[2011] VSCA 114
Miller v Miller (2011) 242 CLR 446
Source
Original judgment source is linked above.
Catchwords
[2018] VSC 246
Burke v LFOT Pty Limited (2002) 209 CLR 282[1964] HCA 69
Gnych v Polish Club Ltd (2015) 255 CLR 414[1998] HCA 69
MBF Investments Pty Ltd v Nolan (2011) 37 VR 116[2011] VSCA 114
Miller v Miller (2011) 242 CLR 446[2010] HCA 28
Venerdi v Anthony Moreton Group Funds Management Limited [2015] 1 Qd R 214[2013] QSC 219
Westfield Management Limited v AMP Capital Property Nominees Ltd (2012) 247 CLR 129
Judgment (14 paragraphs)
[1]
47 CLR 129; [2012] HCA 54
WLD Practice Holdings Pty Ltd v Stockham [2020] NSWSC 395
Texts Cited: R Scruby SC "Contracting out of Statutory prohibitions against misleading or deceptive conduct" (2019) 47(2) Australian Bar Review 181
JD Heydon "Avoiding Liability under the Competition and Consumer Act 2010 (Cth)" (2020) 28(1) Australian Journal of Competition and Consumer Law 13
JD Heydon, Trade Practices Law - Competition and Consumer Law (2020, Thomson Reuters, looseleaf)
Category: Procedural and other rulings
Parties: G&S Engineering Services Pty Ltd (First Plaintiff/First Cross-Defendant)
DRA Pacific Pty Ltd (Second Plaintiff/Second Cross-Defendant)
[2]
MACH Energy Australia Pty Limited (First Defendant/First Cross-Claimant)
MACH Mount Pleasant Operations Pty Limited (Second Defendant/Second Cross-Claimant)
J.C.D. Australia Pty Limited (Third Defendant/Third Cross-Claimant)
[3]
DRA Group Holdings (Pty) Limited (Third Cross-Defendant)
DRA Global Limited (Fourth Cross-Defendant)
Representation: Counsel:
M Christie SC with B Kremer and A Emmerson (Plaintiffs/Cross-Defendants)
D Miller SC with E Ball (Defendants/Cross-Claimants)
[4]
Solicitors:
Jones Day (Plaintiffs/Cross-Defendants)
Corrs Chambers Westgarth (Defendants/Cross-Claimants)
File Number(s): 2019/71358
Publication restriction: Nil
[5]
Judgment
The disputes in these proceedings arise out of a contract entered into in March 2017 (Contract) between the first cross-claimant, MACH Energy, and the first and second cross-defendants (together CDJV), under which CDJV agreed to design and construct a coal handling and preparation plant at the Mount Pleasant mine (Project).
These reasons deal with the cross-defendants' notice of motion filed on 31 August 2020 seeking leave to amend their Amended Technology and Construction List Cross-Claim Response in accordance with the proposed Further Amended Technology and Construction List Cross-Claim Response (FACCR) exhibited to the affidavit of Kenneth Hickman affirmed 31 August 2020.
The amendments seek to raise new defences to the allegations made by the cross-claimants (together MACH) in their Amended Technology and Construction List Cross-Claim Statement (Cross-Claim) that CDJV engaged in misleading and deceptive conduct in contravention of section 18 of the Australian Consumer Law (ACL) during the course of the Project that has caused MACH loss and damage of more than $270 million (MACH's ACL claim).
In summary, the cross-defendants wish to amend to rely on alleged misleading representations made by MACH Energy prior to entry into the Contract that CDJV would not be liable for and did not need Project insurance in relation to consequential losses in defence to MACH's ACL claim. They also wish to amend to rely on the consequential loss exclusion clause in the Contract.
MACH oppose the amendments. They say that the new defences are bound to fail as they seek to prohibit MACH from availing themselves of their statutory claims and remedies under the ACL contrary to law and public policy. They also argue that allowing the amendments will lead to prejudice because of the time and cost associated with responding to the new defences.
For the reasons that follow, I have granted the cross-defendants leave to amend but have done so on the basis that the costs of this application are to be costs of the issue in the cause.
The parties provided extensive written submissions which were supplemented by oral argument on 24 September 2020 and further written submissions received on 28 and 29 September 2020. Before dealing with the submissions, it is necessary to set out the background to the proceedings and the proposed amendments.
[6]
The Contract
As noted above, MACH Energy, as the Company, and CDJV, as the Contractor, entered into the Contract in March 2017. Under the Contract, the third and fourth cross-defendants (DRA Group Holdings and DRA Global) guaranteed CDJV's performance pursuant to deeds of guarantee and indemnity.
The Contract contains a limitation of liability clause in the following terms:
52 Limitation of Liability
52.1 General Liability
(a) Subject to clauses 52.1(b) and 52.2 but notwithstanding any other provision of the Contract to the contrary, to the maximum extent permitted by Law, the Contractor's total aggregate liability to the Company, whether arising out of or in connection with the Contract (including the performance or non-performance of the Works), under statute, in tort (for negligence or otherwise) or any other basis in law or equity, is limited to an amount equal to fifty percent (50%) of the Contract Price.
(b) Nothing in this clause 52.1 will affect or reduce the Contractor's liability arising out of or in connection with any Exempt Liability and such liability shall not be taken into account in determining if the Contractor's liability in clause 52.1(a).
52.2 Consequential Loss:
(a) Subject only to clause 52.2(b), but notwithstanding any other provision of the Contract to the contrary, to the maximum extent permitted by Law, neither Party shall be liable to the other Party (or to any other party beneficially entitled under or pursuant to the Contract) for Consequential Loss, whether arising out of or in connection with the Contract, under statute, in tort (for negligence or otherwise) or any other basis in Law or equity.
(b) Nothing in this clause 52.2 will affect or reduce a Party's liability to the other Party arising out of or in connection with any Exempt Liability.
