Essential elements of a valid contract
Discuss about the Construction Of Commercial Transactions.
In cases of construction of commercial transactions, a contract is made enforceable if it is entered into between parties with an intention to create legal relations. In construction cases, a contract is entered into to ensure that consultancy services, design services and guidelines are provided within the agreement. Australia follows the law of United Kingdom and common law applies to Australian jurisdiction. Abiding by the UNIDRIOT principles, there are certain stated guidelines for breach of contract and the UNIDROIT principles also gives the remedies in cases of breach of contract. Under the UNIDROIT principles, the guidelines are provided as to how to enter into a contract. To constitute a valid contract there needs to be an offer and a subsequent acceptance of that offer. The offer and acceptance by the parties constitute a valid contract. A valid contract needs at least two parties and there has to be a legal and valuable consideration to make the contract enforceable. LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSWSC 886 laid down the valid essentials of a contract and laid down the guidelines as to the importance of a valid offer to constitute a contract (Adriansee, 2016). The facts of the above mentioned case deals with a construction company which was concerned with the construction of a stadium and the applicants of the case were responsible for the management and the construction of the stadium. In this case, the construction company entered into a contract with the State Authority and in this case it was decided that Docklands Stadium Consortium Pty Ltd would be held to be in charge of the management of the stadium. The case was regarding breach of contract as the State Authority had failed to take proper precaution and had it failed to take proper precaution in the furtherance if the contract (Thomas & Wright, 2016). In the case it was held that the State Authority had failed to take precaution and that the State Authority had committed a breach of contract. This case was not solely a contract case, but had also involved constituents of tort. The case held that there was a breach of tort and a subsequent breach of contract.
A contract has both express and implied terms. An implied term of a contract means the terms of the contract which can be understood from the conduct and behavior of the parties. Express terms of a contract are the ones which have been expressly mentioned by the parties. An implied term of a contract also is binding if from the conduct of the parties it can be inferred that they had the intention to create legal relations (Marsh, 2017). An important case dealing with implied terms was discussed in the case of Codelfa Construction v State Rail Authority of New South Wales. The mentioned case dealt at length with the concept of implied terms and frustration. The parole evidence rule is applied to understand the ambiguities that surround a case. In cases where there is an ambiguity in understanding the terms of the contract, this rule is applied to understand and clear the confusions regarding the interpretation of the terms of the contract. The Codelfa case dealt with the duties of a state authority and the court tried to clear the ambiguities related to a contract. The parole evidence rule was upheld in the case of Pagnan SpA v Feed Products Ltd [1987] 2 (Yeen, 2015). The case discussed the conditions when an offer can be held to be valid and can constitute a contract. An external contract can also be held enforceable after taking into consideration the external conditions of the situation. The external conditions of the contract help in understanding the terms of the contract. A consumer is one who indulges in trade and commerce for his or her own personal benefit. According to section 18 of the Australian Consumer Law, a consumer shall not be duped and a trader shall not coerce a consumer to enter into a contract. No one shall indulge in any unfair trade practices and no one shall be sold in any conduct that is with the intention of causing deception in trade. In this case, there has been an allegation against the state Government that the State Authorities have indulged in unfair practices and has used descriptive practices to mislead the applicant in the factual situation. Acciona has blamed the State for using misleading terms in the contract to mislead them into believing in the terms of the contract which are not properly mentioned and are easily understood by the parties. The Contract was against the already established principles of Australian Consumer Law. The facts of the factual scenario point towards the claim made by Acciona stating that the contract violates section 18 of the contract. As a consumer, they have been duped into entering into a contract without being told about the terms of the contract. The conflict is regarding the building of the rail line that was agreed between the parties which are deceptive and misleading.
