Limitations of liability clauses trumped by the Australian Consumer Law

The recent Victorian case of Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246 (Brighton Decision) has cast further doubt on the definitive answer to an important legal question: Do limitations of liability clauses apply to claims made under section 18 of the Australian Consumer Law (ACL)? In other words, can a party seek to limit their liability for misleading or deceptive conduct, for example, by imposing time limits under which the other party must bring a claim or by capping the amount that the other party can claim?

Up until the Brighton Decision was passed, while parties could not exclude liability under or “contract out of” section 18 of the ACL¹, a number of NSW decisions had paved the way for procedural limitations (such as a time limits or monetary caps) to be imposed on such claims.

For example, in Owners SP 62930 v Kell & Rigby [2009] NSWSC 1342, Justice McDougall held that there was no reason why the limitation of liability clause that imposed a time limitation on making a claim could not be applied to a misleading or deceptive conduct claim under section 52 of the Trade Practices Act (the precursor to section 18 of the ACL), despite the fact that the Act had a prescribed limitations period (as does the ACL). His Honour also indicated in that case that the limit on the amount of damages prescribed in the contract would also stand. Similarly in Firstmac Fiduciary Services Pty Limited & Anor v HSBC Bank of Australia Limited [2012] NSWSC 1122 and Lane Cove Council v Michael Davies & Associates and Others [2012] NSWSC 727, Justice Sackar held that the exclusion clause which imposed a limit on the time for any claims to be made was valid.

What could flow from allowing parties to impose a procedural limitation to a section 18 claim (as opposed to excluding a section 18 claim) is that a party could impose an unreasonable limitation of liability (e.g. limiting damages to say $1 or imposing a time limit of 24 hours in which to make a claim). In such circumstances, the court would have to then consider whether the limitation imposed in the contract was acceptable. Justice Ball, who departed from the thinking of the previous NSW decisions, alluded to this potential unsatisfactory outcome when he stated in Omega Air Inc v CAE Australia Pty Ltd [2015] NSWSC 802 that “if the parties can agree to limitations on those rights, it is not easy to see how the line can be drawn between those limitations that are acceptable and those that are not.” In that case Justice Ball maintained that the parties could not contract out of the six year limitation period in the ACL.

Brighton Decision

Brighton Australia Pty Ltd (Brighton) was a plastering subcontractor who was engaged by Multiplex Constructions Pty Ltd (Multiplex) under subcontracts to carry out building works at a new office building in Melbourne’s Docklands. Brighton alleged that Multiplex had engaged in misleading or deceptive conduct under section 18 of the ACL by providing a construction program with the tender documentation that did not take into account significant procurement delays which were known to Multiplex.

Multiplex argued among other things that the subcontracts operated to exclude liability for such a section 18 claim if Brighton did not give a notice of a claim within the prescribed time limit under the contract (being within seven days of Brighton becoming aware of an event in respect of which a claim could be brought or when it could have reasonably been aware of its entitlement to make a claim, whichever was the earlier). It was common ground that the prescribed notice had not been served within the time limit set out in the subcontracts.

Mutiplex argued that the NSW cases which allowed a procedural limitation to a section 18 claim applied and that the time limitation was lawful. Brighton argued that section 236(2) of ACL allowed it six years from the cause of action accruing to bring a claim and that the subcontract could not override section 236(2).

Although ultimately Brighton’s claim failed because the alleged misleading or deceptive conduct could not be established, Justice Riordan held that limiting the period in which parties can claim for misleading or deceptive conduct is contrary to the public policy of the ACL. In his decision, he stated “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”.

Justice Riordan acknowledged that his decision was a departure from the line of authority cited by Multiplex (referred to above), but reasoned that his decision was consistent with Justice Ball’s view in Omega Air Inc. v CAE Australia Pty Ltd [2015] NSWSC 802 that parties could not contract out of the six year limitation period applicable to section 18 claims under section 236(2) of the ACL.

Implications

In the absence of a decision by an appellant court in Australia, this case has significant ramifications, both in the context of general commercial contracting (procurement, supply chain and constructions contracts) and in the context of business and/or share sale transactions.

In the context of sale transactions, parties need to be mindful that the limitation of liability clauses contained in their sale contracts could be challenged on the same grounds as they were challenged in Brighton. Notably, claims for breach of a warranty under a business or share sale agreement will commonly allege both a breach of contract under the common law and a breach of statute (ie. a section 18 claim). What the Brighton Decision implies is that while a breach of warranty claim framed as a common law claim would ordinarily be subject to the limitation of liability provisions in the agreement, a section 18 claim may not be.

In the context of contracts used in the supply chain (such as procurement or supply contracts) or construction contracts, reliance on limitation of liability clauses will also need to be considered (by parties and where applicable their insurers) on the basis of the Brighton Decision.

This article was written by Teresa Torcasio, Partner and Marian Ngo, Senior Associate.

¹For example, in Re Henjo Investments Pty Limited; Henry Saade, Saade Developments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 40 [49], the court stated “It has been held that exclusion clauses…cannot operate to defeat claims under s. 52 [the precursor to section 18 of the ACL]”. The “no exclusion” principle was acknowledged by the High Court in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25 [130] (Gummow, Hayne, Heydon and Kiefel JJ), in which the court stated “…of itself, neither the inclusion of an entire agreement clause in an agreement nor the inclusion of a provision expressly denying reliance upon precontractual representations will necessarily prevent the provision of misleading information before a contract was made constituting a contravention of the prohibition against misleading or deceptive conduct by which loss or damage was sustained…”.