Clause 1.1 of the Contract defines Consequential Loss and Exempt Liability as follows:
Consequential Loss
Consequential Loss means:
(a) exemplary, punitive, aggravated or nominal damages;
(b) loss of opportunity;
(c) loss of revenue;
(d) loss of profit or anticipated profit;
(e) loss of contract;
(f) loss of goodwill;
(g) loss arising from business interruption;
(h) loss by reason of shutdown or non-operation except for those direct costs as detailed within clause 41(a) of this Contract;
(i) increased capital or financing; or
(j) loss of anticipated savings or waster overheads.
Exempt Liability:
(a) for clause 52.1 any one or more of the following:
(i) liability of the Contractor to the extent that the Contractor:
(A) is entitled to be indemnified for such liability under a policy of insurance effected pursuant to the requirements of the Contract; or
(B) would have been entitled to be indemnified for such liability under a policy of insurance effected pursuant to the requirements of the Contract but for the Contractor's failure to comply with terms and conditions of the relevant policy or its obligations under the Contract in respect of such policy;
(ii) liability for infringement of any Intellectual Property Rights;
(iii) liability for breach of confidentiality;
(iv) liability in respect of personal injury or death, or loss of or damage to third party property (whether such liability arises by way of contribution, indemnity or otherwise); and
(v) liability arising out of or in connection with Wilful Default; and
(b) for clause 52.2 any one or more of the following:
(i) liability for infringement of any Intellectual Property Rights;
(ii) liability for breach of confidentiality;
(iii) liability in respect of personal injury or death, or loss of or damage to third party property (whether such liability arises by way of contribution, indemnity or otherwise);
(iv) liability arising out of or in connection with Wilful Default; and
(v) liability of a Party to pay liquidated damages under the Contract.
[7]
The proceedings
CDJV commenced these proceedings in March 2019. Soon after the proceedings were commenced, CDJV sought and obtained an interlocutory injunction restraining MACH from calling on unconditional surety bonds in favour of MACH Energy in relation to the Project: G&S Engineering Services Pty Ltd v MACH Energy Australia Pty Ltd [2019] NSWSC 407.
On 11 March 2020, MACH filed the Cross-Claim.
MACH's ACL claim is set out in Parts E and F of the Cross-Claim. In summary, MACH alleges that:
1. from February to April 2018, CDJV made representations that they could reach various completion milestones by particular dates and that they had the ability and financial resources to do so which MACH relied upon in entering into the SVA: Part E of Cross-Claim, [34] to [44A];
2. the representations were false and misleading or deceptive because G&S Engineering was insolvent or near insolvent in April 2018 and CJDV had significantly understated the time and cost to complete the works under the Contract: Part E of Cross-Claim, [45] to [47]; and
3. if it had known the representations were false or made without reasonable grounds, MACH Energy would not have entered into the SVA but would have omitted a large part of the Contract works with the consequence that the works would have been completed earlier: Part F of Cross-Claim, [49] to [51].
MACH also contends that, in making the representations, CDJV breached clause 12.3(a)(i) of the Contract, which required compliance with all laws: Part E of Cross-Claim, [48].
By way of relief, MACH seek damages in the amount of $270,348,000 from CDJV pursuant to s 236 of the ACL or alternatively for breach of contract. The damages amount comprises lost free cash flows of $262,178,000 resulting from lost coal production and sales over the life of the Project to 31 December 2026 and SVA payments totalling $8,170,000: Part F of Cross-Claim, [52] and 197.
On 25 March 2020, the cross-defendants filed an Amended Cross-Claim Response in which they deny that CJDV made the representations in contravention of the ACL, deny they have breached clause 12.3(a)(i) of the Contract and deny liability for all losses claimed. In so far as the loss is alleged to arise from a breach of clause 12.3(a)(i) of the Contract, the cross-defendants assert that the losses claimed are all "Consequential Loss" and excluded by reason of clause 52.2(a) of the Contract.
[8]
The FACCR amendments
The FACCR raises three categories of new defence to MACH's ACL claim, which I refer to as the contract defence, the ACL defence and the estoppel defences.
The contract defence is at [71] of the FACCR. By the amendments, the cross-defendants wish to assert that the damages sought by MACH's ACL claim amounts to Consequential Loss for the purposes of the Contract for which they cannot be liable by reason of the Consequential Loss exclusion in cl 52.2(a) of the Contract. As noted at [18], the existing Cross-Claim Response relies on clause 52.2(a) but only to the extent that MACH's claim for loss and damage is for CDJV's breach of Contract.
The ACL and estoppel defences are contained in a new Part VIA of the FACCR headed "The Cross-Claimants ought be restrained from pursuing recovery of General Consequential Loss".
By the ACL defence, the cross-defendants seek to allege that, during the negotiations that led to the entry into the Contract, MACH Energy contravened section 18 and/or section 29(1)(m) of the ACL by making representations to CDJV that were false, misleading or deceptive. Specifically, the FACCR alleges that MACH Energy made three representations to CDJV about future matters, as follows:
1. CDJV's exposure to consequential loss claims under the draft Contract was confined to "Limited Exemptions" (as defined) and that CDJV therefore did not need consequential loss insurance cover to protect itself against any other claims for consequential loss under the Contract or in relation to the Project (the Reduced Consequential Loss Exposure Representation): FACCR at [71I(c)] and [71Z]);
2. MACH Energy would only claim against CDJV for direct losses relating to the Contract and the Project and/or that CDJV would not be held liable for any "General Consequential Loss" under the Contract and in relation to the Project (the No Consequential Loss Liability Representation): FACCR at [71BB(a)]; and
3. MACH Energy could not and would not make any "General Consequential Loss Claims" against CDJV under the Contract or in relation to the Project: (the No Claims Representation): FACCR at [71BB(b)].
In the FACCR, General Consequential Loss is defined to mean consequential losses which do not constitute one or more of the "Limited Exemptions": FACCR at [71Z(a)]. Limited Exemptions is defined in almost precisely the same terms as Exempt Liabilities under the Contract: FACCR at [71I(c)(i)].
[9]
Application for leave to amend
The amendment application is made pursuant to s 64 of the Civil Procedure Act 2005 (NSW) (CPA).