Implied terms and parole evidence rule
Contractual Obligations are important in understanding the importance and implication of modern commercial contracts. Contractual obligations need to be understood in its essence, giving rise to good faith obligations that are binding on the parties. Good faith clause of a contract mandates that a contract has to fulfill the task of upholding the good faith principles. The contract has to be understood in the light of the freedom to make a contract and contractual obligations. In commercial transactions, it is important to see the hardships of an individual and try to ameliorate the conditions of the party. This has been an Australian principle which has been upheld in many landmark cases (Eggers & Pickers, 2017). The parties need to assume their responsibilities and effectuate the contracts to the best of their interest. In cases of express contractual terms, it is easier to assume responsibility and apply the terms of the contract to the fact situation. This principle of good faith was held in the case of Commercial Bank of Australia v Amadio [1983] HCA 14. Again, in the case of BP Refinery (Westernport) Pty Ltd v Shire of Hastings, the Court of Appeals was of the opinion that a good faith obligation is an important element of a contract and they need to be upheld to ensure that the parties ensure their rights and duties in the perspective of the interests of the parties. A good faith principle is an important implication of law. In the jurisdiction of Australia, in cases of commercial contracts, it is important to see the good faith obligations as mandatory. In the case of Amadio, it was held that the best way to enforce good faith obligations is to attach strict enforcement of the principles. An incentive is an essential aspect to make sure that the parties perform their parts of the contract. the Fair Trading Act, 1999 is an important legislation of Australia that constructively aims to impose the fair trading conditions on the parties. Burger King Corporation v Hungry Jack’s Pty Ltd is an important case that attracted various criticisms for applying the good faith doctrine. In commercial contracts, the good faith is an individual domain of the party who is part of the contract because being a big entity; he shall have the best interest reserved for himself. Therefore, to understand good faith in the light of the duties and interests of the party, it is essential to understand that the parties have the right to accord the given respect to the rights and obligations of the other party. BP Refinery (Westernport) Pty Ltd v Shire of Hastings laid down five tests that need to be followed by the parties to implement the good faith principle. The terms of the contract need to be equitable and reasonable and the parties should be able to understand the terms of the contract with clarity. The terms of the contract cannot be ambiguous and in cases of an ambiguous contract the terms of the contract shall be comprehensive. Burger King Corporation v Hungry Jack’s Pty Ltd [2001] 69 NSWLR 558 held that parties have an implied duty to act in good faith. In this case, the parties have an implied duty to act in accordance with the good faith principles and consider the rights and duties of the other party. The aim should be to understand the elements of the contract in the best interest of the party. It is the duty of the courts to check if there was an express term of good faith in the contract and whether the parties had expressly decided to act in accordance with the good faith principles. Therefore, Acciona and the State Authority are obligated to act in good faith and honor the principles of the contract.
Good faith obligations in commercial contracts
The principles of the Australian Act say that no trader shall act in a way to dupe or mislead their customers. In this case, applying the principles of the Consumer Act, it can be said that the State Authority cannot be said to act in a deceptive and misleading way to make the company believe that a contract existed and the contract was such that gave the parties the rights and obligations to act in a certain way. An opposition and a counter claim is made as a defense to an already existing matter where one party tries to bring allegations against the other party. In this case, Transport for New South Wales has to bring a counter claim against the claims and allegations made by Acciona. Acciona has alleged that no terms of the contract were mentioned and the State has acted in misleading ways trying to hide some relevant information from the company. When a contract is entered into two parties, it is essential that they bring to table all the terms of the contract and by doing so all the ambiguities regarding the cases are resolved. According to the facts of the case, there was a negotiation between the parties that was entered into between the parties. The terms of the agreement did not mention about the discussion that had taken place between Ausgrid and the Transport which was not known to the company. It is a settled princi[le of law that in cases iof ambiguities, it has to be checked if the parties had enough knowledge regarding the matter at hand and the constituents of the contract. When a contract is entered, the parties fix the time when the contract shall end. In this case, the state authorities have complained that there has been no stipulation of time and the contractors have not confirmed by what time the contract will be over and the constriction will be complete. Acciona has faltered in this aspect because by the terms of the contract, the construction should be done within a fixed time which has not been recognized by the parties. Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7 in this the mentioned case, it was held by the courts that once a party enters into a contract and the terms are clear and express, the parties are duty bound to follow. In cases there is an implied authority that says that the terms need to be understood with clear and concise understanding, the terms need to be so understood that the parties can execute the contract. Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7 applied the concept of promissory estoppels in contract cases saying that if a party enters into a contract, they need to ensure that the terms of the contract have been fulfilled properly. The parties shall be stopped from claiming that they did not understand the terms of the contract and if a contract says that a construction will be completed within a certain time, it is the duty of the parties to ensure that the contract will be completed. N this case, the contractors cannot escape from their liability and they need to complete the task within the specified time.
