Contract Law – Terms of a Contract
Contract law comes from case law or judge made law and legislation such as the Australian Consumer Law.
A contract is a binding agreement between parties (individual people or companies). To read more about what a contract is and how it is formed, see our blog on the Winter v Nemeth case.
Contracts contain ‘words’ or ‘terms’ that explain;
- what the agreement is about,
- what each party should do and when they should do it
- details about whether money is to be paid and by whom
- the responsibilities of each party (called ‘terms of the contract’).
Contracts are usually written down and signed by each party, for example when you get a new mobile phone plan from a telecommunications company.
Not all contracts, have to be in writing or signed to be legally binding.
Disputes in business or commercial contracts can often arise about the wording of the terms of a contract. The dispute is often about what the words mean and the resulting outcome for the enforceability of the contract. The meaning of the terms of a contract is important. It can affect what responsibilities a party has under that contract and what happens if one of the parties does not follow the terms of the contract.
An example of this would be:
A person signs a contract with a builder to pay $1000 to build a new fence. The contract terms say that the fence will be constructed of wooden palings. The contract is binding on both parties. The builder constructs the new fence using Colourbond metal panels. The person refuses to pay the builder the $1000. There is a dispute between the person and the builder. The terms of the contract are clear; the $1000 was to be paid for the construction of a wooden fence, not a metal one. A court would likely order the builder to rebuild the fence using wood, as he agreed to that under the contract.
Many contracts contain exclusion clauses, which are terms that state that one party cannot be held responsible if certain things happen.
For example, an exclusion clause might state that a hotel is not responsible for any valuable items that a person might leave in a hotel room. In another case a contract for a mobile phone might state that the phone company will not be responsible for any damage to the phone, that is caused through its misuse.
On 5 October 2012 Mr Bretz was filling his car at a petrol station, when he tripped over a concrete base, on which the petrol bowser stood. Mr Bretz suffered injuries to his right shoulder and wrist. The owner of the petrol station was Thistle Company of Australia Pty Limited (“Thistle”). Mr Bretz sued Thistle for negligence in the Queensland District Court, as he said they were responsible for his fall, due to the way they had designed and built the concrete base, over which he had tripped.
Some time before Mr Bretz’s accident, Thistle had changed the design of the concrete base. It had previously been painted yellow, with a sloping edge. At the time of the accident, it had been changed to have higher square edges and was painted black to match the colour of the roadway.
Mr Bretz won his negligence claim in the Queensland District Court. Thistle appealed to the Queensland Court of Appeal.
In the District Court and the Court of Appeal Thistle claimed that they were not responsible for the accident, as they had entered into a contract with an engineering company for the design of the concrete base. Thistle said that the engineering company had been negligent, due to their poor design of the concrete base and therefore they and not Thistle were responsible for the accident.
See our blog for further discussion on the Thistle negligence case including details on the law of negligence.
The Contract with Thistle
The contract between Thistle and the engineering company contained an exclusion clause. That clause read:
“After the expiration of one (1) year from the date of invoice in respect of the final amount claimed by [the engineering firm]…, [the engineering firm] shall be discharged from all liability in respect of the services whether under the law of contract, tort or otherwise.”
This clause meant that the engineering company could not be held responsible for any poor design or construction work, more than one year after it had issued a final invoice to Thistle.
In this case, the court found that the engineering company issued its final invoice in 2010; that is more than one year before Mr Bretz’s accident. Thistle therefore could not argue in court that the engineering company should be liable for the accident, instead of them, as the accident occurred in 2012.
As the exclusion clause in the contract meant that the engineering company could not be found liable instead of Thistle, the court did not have to look at whether there was a fault in their design of the concrete base.