The Court's power to grant leave to amend is discretionary. The power must be exercised in accordance with s 64(2) of the CPA, which provides that all necessary amendments are to be made for the purposes of determining the real questions raised by, or otherwise depending on, the proceedings, amongst other reasons, and in accordance with the dictates of justice: CPA, s 58. The Court must also have regard to the provisions of ss 56 and 57 of the CPA.
Factors to be weighed in the exercise of the discretion include the nature and importance of the amendments to the cross-defendants, the delay in making the amendments and any explanation for it and the effect of the proposed amendments on MACH: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [102].
[10]
Are the new defences arguable?
As noted above, MACH resists leave to amend primarily on the ground that the amendments in the FACCR do not disclose arguable defences to MACH's ACL claim.
There is no dispute that the test to be satisfied is whether the new defences are "so obviously untenable that [they] cannot possibly succeed"; are "manifestly groundless"; "so manifestly faulty that [they do] not admit of argument"; they "disclose a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; and that it "be manifest that to allow [them] to stand would involve useless expense": General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69 (General Steel) at 129 (Barwick CJ).
That assessment is to be made taking the proposed defences at their highest, accepting the truth of all the allegations in the defences and the ranges of meaning which the assertions of fact are capable of bearing: Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405 at [200].
It has been recognised that the power to dispose of a claim summarily should be exercised with great care and with exceptional caution. A party should not ordinarily be denied the opportunity to place their defence before the court: General Steel at 129, 130; Spencer v Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28 at [24].
[11]
Submissions
MACH's written and oral submissions focussed on the ACL and estoppel defences. They contend that, even taken at their highest and accepting the truth of the factual allegations, the ACL and estoppel defences are bound to fail as they impermissibly seek to prevent or restrict MACH from availing themselves of their statutory rights and remedies under the ACL contrary to law and public policy. MACH referred to three legal and public policy principles in support of this contention.
First, they rely on the rule that public policy prohibits parties from contracting out of or otherwise excluding recourse to the misleading or deceptive conduct provisions of the ACL, as identified by the Full Court of the Federal Court in Henjo Investments Pty Ltd v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546 (Henjo).
In Henjo, the Full Court considered whether a "no reliance" clause and an acknowledgement clause, that purported to exclude prior representations, defeated a claim of misleading conduct that induced entry into a contract. While ultimately concluding that the clauses did not apply to the claim, Lockhart J, with whom Burchett J and Foster J agreed, observed (at 561) that:
Section 52 [of the Trade Practices Act 1974 (Cth)] is a section in the consumer protection provisions of an Act concerned to protect the public from misleading or deceptive conduct and unfair trade practices which may result in contravention of the Act …
Lockhart J held that clauses of the kind sought to be relied on could not operate to defeat misleading or deceptive conduct claims because, generally, they cannot break the nexus between the misleading conduct and the making of the agreement in issue. His Honour went on to state:
There are wider objections to allowing effect to such clauses. Otherwise the operation of the Act, a public policy statute, could be ousted by private agreement. Parliament passed the Act to stamp out unfair or improper conduct in trade or in commerce; it would be contrary to public policy for special conditions such as those with which this contract was concerned to deny or prohibit a statutory remedy for offending conduct under the Act.
MACH submits that the public policy principle established by Henjo, namely that parties cannot exclude the operation of the ACL, is settled law having been referred to and applied in numerous cases in intermediate Courts and cited with approval in the High Court: IOOF Australia Trustees (NSW) Limited v Tantipech [1998] FCA 924 (IOOF v Tantipech) at 479-80; Scarborough v Klich [2001] NSWCA 436 at [74]; MBF Investments Pty Ltd v Nolan (2011) 37 VR 116; [2011] VSCA 114 at [217]; JJMMR Pty Limited v LG International Corp [2003] QCA 519 at [10]; JM & PM Holdings Pty Ltd v Snap-on Tools (Australia) Pty Ltd [2015] NSWCA 347 at [55]; Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 (Burke v LFOT) at [143].
[12]
Consideration and decision
There was no dispute at the hearing that Henjo and other cases have established that a party cannot escape liability for misleading conduct that induces another to enter into a contract based on a contract term or some other document that purports to acknowledge that no anterior representation was made or purports to exclude liability for the consequences of anterior misleading conduct. The authorities referred to by the parties also establishes that the party cannot rely on that type of clause as a defence that they were misled on the basis that the clause gave rise to some misleading representation or an estoppel.
The dispute at the hearing related to the scope and application of Lockhart J's reasoning in Henjo and what has been referred to as the Henjo principle that parties cannot exclude or contract out of the ACL.
It seems clear from that Lockhart J's reasoning in Henjo, as referred to at [45] above, that His Honour's observations were not limited to no reliance and disclaimer clauses and that His Honour considered that, as a public policy statute, the operation of the TPA could not be ousted by private agreement. It also seems clear that His Honour's observations and the broad principle regarding non-ouster of the ACL by contract have been recognised and endorsed in many cases since. For example, in IOOF v Tantipech, the Full Federal Court recognised the broad public policy underpinning the Henjo principle, stating (at 479):
… [T]he public policy which lies behind the Court's refusal to allow a party to contract out of liability under s [18] of the Act is not exhausted by application to the case of an exculpatory provision which is contained in a document into which the complainant has been induced to enter by a misrepresentation. It must extend to any document which purports to excuse a misrepresentor from liability for contravention of s [18]. Statements in the cases that a party in breach of s [18] cannot rely on an exculpatory provision of the very agreement into which the other party has by the breach been induced to enter do not expose the full ambit of the principle, which is based on more general considerations.
In Burke v LFOT, Callinan J referred to the public policy passage in Henjo and observed that "a person may not contract out of the [ACL]: at [143].
More recently, the Henjo principle has been referred to with approval by Sackar J in WLD Practice Holdings Pty Ltd v Stockham [2020] NSWSC 395 at [25] and by Ball J in DIF III - Global Co-Investment Fund LP v Babcock & Brown International Pty Limited [2019] NSWSC 527 (DIF III) at [273].