Fair Trading Act 1999
The case of Acciona is based on the core intensive payment made under the Construction law and the provision regarding the validity of the claim and the counter claim are to be discussed. It has been clarified from the case that both the parties have certain allegations against them. Before coming in a conclusion regarding the facts that what documents are required to be submitted before the court, it is important to discuss about the claim of the parties against each other. The Spanish company has alleged that the government had not disclosed all the relevant facts regarding the case or project at the time of signing the contract. Further, the company regarding the underground wire system that was supposed to make by AUSGRID has made claim, but the company came to know that the project had been rejected by the AUSGRID. It has been alleged by the company that the government had not mentioned this fact to the company before or at the time of signing the contract. It has been contended by the company that if they knew the fact, they did not sign the contract. Further, the company had to face serious issues while collecting the money and the expenses become double. On the other hand, the government has denied all the facts stated by the company and made certain counter claims against the company. According to the state counsel, much negligence has been found in the part of the company. The company had failed to complete the work within specific time for their fault. The appointed contractor of the company had failed to complete the project and the company had provided relevant information regarding the project. In addition to this, the state counsel had claimed that the company had failed to submit any relevant documents that established the truthfulness of the required amount made by the company. Further, another claim has been made against the negotiation process. Therefore, following documents are required to be submitted before the court to clarify the respective claims of the company and government.
The company had to submit the terms and conditions of the contract and it is to be highlighted by the company whether the government has made all the disclosure regarding the AUSGRID. The necessity of AUSGRID Company regarding the current contract has also to be determined. Further, the company has to submit all the necessary documents regarding the payment portion. The company has to show that they have taken all the necessary measurements but the company could not make the project completed within stipulated time for the wrong acts of the governments.
Acciona case – breach of construction contract
On the other hand, government has to show that they have disclosed all the documents and information to the company and the company had all the knowledge regarding the matters and condition of the project. Further, the government can collect information regarding the payment related claim made by the company. The government should submit the terms and relevant conditions of the contract so that the innocence of government can be proved.
Both the parties of the contract are required to present the witnesses before the court. The government counsel and the company should have to represent the parties who have signed the contract. Further, if there are any witnesses relevant for the case should be produced before the court. Further, the representative of AUSGRID should produce before court to identify the real problems regarding the project.
It has been observed from the case that the main subject matter of the case is based on the dispute arises from construction of rail line and the government has contracted the Spanish company for doing the job. However, it has been alleged that the company has failed to complete the work within time. Further, the company has stated that the government has failed to disclose all the relevant information regarding the project for the best interest of the contract. The company accused that the acts of the government attract the provision of section 18 of the Australian Consumer Law and made misstatement regarding the contract signing process with AUSGRID. According to the Contract law, there should be good faith regarding the contract and no parties are allowed to make any imbalance regarding the bargaining process. The Australian Court of Justice had made a suggestion in 2001 regarding the good faith regarding the contract and according to the court, in case of any breach regarding the contractual fact; the plaintiff can bring an action against the defendant under the Tort Law. There are certain other provisions have laid down under the case that are required to be resolved. Further, according to the case material, it is important to verify which claim is perfect. In this portion, the relevant provision of law has to be considered. The problems regarding the case are to be identified.
In this case, it has been observed that the rail project has become the apple of discord in between the company and the government. Further, it is to be stated that both the parties have hurled mud on each other. Considering the case and all the statements, the problem ground should be divided in two parts. The company has made a claim that the contract was not made in good faith and the government has failed to disclose all the materials positively. According to the company, the government had failed to narrate the statements made by AUSGRID, who was supposed to deal with the underground wiring system. Therefore, the obligation grounds regarding the AUSGRID and the project are required to be identified. . On the other hand, certain claims have been made on behalf of the government too. In this point, the main problematic issue is to identify whether the company has fulfilled all their obligations prudently or not. The intervention of contract law and certain provisions of Construction Law could resolve these problems. According to the judgment made in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14, it can be stated that interest of both the parties should be secured and no one should adjudged illegally. In these cases, the affected party can claim repudiation of the contract. Further, if it has been proved that any of the parties to the contract has failed to act in due care and diligence, process can be taken against the wrongdoer (Lines MacFarlane Marshall Pty Ltd v Fletcher Construction Australia Ltd [2000] VSC 358).
