Victorian Supreme Court decision finds contractual limitations for misleading and deceptive conduct are unenforceable

Construction & Engineering update - 18 June 2018

Summary

In Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246 the Court held that a temporal limitation clause pleaded in defence to a claim for misleading and deceptive conduct under the Australian Consumer Law (ACL) was unenforceable.

The decision departs from a recent line of NSW Supreme Court authority that both monetary and temporal limits on claims for misleading and deceptive conduct may be enforceable as distinct from a complete exclusion of the ACL, which would be void for illegality.

The decision highlights the inherent tension between ensuring that legislative consumer protection provisions cannot be avoided when parties with unequal bargaining power are contracting, as opposed to the legitimate need for properly advised sophisticated commercial entities to agree on a risk transfer and limitation regime when contracting without the risk of their agreed terms being held to be unenforceable. 

In the absence of appellate authority, there remains considerable uncertainty as to whether such clauses are enforceable with respect to claims made under the ACL, which is of special concern to those in the construction and engineering industry, where limitation provisions are critical to managing liability exposure in this high risk environment. 

The decision will be of similar concern to insurers of those in the construction and engineering industry, particularly professional indemnity and liability insurers.   

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Background to the case 

Brighton and Multiplex were parties to two subcontracts. The subcontracts each contained a clause that required Brighton to give Multiplex notice within 7 days of the earlier of Brighton becoming aware of a claim event or the entitlement to make a claim, otherwise the claim would be barred. Claim was defined broadly to include claims "otherwise at law, including statute".  Brighton claimed that it entered into the subcontracts based upon representations by Multiplex that were misleading and deceptive under the ACL.

A special referee determined the representations had not been made but, if they had, the claim would be excluded by the limitation clause in the subcontracts. The matter for the Court was whether the opinion of the referee should be adopted. 

Brighton argued the clause was void for illegality because it amounted to excluding liability entirely for misleading and deceptive conduct under the ACL, in violation of the general principle in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 that it is contrary to public policy for private agreements to oust the consumer law. 

Multiplex argued that the clause amounted to a limitation which was procedural and did not exclude but regulated the application of the ACL. It relied on the New South Wales Supreme Court decisions in Lane Cove Council v Michael Davies & Associates [2012] NSWSC 727 and Firstmac Fiduciary Services Pty Ltd v HSBC Bank of Australia Ltd [2012] NSWSC 1122.

 

The Victorian Supreme Court Judgment

Justice Riordan determined the temporal restrictions in the clause on a claimant's right to make a claim under the ACL may be procedural in nature but were an unacceptable interference with statutory availability of the remedy for six years. In making this decision he referred to the Explanatory Memorandum to the Trade Practices Act (the previous iteration of the ACL) which explicitly states that the limitation period for making a claim was extended from 3 to 6 years. 

His Honour noted that private parties could enter into contractual provisions so extreme that they effectively ousted the operation of the ACL. It would not be consistent with the public policy purpose of the ACL for the courts to determine in the circumstances of each case which limitation clauses were reasonable and which were so unreasonable as to be unenforceable. This approach was said to be consistent with Justice Ball's observations in Omega Air Inc v CAE Australia Pty Ltd [2015] NSWSC 802 that it was not easy to see how the line could be drawn. 

His Honour also found that Multiplex could not rely on a limitation of liability clause in circumstances where Brighton was alleging a "non-transaction case", i.ei.e. that it would not have entered into the contract but for the misleading and deceptive representation. 

 

Important considerations for the construction and engineering industry

This decision will be of major concern to those working in the construction and engineering industry, particularly for consultants who need to limit their liability in large construction and engineering projects where there is significant inherent risk and high exposure to large quantum claims.  

Although Justice Riordan's decision did not specifically address the enforceability of contractual clauses which limit recoverable damages, his reasoning would seem to apply equally to these types of clauses, which are almost universally employed in this industry. There is no current indication that the decision will be appealed.

The decision highlights the inherent tension between ensuring that legislative consumer protection provisions cannot be avoided when parties with unequal bargaining power are contracting, as opposed to the legitimate need for properly advised and sophisticated commercial entities to agree on a risk transfer and limitation regime when contracting without the risk of their agreed terms being held to be unenforceable. 

That said, His Honour's findings on this specific issue are likely to be obiter dictum and there is still no appellate court authority on the enforceability of limitation clauses for claims made under the ACL. This uncertainty will likely persist until an appellate court addresses the issue. 

In the meantime, construction professionals and their insurers in particular should be mindful that limitation of liability clauses may not necessarily provide protection against claims under the ACL.  

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Authors

Charles Thornley, Partner 
Michael Williams, Senior Associate 
Heidi Edwards, Lawyer 

 

Further information

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