[13]
Costs and orders
The general rule is that costs follow the event unless it appears to the Court that some other order should be made: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.
The cross-defendants submit that if leave to amend is granted they should have their costs of the application payable forthwith, noting that a similar costs order was made by Stevenson J in these proceedings last year.
MACH contends that the appropriate costs order would be costs of the issue in the cause. This submission is made on the basis that the issues raised by the application are discrete and because MACH may adopt a similar stance at a final hearing and respond to the defences on public policy principles.
In my view, MACH's submission on costs should be accepted. While I have concluded that leave to amend should be granted, the issue was finely balanced. As my reasons make clear, I have reservations about the ultimate success of the defences and granted leave because I considered that the defences were not necessarily bound to fail and an amendment application was not the place to determine the complex and significant question about what liability limits may be agreed on claims under the ACL as it applies to this case. In those circumstances, I consider it appropriate for the party that succeeds on this aspect of the case to recover their costs of this application.
I have deferred making any order for the date by which MACH is to file and serve an amended Reply as the evidence indicates it could take around three months. I will leave the parties to confer and seek to reach agreement on that date and have a direction made for the service of the Reply when the matter comes back for directions next Friday.
For these reasons, I make the following orders:
1. Pursuant to section 64(1) of the Civil Procedure Act 2005 (NSW), the Cross-Defendants have leave to file and serve the Further Amended Technology and Construction List Cross-Claim Response substantially in the form at pages 41 to 211 of exhibit KPH-1 to the affidavit of Kenneth Paul Hickman affirmed 31 August 2020 (FACCR).
2. The Cross-Defendants to pay the Cross-Claimants' costs thrown away by the amendments contained in the FACCR, such costs to be agreed or assessed.
3. Each party's costs of and incidental to the Cross-Defendants' notice of motion filed 31 August 2020 to be costs of the issue in the cause.
[14]
Amendments
07 December 2020 - 7 December 2020 - Minor additions to cover sheet under the headings "Representation" and "Texts Cited".
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 07 December 2020
In March 2017, CDJV commenced works under the Contract.
On about 20 April 2018, MACH Energy and CDJV entered into a settlement and variation agreement (the SVA). The SVA documents the terms on which they resolved a dispute concerning CDJV's extension of time claims and delay to the Contract works. The SVA varied the Contract by providing, amongst other things, for new dates for practical completion of the Contract works and certain payments to be made by MACH Energy to CDJV. MACH's ACL claim concerns representations alleged to have been made by CDJV prior to entry into the SVA.
MACH filed their Reply on 3 April 2020.
In July 2020, MACH served their evidence in chief in support of the Cross-Claim.
Also in July 2020, the cross defendants foreshadowed that they were considering an amendment to their Cross-Claim Response.
A copy of the FACCR was sent to MACH's lawyers on 17 August 2020.
The cross-defendants allege that each of the Reduced Consequential Loss Exposure, No Consequential Loss Liability and No Claims Representations (Representations) was misleading or deceptive for reasons including that MACH's ACL claim is wholly, or alternatively in part, a claim against CDJV for General Consequential Loss: FACCR at [71KK(c)] and [71LL].
The cross-defendants allege that CDJV entered into the Contract without insurance coverage for General Consequential Loss Claims in reliance on the Representations: FACCR at [71CC] and [71DD]. They assert that, had they known the Representations were misleading, they would have negotiated the Contact on substantially different terms with a Contract price proportionate to the risk of a General Consequential Loss Claim being made, such as procuring Project specific PI insurance at MACH Energy's cost and increasing the Contract price to reflect the premium payable or, alternatively, they would not have entered into the Contract at all or entered into the Contract but having procured Project specific PI insurance at their own cost: FACCR at [71MM].
The cross-defendants allege that MACH's misleading conduct is continuing and seek orders permanently restraining MACH from recovering any loss which is properly understood to be a General Consequential Loss Claim or otherwise requiring MACH to honour the Representations which, properly construed, were promises within the meaning of s 232(6) of the ACL: FACCR at [71NN] and [71OO].
In the alternative, the cross-defendants allege that they have suffered, and continue to suffer, loss and damage by reason of MACH's misleading conduct for which they seek an order for damages pursuant to s 236 of the ACL. The loss and damage the cross-defendants allege they have suffered are particularised to comprise the legal costs incurred in defending the Cross-Claim to the extent the General Consequential Loss Claim is concerned, and the exposure to liability without appropriate insurance or the benefit of the limits of liability negotiated in the Contract, for which they seek damages equal to the sum of any General Consequential Loss awarded to MACH by way of damages pursuant to their ACL claim: FACCR at [71PP].
Part VIA.3 of the FACCR pleads two estoppel defences. The cross-defendants seek to assert that MACH Energy and/or the second cross-claimant, MACH Mount Pleasant Operations, should be estopped from claiming "General Consequential Loss" in the Cross-Claim from the cross-defendants on the basis of conventional or, alternatively promissory, estoppel: Part V1A.4 of FACCR, [71QQ] and [71RR].
The conventional estoppel is alleged to arise from a mutual assumption that MACH Energy would abide by the Representations as to the terms of their legal relationship with and conduct towards the cross-defendants in relation to the Project and not seek to recover General Consequential Loss in a manner inconsistent with the Representations: FACCR at [71QQ].
The alternative promissory estoppel is also alleged to arise by reason of the Representations. The cross-defendants assert that they would suffer detriment if MACH Energy departed from the Representations and that it would be unconscionable for them to do: FACCR at [71RR].
MACH submits that the Henjo principle and the policy underlying the ACL also precludes limits and other restrictions being placed on a party's recourse to their statutory remedies under the ACL.