This part of the problem is based on the advisory ground given to the company. Considering the case, it has been observed that there was a yawning gap in between the estimated amount and total expenses regarding the project. The company has to face certain negative problems due to it. However, the company should make an application under the Building and Construction Industry Security of Payment Act 2002. This Act is particularly dealing with the claims regarding building contract. According to the purpose of the Act, cash flow should be remained under the business of construction and therefore, it is important to resolve all the disputes amicably. Under the Act, certain negotiation process has been given. The order of the arbitrator will be mandatorily imposed on the parties. According to the claim of the company, financial condition of Acciola has been deteriorated and therefore, company has to choose certain legal process where the company has not bear lump sum expenses. Further, the company should have to claim the invoice payment from the government and make a claim under section 18 of the Security of Payment Act. However, all these applications should be filed within time or it will be rejected by the court [Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor [2009]. However, it is important to state that the decision of the arbitrator in this case is applied mandatorily and both the parties are bound to maintain the decisions of the arbitrator. The decision of the former adjudicator will be imposed even if there are any different notions taken by the subsequent adjudicator. The claims of both the parties are required to be analyzed independently and the company should have to deliver all the necessary documents and calculated facts regarding the expenditure of the company. According to the general provision, the decision of the adjudicator is mandatorily imposed on the parties. However, if the company thought that the decision of the adjudicator has denied the proper policy or judgment, the company can make a claim for certiorari. Further, it can be suggested that the company should raise the question regarding misleading statement made by the government regarding the AUSGRID. According to Bitannia Pty Ltd and Anor v. Parkline Constructions Pty Ltd [2006] NSWCA 238, the company can make a claim for misleading statement, but all their statements should be made in accordance with the statement mentioned in section 15(4)(b) of Security of Payment Act 1999. This section will taken away the right to make counter claim by the party that provide misstatement. Therefore, the company should have to follow all these rules accordingly.
Reference
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Adriaanse, M. J. (2016). Construction contract law. Palgrave Macmillan.
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Bitannia Pty Ltd and Anor v. Parkline Constructions Pty Ltd [2006] NSWCA 238
BP Refinery (Westernport) Pty Ltd v Shire of Hastings
Building and Construction Industry Security of Payment Act 2002
Cahill, M. L. (2018). The social construction of sexual harassment law: The role of the national, organizational and individual context. Routledge.
Codelfa Construction v State Rail Authority of New South Wales.
Commercial Bank of Australia Ltd v Amadio [1983] HCA 14
Commercial Bank of Australia v Amadio [1983] HCA 14
Eggers, P. M., & Picken, S. (2017). Good faith and insurance contracts. Taylor & Francis.
Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor [2009] VSC 156; 26 VR 112
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Lines MacFarlane Marshall Pty Ltd v Fletcher Construction Australia Ltd [2000] VSC 358
LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSWSC 886
Marsh, P., 2017. Contracting for engineering and construction projects. Routledge.
Pagnan SpA v Feed Products Ltd [1987] 2
Saunders, P. (Ed.). (2017). Welfare to work in practice: social security and participation in economic and social life. Taylor & Francis.
Sharkey, J. A. (2017). Australian Rules: A Survey of the High Court of Australia on Construction Law 1965-2016. AUSTRALIAN LAW JOURNAL, 91(12), 986-1012.
Thomas, R. W., & Wright, M. (2016). Construction contract claims. Palgrave Macmillan.
Yeen, J.M.C., 2015. The Sound of Silence–An Analysis of the Incorporation of Arbitration Terms after Contract Formation R1 International Pte Ltd v Lonstroff AG [2015] 1 SLR 521. Asian International Arbitration Journal, 11(1), pp.93-104.
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