleged that the only applicable contract was the Lump Sum Contract.

Emmett AJA considered the parties oral and contemporaneous written evidence to resolve the dispute.

Oral evidence

The oral evidence heard by the Court evidenced an understanding by both parties that the Lump Sum Contract was for the primary purpose of obtaining the loan from Macquarie Bank.

Mr Aslan revealed that he felt pressured to sign the Contract to obtain funding for the build and only did so on the basis that it would not be binding with respect to the cost of the works. The problem was Mr Aslan never communicated his position to Mr or Mrs Stepanoski and later conducted himself as if the Lump Sum Contract applied.

Based on the unreliability of the oral evidence, mainly due to faulty recollections, the Court placed more weight upon the contemporaneous material (set out below) to resolve the question as to the true terms of the contract.

The contemporaneous material

The Court found the following matters to be particularly relevant:

  • the first Progress Claim Mr Aslan issued to the Stepanoski's in December 2014 was titled 'Cost Plus Building Contract Value $1,080,000', however, throughout the course of the works, Mr Aslan changed his Progress Claims to reference a 'Lump Sum Building Contract' instead of a 'Cost Plus Building Contract'
  • a meeting took place in January 2015 whereby the Lump Sum Contract for $1,080,000.00 was signed
  • on two separate occasions, Mr Aslan sent a "Notice of Ceasing Building Works" to Mr Stepanoski which stated that it was related to "Project: Lump Sum Building Contract." Additionally, on two occasions Mr Stepanoski requested to view receipts for the Progress Claims (which he was not entitled to). Mr Aslan replied that as it was a Lump Sum Contract, he would not produce them
  • throughout September 2015 and October 2015, email correspondence between Mr Aslan and Mr Stepanoski referred to a Lump Sum Building Contract. Furthermore, Mr Aslan sent two "Building Contract Variations Claims" attached to the Progress Claims which were headed "Re Lump Sum Building Contract Original Price $1,080,000"
  • Mr Aslan was found to have been in possession of loan documentation that specified a Lump Sum Contract from as early as October 2014. This inferred that Mr Aslan indeed knew that the contract was always intended to be a Lump Sum Contract.

Findings

Based on the matters set out above, the Court held that:

  • based on the oral evidence presented at trial it was not possible to conclude that there was a written or oral agreement on the terms alleged by Mr Aslan
  • therefore the terms of the contract depended to a great extent upon the contemporaneous material
  • based on the contemporaneous material there was no basis for concluding that the Cost Plus Contract continued to bind the parties after the Lump Sum Contract was signed – despite the fact that it was likely that the Lump Sum Contract was not signed until January 2015
  • the Lump Sum Contract was binding and had an effect from 14 October 2014.

Lessons learnt

While there were several inconsistencies in the evidence put before the court, what was clear is that the Lump Sum Contract was indeed signed to ensure that Mr and Mrs Stepanoski could obtain funding from Macquarie Bank.

Lump Sum contracts do however present a very different commercial arrangement to Cost Plus contracts. If the Defendant (Mr Aslan) was unable to complete the works for the price set out in the Lump Sum Contract this is something that ought to have been negotiated prior to entering into the Lump Sum Contract. Mr Alsan should not have stayed silent nor acted if the Lump Sum Contract was binding if he considered otherwise.

In this case, based on the parties conduct, the 'last shot' doctrine applied despite there being a previously concluded contract that was not properly rescinded.

The lessons learnt for contractors from this case are:

  • contractors may want to assist home owners or Principals when it comes to matters of financing, however, sham contracting should never be the answer
  • a second contract, entered into solely for finance purposes can be found to be binding, if the parties act in a way which suggest the contract applies
  • it is more important to contract in a way that doesn't put you (the Contractor) in a vulnerable position or expose you to more risk or costs than you are able to assume
  • if you receive a contract that places unaccepted risks on you, do not start work or act in a way that may be perceived as you having accepted the terms of the contract by conduct.

This case is also a reminder for principals and/or home owners that when obtaining finance you should check with the financier in relation to the type of acceptable contract for finance purposes.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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