In support of this submission, MACH referred to the decision of Riordan J in Brighton Australia Pty Limited v Multiplex Constructions Pty Limited (2018) 56 VR 557; [2018] VSC 246 (Brighton). They also referred to High Court authority that recognises that the policy of the law may regard a contract as unenforceable where it operates to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest, notwithstanding the statute may not contain an express prohibition against "contracting out" of rights: Equuscorp Pty Limited v Haxton (2012) 246 CLR 498; [2012] HCA 7 (Equuscop); Miller v Miller (2011) 242 CLR 446; [2011] HCA 9 (Miller); Westfield Management Limited v AMP Capital Property Nominees Ltd (2012) 247 CLR 129; [2012] HCA 54 (Westfield).
In Brighton, Riordan J had to determine whether a clause in an agreement that imposed a time limit on bringing claims for misleading and deceptive conduct was enforceable. Riordan J considered the proposition that liability under the Trade Practices Act 1974 (Cth) (TPA) (and the ACL) could not be excluded by contract (the no exclusion principle) by reference to Henjo and the wider public policy principles identified by the High Court in Equuscorp and Miller. His Honour concluded that the proper juridical basis for the accepted no exclusion principle lay in public policy, observing that public policy demanded the protection of rights under the ACL as they are properly characterised as public rights: at [120].
His Honour went on to consider whether the no exclusion principle extended beyond the exclusion of the statutory norm of conduct provided by s 18 of the ACL to an exclusion or limitation of the remedy provided in s 236 of the ACL and, in particular, the right to commence an action within six years. After considering some other authorities and the public purpose of the remedy, his Honour concluded that the time period provided in the contract for bringing an ACL claim was contrary to public policy notwithstanding it might be considered procedural. He stated at [130] and [137]:
It is not consistent with the public purpose of the ACL to leave claimants uncertain about whether Courts, on a case-by-case basis, will determine contracted time limits to be so unreasonable as to be unenforceable.
…..
To permit claims under the ACL to be defeated by provisions, such as cl 46 in the Subcontracts, would be inconsistent with "the public policy of protection of people in trade and commerce from being misled, and the width of the powers given by the TPA that are apt to be employed in a manner conformable with the just compensation or protection of the representee".
The second principle that MACH propounds and contends is relevant is that public policy cannot be overcome through what might be described as a "defensive ACL counter-claim". That is, where a party seeks to assert that a claim for damages under the ACL itself constitutes misleading or deceptive conduct and characterises their liability for that claim as loss and damage by way of defence or counter claim. The authority cited for that proposition is Venerdi v Anthony Moreton Group Funds Management Limited [2015] 1 Qd R 214; [2013] QSC 219 (Venerdi).
In Venerdi, a plaintiff invested in a managed investment scheme in reliance upon the first defendant's representations and commenced proceedings claiming damages for misleading and deceptive conduct under the Australian Securities & Investment Commission Act 2001 (Cth). The plaintiff's application to participate in the scheme contained a no reliance clause. The defendants filed a defensive counter-claim alleging that the no reliance clause amounted to a warranty that had been breached and also constituted misleading or deceptive conduct as it impliedly represented that the plaintiff had not relied on representations made by the first defendant in making the investment. The defendants sought damages to the extent of any liability they had to the plaintiff for their own misleading conduct arguing that, if the plaintiff succeeded with its damages claim, the defendants would have suffered loss as a result of the plaintiff's conduct.
Jackson J struck out the defensive contractual counter-claim. His Honour accepted the defendants' concession that this counter-claim could not be sustained on the basis that public policy precluded giving effect to a no reliance clause. His Honour considered Henjo and recent High Court cases dealing with principles of public policy and concluded that the representation and agreement should be treated by the Court as unenforceable because it was a 'contract associated with or in furtherance of illegal purposes' contrary to public policy: at [47].
Jackson J also struck out the misleading or deceptive conduct counter-claim but did so for different reasons, concluding that it did not disclose a proper claim for damages. His Honour stated at [69]:
"The liability which each of the defendants wishes to set up as their loss or damage against the plaintiff is the defendants' liability to the plaintiff for their misleading or deceptive conduct. The effect of doing so is not to transfer the defendant's responsibility to a third party for that loss who caused it as between the defendant and the third party. It is to extinguish the plaintiff's claim for loss or damage by the set-off of or satisfaction of judgment. Allowing the defendants' claims, in effect, destroys the value of the plaintiff's statutory right to damages. In my view, that liability of the defendants to the plaintiff is not "loss or damage" with the meaning of ss 12GF or 12GM of the ASIC Act or ss 82 or 87 of the TPA."
Applying the above principles, MACH submits that, just as public policy means the Court will treat as unenforceable a private agreement that seeks to oust the operation of the ACL, the ACL defence must also fail for the same public policy reason. This is because, they submit, the ACL defence seeks to enforce an arrangement that bars or restricts MACH's ACL claim to the narrow circumstances defined in the pleading as a "Limited Exemption" regardless of quantum or whether the claim is made under the Contract or in relation to the Project (at [71I(c)] and [71Z(a)]), and seeks to restrain MACH from recovering its 'ordinary' consequential losses arising from CDJV's misleading or deceptive conduct during the course of the Project or otherwise requiring MACH to honour the Representations as promises: at [71OO]. In other words, MACH submits the ACL defence is bound to fail as it seeks to operate as a complete bar to its claim for consequential losses, and is thus, unenforceable as contrary to public policy.
MACH submits that the cross-defendants' alternative ACL defence, that they have and will suffer loss and damage equal to the sum of any General Consequential Loss awarded by way of damages to MACH for which the cross-defendants seek damages under s 236 of the ACL (at [71PP]), is also bound to fail because the cross-defendants' alleged liability in damages to MACH (which the cross-defendant seek to avoid by reason of the alleged pre-contractual representations) is not "loss and damage" for the purposes of section 236 of the ACL, in accordance with the reasoning in Venerdi.
The third principle relied on by MACH relates to the estoppel defences. They contend that the public policy principle that prohibits parties from contracting out of the ACL cannot be circumvented by estoppel relying, in particular, on the decision of McDougall J in Abigroup Contractors Pty Limited v Sydney Catchment Authority [2005] NSWSC 662 (Abigroup).
