Parallel negotiations found to be misleading and deceptive

Undisclosed parallel dealings were found to be misleading and deceptive in a recent case involving protracted negotiations and two of Australia's retail giants, but the plaintiff's victory was pyrrhic as it lost a damages claim entirely, mostly through ill-considered use of the phrase 'deal breaker' at the negotiating table.

The facts

In November 2007, the Port Macquarie-Hastings Council (Council), for a second time, publicly invited expressions of interest (EOI) in purchasing and developing a supermarket development site. Both Woolworths and Coles responded and the Council accepted a conditional offer from Woolworths.

Negotiations between the Council and Woolworths ensued, and various drafts of a contract for sale were exchanged between solicitors.

One of the main unresolved issues was Council contribution to any contamination on Council land, with Woolworths originally requiring an indemnity over any contamination encountered. The Council was unwilling to provide the indemnity, but agreed to accept liability for removing any contaminant found up to a limit of $500,000. Woolworths agreed to this position, provided it was able to undertake further due diligence on contamination during the period between exchange and settlement, and was given a right to rescind the contract should the cost of removal or remediation be excessive. Council, however, did not agree to these provisos.

In mid 2009, while it was still negotiating with Woolworths, the Council also started negotiating with Coles as a backup plan, but deliberately did not tell Woolworths. Negotiations between Woolworths and the Council reached an impasse, and Council sold the land to Coles.

Woolworths subsequently commenced proceedings against the Council and Coles, arguing that it suffered loss by their conduct, and claiming damages. Woolworths contended that, had the Council disclosed that it was negotiating with another party, Woolworths would have agreed to proceed on the terms required by Council and would have bought the land.


At issue in the case, Fabcot Pty Ltd v Port Macquarie-Hastings Council [2010] NSWSC 726, was: 

  • whether the Council had engaged in conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s.42 of the Fair Trading Act 1987 (NSW) (the Act);
  • if so, whether Coles was knowingly involved in the contravention;
  • whether Woolworths suffered any loss by the conduct complained of, and if so the quantum of its loss;
  • and the Council's cross-claim against Woolworths, saying that Woolworths engaged in conduct which was misleading by holding out that its position was that it would not proceed with the purchase of the land unless certain conditions were included in the contract, when its true position was otherwise. The Council argued that if Woolworths suffered loss by its conduct, it correspondingly suffered loss by Woolworths' conduct, and it claimed indemnity.  


Justice Hammerschlag of the NSW Supreme Court held that the Council's conduct was in the circumstances misleading or deceptive or likely to mislead or deceive. However, Woolworths had not established any loss by that conduct. Further, it had failed to establish that Coles knowingly participated in the contravention.

Misleading or deceptive conduct

His Honour said that the circumstances of the case were such as to give rise to the clear and reasonable expectation on Woolworths' part that the Council would inform (if it were the case) that the negotiations it was conducting with Woolworths were not, or had ceased to be, exclusive. Any reasonable person in Woolworths' position would have had such an expectation because:

  • the EOI process entailed an initial selection of one, and only one, candidate for negotiation; 
  • the significant time and money Woolworths was about to spend in seeking to realise the opportunity following the acceptance of the conditional offer; and 
  • Woolworths was under the misapprehension that the Council was negotiating with it exclusively.

Woolworths had no binding contractual exclusivity arrangement from the Council, and there was no statutory inhibition on the Council dealing with Coles. This, however, did not displace the reasonable expectation that the Council would not clandestinely conduct negotiations outside the framework of the process without telling Woolworths that the negotiating relationship was no longer exclusive. The Act imposes a norm for conduct in trade or commerce, and the Council fell far short of that norm, not inadvertently but deliberately. The deliberate silence over the fact that negotiations with Woolworths were not, or had ceased to be, exclusive was in the circumstances misleading or deceptive or likely to mislead or deceive and a contravention of s.42(1) of the Act.

Did Woolworths suffer any loss?

His Honour said that to determine whether Woolworths suffered any loss the first question to be answered was whether Woolworths would have shifted position. The second question was whether, if Woolworths would have shifted position, what the chances were that a sale to it of the land would have happened.

The repeated use of the term 'deal breaker' by Woolworths' employees left no doubt that Woolworths was prepared to walk away. His Honour was not satisfied that Woolworths would have forsaken its principles, even had it been informed that its position was no longer exclusive, or that Coles was in the wings.

Coles' knowledge

Although it was unnecessary to consider whether Coles was knowingly involved in the Council's contravention of s.42(1), his Honour nevertheless considered the matter. He found that Coles did know the Council had been negotiating with Woolworths, but that Coles was told very little and did not know the state of negotiations. Even if Coles knew or believed that at some point the Council was negotiating exclusively with Woolworths, Coles was not aware that the Council had not disclosed to Woolworths that its position was no longer exclusive.

Accordingly, Woolworths' claim against Coles failed.


His Honour then considered the amount of damages he would have assessed had Woolworths suffered any damages by the Council's conduct.

As it did not acquire the development site, Woolworths proceeded with the refurbishment of the Food for Less store it operated in Port Macquarie and the construction of a freestanding Dan Murphy's outlet next door. Accordingly, the court said that damages suffered by Woolworths would be the difference between the financial position it would have been in, had the development proceeded, and the position it was in, that is, without the development, but with the refurbishment of the Food for Less store and the new stand-alone Dan Murphy's.

Having regard to expert evidence, his Honour held that Woolworths would have been entitled to an ultimate revenue figure of 5.22%.

Council's cross-claim

His Honour held that the Council was not misled by anything said or done by Woolworths, and, if it was, it had suffered no loss. Accordingly, the cross-claim failed.


This case illustrates the importance of avoiding protracted negotiations which involve significant costs to both parties. It also serves as a warning that threats to walk away should not be bandied around without careful consideration, as this may impact on a party's ability to claim damages in the future, if the transaction were to fall through.

Finally, government bodies need to be mindful of expected norms of behaviour in a tender process and be aware that to breach them may be misleading and deceptive.

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