Summary
In Hestbay Pty Ltd v One Sector Pty Ltd [2024] QSC 180, the Queensland Supreme Court delivered an important judgment that sheds light on how the court will assess contractual disputes and what businesses must do to protect their interests.
This decision reinforces a contractor’s duty to strictly adhere to contractual specifications and highlights that a contractor’s liability will not extend to damage resulting from activities that fall outside the structure’s intended use.
This decision also demonstrates the risks of insufficient evidence and vague contract terms in commercial agreements, and provides lessons on how to safeguard your business against similar challenges.
What happened?
Hestbay Pty Ltd filed a claim against One Sector Pty Ltd, alleging that One Sector had breached its obligations under contract by failing to meet performance standards and deadlines. In particular, Hestbay claimed that One Sector had failed to construct a concrete slab in accordance with the contractual specifications and as a result, failed to construct a warehouse that was fit for purpose in breach of the warranties provided by One Sector. Hestbay sought damages for this alleged breach, asserting that One Sector’s conduct was inconsistent with the agreed terms.
However, it was unclear which contractual terms governed the design and construction of the concrete slab, as the contract documents provided to Hestbay contained two inconsistent documents, being an AS4902-2000 contract and a tender letter.
The Supreme Court of Queensland dismissed the claim, finding that Hestbay had not provided sufficient evidence to prove that One Sector had failed to meet the contract’s terms. The court determined that the AS4902-2000 conditions and the tender letter together formed the contractual framework and that the AS4902-2000 conditions applied to the extent they were not inconsistent with the terms expressly agreed by the parties, including those spelt out in the tender letter.
The judgment focused on the vagueness and ambiguity in the contract’s language, which failed to clearly define the performance standards and obligations at issue. As a result, Hestbay could not substantiate its claims of breach, and the case was dismissed.
Why is this important?
The outcome of Hestbay serves as a caution for businesses. When key obligations and performance criteria are not clearly defined, it becomes difficult to demonstrate that a breach has occurred.
This case highlights the broader risks of poorly drafted contracts in business. Ambiguity can lead not only to failed claims but also to prolonged legal battles, reputational damage, and financial loss. Clear contract terms are essential for ensuring that all parties understand their obligations and for reducing the likelihood of disputes.
What do you need to do?
To avoid a similar outcome, businesses should take the following steps:
- Ensure Contract Terms are Clear and Unambiguous:
Vague or imprecise language can leave room for interpretation, making it difficult to prove a breach in the event of a dispute. Contracts should clearly outline performance expectations, deadlines, and any measurable criteria for success. If there are any areas of potential conflict or ambiguity, these should be addressed explicitly.
- Define Key Terms and Standards:
It’s essential to specify what constitutes “performance” under the contract. Terms like “reasonable efforts,” “timely delivery,” or “acceptable quality” can be interpreted in different ways. Businesses should strive to eliminate subjective language and, when possible, set objective criteria for performance that are easily measurable.
- Address Potential Conflicts Upfront:
It’s vital to review the contract as a whole to ensure consistency.
- Review and Update Regularly:
Template contracts should be regularly reviewed to account for any changes in business practices, regulatory environments, or industry standards. If a dispute arises, having a well-drafted, up-to-date contract makes it easier to enforce your rights and obligations.
How can HWLE help you?
At HWLE, we specialise in drafting and reviewing commercial contracts to ensure they are clear, precise, and legally enforceable. Our experienced legal team works closely with businesses to protect them from the risks associated with unclear or conflicting terms by creating agreements that are both effective and enforceable. We also conduct thorough reviews to identify and resolve any inconsistencies or conflicting clauses that could lead to future disputes. In the event of a dispute, we provide strong legal representation, helping businesses build a solid case with clear evidence to support their position and navigate the complexities of contract enforcement.
This article was written by Colin Harris, Partner and Zeena Lederhose, Solicitor.