In Abigroup, McDougall J considered claims of conventional estoppel and estoppel by representation that were alleged to arise from the terms of a disclaimer clause in a contract. His Honour concluded that, as the claimed estoppels and the terms of the contract were to the same effect, the estoppels could not stand in any different or better position than the argument based on the contract or claimed representations. His Honour held that the estoppel defences could not succeed as the disclaimer clause in the contract was unenforceable for public policy reasons and the estoppel could not prevail against the public rights that s 52 was intended to vindicate: at [71], [74].
The cross-defendants take issue with MACH's reliance on Henjo, Brighton and Venerdi and their characterisation of the ACL defence as operating to exclude or outright bar MACH's statutory remedies for misleading and deceptive conduct under the ACL.
They argue that the true ambit of the Henjo principle has been misunderstood and is more limited than MACH contends. The cross-defendants contend that the essential feature of Henjo, Brighton, Venerdi and most of the other cases relied on by MACH (including those referred to at [46]) is that they were concerned with no reliance and other clauses or documents that sought to deny or negate the effect of misleading or deceptive conduct by a party that led to or procured entry into the contract itself. The cross-defendants argue that the Henjo principle does not apply to the ACL defence as the representations and promises on which they seek to rely did not induce MACH to enter into the Contract, do not seek to invoke a "no reliance" or other disclaimer clause and do not seek to negate pre-contractual conduct on their part.
The cross-defendants also argue that their ACL defence is not concerned with contracting out of or excluding liability under the ACL. Rather, they say that the ACL defence is based on representations relating to a carefully calibrated liability regime that provided for certain heads of damage being available and other forms of loss (such as consequential losses) not able to be claimed, assurances that CDJV would not need insurance for those consequential losses and various counterfactuals, none of which seek to contract out of the ACL. They submit that this means the relevant legal question raised by the ACL defence is not about contracting out of the ACL but whether a contractual provision that imposes a monetary cap on liability or limits on the type of recoverable loss for prospective misleading conduct is void on public policy grounds. They submit that the cases relied on by MACH are of limited assistance on that question and there is no binding authority on that issue.
The cross-defendants also submit that there are competing first instance authorities on the question of whether limits may be placed on ACL claims, referring to Owners SP 62930 v Kell & Rigby Pty Limited [2009] NSWSC 1342 (Kell & Rigby), Lane Cove Council v Michael Davies Associates Pty Limited [2012] NSWSC 727 (Lane Cove Council) and Firstmac Fiduciary Services Pty Ltd v HSBC Bank of Australia Ltd [2012] NSWSC 1122 (Firstmac). They argue that the existence of these competing authorities means that a strike out should not be ordered.
Having regard to the above, the cross-defendants argue that the law in this area is not settled. They submit that the legal and public policy questions raised by the defences should be determined at a final hearing taking into account all relevant facts but say that, if the Court is minded to determine the legal issue, a contractual provision imposing a monetary cap would not be void on the grounds of public policy, relying on principles of freedom of contract and the autonomy of large commercial parties to negotiate at arms-length a liability regime that could operate to place a cap on liability, not just in contract and tort but also for liability under s 18 of the ACL.
The cross-defendants also submit that the estoppel defences are arguable as an estoppel may arise as there is no underlying contract in furtherance of any illegal purposes. They also argue that the estoppel defences should go to trial as the existence of any estoppel is fact dependant.
As to the contract defence, at the start of the hearing, MACH indicated that they consented to the amendments to [71] of the FACCR. After the luncheon adjournment, MACH withdrew its consent and contended that leave to amend to plead the contract defence should also be refused on the same grounds as the ACL and estoppel defences, namely the contract defence will fail as it seeks to exclude MACH's ACL claim contrary to law and public policy. MACH's Senior Counsel explained their change of position from not having appreciated the impact of the move of certain wording in the chapeau of [71] to [71(a)] of the FACCR.
In reply, the cross-defendants' Senior Counsel submitted that the Court should not entertain MACH's objection to the contract defence as it was raised for the first time after oral submissions in chief and that it was too late to deal with the matter on the run.
In DIF III, a party submitted that a clause in a contract that was not induced by misleading or deceptive conduct could operate to exclude or modify liability for misleading or deceptive conduct under the relevant provisions of the Corporations Act 2001 (Cth). While he did not have to determine the issue, His Honour said that, based on Henjo, he would have concluded that the relevant clauses were unenforceable at least to the extent they purported to exclude liability or grant an indemnity in respect of liability under the Corporations Act so as to have the effect of excluding liability based on the statutory causes of action.
There is, therefore, force to MACH's submission that the Henjo principle is well established and has been accepted as settled authority that operates to prevent a party relying on a contractual provision that seeks to exclude or oust liability for misleading conduct under the ACL. The cross-defendants' submission that Henjo is wrong and is of very limited application is, in my view, difficult to sustain.
That said, and as the cross-defendants' submitted, the Henjo principle arose from a case that involved consideration of a no reliance clause and another clause that sought to negate the impact of pre-contractual misleading conduct. The intermediate and High Court authorities to which I was referred also considered similar circumstances and none of them considered the Henjo principle in the context of an arrangement that seeks to exclude or limit liability under the ACL for future conduct, akin to the factual circumstances presented by the new defences.
While I am inclined to the view that the Henjo principle is of broad application as MACH submits it seems to me that there may be an arguable basis for a narrower reading of the principle for the reasons put forward by the cross-defendants.
While not determinative, I also note that the Henjo principle has been the subject of recent criticism. At the hearing, I was referred to an article in which R Scruby SC posits that the reasoning in Henjo cannot stand in light of the more recent High Court cases regarding the law of illegality: R Scruby SC, "Contracting out of Statutory prohibitions against misleading or deceptive conduct" (2019) 47(2) Australian Bar Review 181. JD Heydon has also written about the Henjo principle, contending that it is not binding authority and should, in any event, be reconsidered in light of the modern authorities on public policy. He questioned the application of the principle to contractual provisions that seek to allocate risk amongst commercial parties and commented that, if the Henjo doctrine rendered such a liquidated damages unenforceable, it would be a further reason for questioning it: JD Heydon, Trade Practices Law - Competition and Consumer Law (2020, Thomson Reuters, looseleaf) at [160.1206]; JD Heydon "Avoiding Liability under the Competition and Consumer Act 2010 (Cth)" (2020) 28(1) Australian Journal of Competition and Consumer Law 13.
The cross-defendants' submit that the ACL defence does not seek to enforce "a contracting out" of MACH's rights and remedies under the ACL, but raises for consideration the issue of whether parties can seek to limit their liability under the ACL. More particularly, it seems to me that the question raised by the ACL defence is the extent to which large commercial parties can agree to limit their liability for claims of loss caused by future (post-contractual) misleading or deceptive conduct by way of monetary caps and liability limits by reference to particular heads of loss.
In my view, that question arises as it is arguable that the underlying arrangement sought to be relied on by the cross-defendants' ACL and estoppel defences provides for limits on what may be recovered by MACH in accordance with a negotiated limitation of liability regime, rather than an outright denial of MACH's right to pursue their statutory remedies. While accepting that the ACL and estoppel defences seek to restrict MACH from recovering their ordinary consequential losses, the representations and promises pleaded by the cross-defendants leave open the possibility that CDJV may be liable for direct losses or losses in respect of a Limited Exemption because of their misleading conduct and arguably do not operate as an outright bar as MACH contends.
As the parties acknowledged at the hearing and as noted by Ball J in Omega Air Inc v CAE Australia Pty Limited [2015] NSWSC 802 (Omega) at [31], the question of whether public policy prohibits parties from agreeing on limits on their liability under the ACL for post-contractual conduct has not been considered by the High Court or an intermediate Court of Appeal. It was also not the subject of consideration in Henjo.
The first instance decisions to which reference was made at the hearing do not deal with that question. For the most part, they considered clauses that imposed temporal limits on bringing claims for misleading or deceptive conduct. The cases that referred to monetary limits did so without regard to public policy and the High Court authorities since Henjo that have explored the extent to which the policy of the law will render agreements unenforceable: see, for example, Equuscorp; Miller; Westfield; Gnych v Polish Club Ltd (2015) 255 CLR 414; [2015] HCA 23 at [70].
In Kell & Rigby, McDougall J considered a contract that contained clauses that limited liability and imposed a time limit for making claims. His Honour recognised that one of the commercial advantages and purposes of a clause that limits liability is to enable a party to rule off its books once the monetary amount had been reached to assist with the cost of insurance (at [20]) and concluded that the clause imposing the temporal limit applied to TPA claims based on the proper construction of the clause. His Honour did not consider whether public policy or the Henjo principle impacted on the parties' rights and noted that no submission had been made to the effect that the temporal limitation may have conflicted with or should be read down by reference to a limitation period provided in s 82(2) of the TPA: at [26]-[28], [30].
In Lane Cove Council, Sackar J considered a contract that included clauses that provided for temporal and monetary limits on claims under s 52 of the TPA. His Honour referred to the "thrust of McDougall J's judgment" in Kell & Rigby and said that the clauses "simply reflect[ed] the parties' intentions to impose temporal and monetary limits on the damages that may be awarded under provisions such as s 82": at [73]. His Honour concluded that the clauses did not amount to a contracting out of the TPA and did not refer to Henjo.
In Firstmac, Sackar J upheld a clause that rendered a claim under the TPA absolutely barred unless brought within a time frame set by the contract. His Honour construed the clause as an agreement to fix a shorter time for bringing claims and not one that contracted out of or operated as a bar to or exclusion of a right to claim or recover under the TPA and stated (at [38]):
In my opinion a distinction clearly needs to be drawn between a contractual term purporting for example to bar a statutory remedy altogether and one that purports to impose a monetary or temporal limit on the extent of the remedy.
In Omega, Ball J accepted that it was reasonably arguable that the parties could not contract out of the six year limitation period imposed by s 236(2) of the ACL notwithstanding the decisions in Lane Cove Council, Firstmac and Kell & Rigby. His Honour also observed that the argument raised a difficult question that was not appropriate for determination on a final basis on an amendment application.
In Brighton, Riordan J considered the no exclusion principle from Henjo from a public policy perspective and had regard to some of the High Court cases. Like many of the cases to which I was referred, Brighton involved a claim by a party who alleged they had been induced to enter into a contract by the misleading conduct of the other party. The clause in the contract that Riordan J had to consider could also be described as an "extreme" provision, allowing for only seven days for a party to bring a claim for misleading or deceptive conduct before the claim was absolutely barred. In that context, and having regard to the New South Wales cases, I am not persuaded by MACH's submission that the Court should follow Riordan J's decision in Brighton on this application and find that the amendments operate as an outright bar to MACH's claim for damages under s 18 and 236(1) of the ACL.
The assessment of whether an agreement is unenforceable for statutory illegality requires consideration of a range of circumstances, including the nature, scope and terms of the statute, the nature of the evil against which it is directed, the nature of the conduct prescribed and the pre-existing state of the law: Miller at 459-460.
I accept there are indicators in the authorities that support the conclusion that an agreement that seeks to limit a party's right to pursue remedies under the ACL for future misleading conduct would be unenforceable as contrary to public policy. The ACL has been identified as a fundamental piece of remedial and protective legislation which give effect to matters of high public policy: Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; [1998] HCA 69 at 528. It is a public policy statute that could be said to confer statutory rights in the public interest, rather than for the benefit of an individual alone: Westfield at [46].
If limits can be placed on liability, it is also difficult to see where the line should be drawn on what limit is acceptable and not, and how commercial parties would determine what may be reasonable and enforceable going forward: Omega at [31]; Brighton at [130].
However, like Ball J in Omega, I am also of the view that the argument about whether limits on liability on ACL claims can be agreed raises a difficult legal and public policy question and one that is not appropriate to determine on a final basis on an amendment application, particularly in the absence of High Court or clear binding intermediate authority on that question.
While it is open to determine a question of law and policy in a summary fashion on this application, and despite being urged to do so by MACH, in my view, it would be preferable for the question raised in this case to be determined by the trial judge with all the facts and circumstances before the Court.
As Bell P recognised in Bakewell v Anchorage Capital Master Offshore Limited [2019] NSWCA 199, the identification and articulation of contemporary public policy may require the receipt of evidence: at [76]. I am also not persuaded that the factual context of the transaction and the impact of the liability limits on MACH's ACL claim would not be relevant matters for the Court to consider on the question of whether it would be contrary to public policy for the cross-defendants to seek to rely on an arrangement that reflects a negotiated and detailed limitation of liability regime and has the effect of imposing a limit on the damages recoverable on MACH's ACL claim.
As to MACH's reliance on Venerdi, I accept the cross-defendants' submission that it may be distinguished and that it is arguable that it should not be followed in this case. Three points can be made about Venerdi.
First, it concerned a defensive counter-claim that sought to exclude a plaintiff's claim for damages based on a no reliance clause, rather than a defence based on misrepresentations concerning a negotiated liability regime and the need for insurance.
Second, the conduct relied on as misleading by both parties was closely connected as it arose out of and related to the same transaction. In this case, the misleading conduct relied on by MACH is unrelated in time and subject matter to the conduct relied on by the cross-defendants as part of their ACL and estoppel defences.
Third, Jackson J's finding that the defendants' liability to the plaintiff could not be loss and damage seems to have been premised on the defendants' counterclaim being a "no transaction" category of case and the public policy principle that precluded giving effect to a no reliance clause: at [52], [54], [55]. In contrast, the ACL defence pleads a range of counterfactuals, most of which contemplate an ongoing transaction but on different terms, and does not seek to invoke a no reliance clause by way of defence.
In my view, it is also significant that the Representations that form the basis of the ACL and estoppel defences were made in the context of the issue of insurance. For the purposes of this application, the FACCR is to be taken at its highest. That is, it is to be accepted that the Representations were made, were misleading and relied on by CDJV; that CDJV entered into the Contract without Project specific insurance to cover consequential losses of the type now claimed; and that, if they had known the Representations were misleading, CDJV would have entered into the Contract having obtained Project specific insurance to cover consequential losses of the type now claimed by MACH, with that insurance premium paid for by MACH or by CDJV.
There is, therefore, a factual matrix pleaded by way of defence that does not rely on or seek to enforce an exclusion clause and is unconnected to the liability regime contained in the Contract. It also seems to me to be arguable that the facts relating to insurance could give rise to loss of the nature claimed by the cross-defendants, namely not having the benefit of insurance under which to claim indemnity to meet MACH's damages claim, and that the loss claimed by way of relief is arguably not objectionable on public policy grounds. Whether the cross-defendants will be able to establish that not having the benefit of insurance equates to the loss claimed by MACH and that some form of set-off relief should be ordered or estoppel arises by way of defence to MACH's ACL claim can only be determined at trial.
The debate in this case is whether it is unarguable that CDJV, who allegedly misled MACH in the context of an ongoing contractual arrangement that contained a detailed limitation of liability regime, can seek to offset or escape liability for certain losses caused by their allegedly misleading conduct based on defences that assert that MACH misled CDJV some years earlier by representing to CDJV that it would not be liable for those losses and did not need insurance for them. Put another way, should the Court refuse leave to amend and enable MACH to escape liability for their allegedly misleading conduct because the ACL and estoppel defences that seek to defeat MACH's ACL claim are so obviously untenable that they cannot possibly succeed?
In my view, the answer to those questions is no. While I have reservations as to the ultimate success of the ACL defence, the question is not whether the defence will succeed but whether it is manifestly hopeless or bound to fail. Based on the current state of the authorities, the uncertainty regarding the extent to which parties can seek to limit their liability under the ACL and the other matters to which I have referred, I am satisfied that the ACL defence is not so unarguable as to warrant precluding it from being advanced.
MACH accepted at the hearing that the estoppel defences "rise and fall together" with the ACL defence as they raise the same public policy considerations and that if leave to amend to rely on the ACL defence was granted, leave would also be granted to amend in respect of the estoppel defences.
The contract defence raises similar issues to that canvassed in respect of the ACL defence. In that context, and having regard to the stance adopted by MACH at the hearing, I am also satisfied that the contract defence is not unarguable.
As to case management, MACH points to the time and cost they will incur if they are required to respond to the new defences. Their solicitor estimates that it will take three months to investigate the factual matters raised by the amendments and prepare an amended Reply and involve legal costs in the order of $600,000. In my view, those costs themselves are not a reason for disallowing the amendments, although they are relevant to the costs order I propose to make.
The cross-defendants submit, and I accept, that the amendments are necessary to determine a real question in the proceedings, namely whether MACH has a valid entitlement to claim consequential loss, and that they would be prejudiced if leave to amend is refused as the amendments raise defences which, if successful at trial, have the prospect of defeating or reducing MACH's significant ACL damages claim. I also take into account that to refuse the amendments would have the effect of precluding the cross-defendants from asserting their own statutory rights under the ACL.
The proceedings are at relatively early stage. No hearing date has been allocated and the evidence is not yet complete. I am also satisfied with the explanation given as to the reasons why the amendments were sought some months after the close of pleadings. I note that MACH did not take issue with the explanation given.
While there would be an advantage in cutting away what might be described as a difficult cause of action, refusing leave to amend will not bring to an end the action entirely. There is also a prospect that the issues raised on this application could be considered by an appellant Court whatever the outcome. It seems to me to be preferable for the case to proceed in full with all issues in dispute going on appeal at the same time with the benefit of any relevant factual findings.
For these reasons, I have concluded that it would be consistent with the dictates of justice and the provisions of ss 56 and 57 of the CPA to grant leave to the cross-defendants to amend to plead the ACL, estoppel and contract defences in the form of the FACCR.