Selling a fair and equitable contract

1
Selling a fair and equitable contract

• Nicola Grayson
• National Policy Manager
• Association of Consulting Engineers Australia

2
What is a contract?

• An agreement that the law will enforce.
• An agreement creating and defining obligations
  between 2 or more parties.
• This is an area of private law the parties are
  free to establish the terms.
• What laws apply?
• Statute law
• Common (case) law.

3
What does a contract look like?

• Formal signed documentation, the written word.
• Informal words, handshakes etc.
• Theory Parties freely coming together to
  negotiate a fair bargain.

4
Purpose of a contract (theory)

• Consistency, clarity, certainty between the
  parties.
• A document (not necessarily) that
• Allocates rights and obligations
• Contains the entire agreement.
• A process that creates a business relationship.
• Establishes expectations.
• Lowers the risk of dispute and magnitude of
  dispute.

5
Theory versus reality

• A contract is a fair and equitable bargain
  between two parties?
• Reality Inequality of bargaining power between
  the individual and companies, insurers, the
  government.
• Erosion of the purpose of a contract.

6
Where has it gone wrong?

• Significant costs associated with failure to
  eliminate/mitigate risk.
• Typical costs/losses
• Personal injury
• Property damage
• Economic loss.
• Inequality in bargaining power exposes
  consultants to risks that are outside the
  professionals duty of care, skill and knowledge.

7
Example of contractual risk transfer

• Without limiting the Consultants other
  obligations under the Contract the Consultant
  must,clean up and restore the Environment,
  including any Contamination or Environmental Harm
  arising out of or in any way in connection with
  the Services, whether or not it has complied with
  all Statutory Requirements or other requirements
  of the Contract for the protection of the
  environment.

8
Selling the benefits of a fair and equitable
contract

• So what do you do?
• Demonstrate the costs to the client of accepting
  risks outside your control.
• Send the market signal that something is wrong
• Price the risk
• Be prepared to walk away.
• Explode the myth that risk transfer means that
  the risk is managed.

9
Selling the benefits of a fair and equitable
contract (cont)

• Explain the gaps in insurance
• Highlight the liability exposures
• Negotiation now will save litigation costs down
  the line.
• Sell your services and develop solid client
  relationship.
• A more equitable contract will encourage,
  collaboration, quality and innovation.

10
Proportionality

• What does the client really want?
• Acceptance of failure to exercise your
  professional standard of skill and care.
• Proportionate liability by contract
• At the very least is the client prepared to
  reduce the claim by the amount that they
  contributed to the loss.
• Three little words.....

11
Australian Defence Design Services Contract

• The consultant must indemnify the Commonwealth
  against
• Any liability to or claim by a third party
  including a subconsultant or other contractor
  and
• All costs and damages suffered or incurred by the
  Commonwealth,
• to the extent arising out of or in connection
  with any breach by the consultant of a term of
  this contract.

12
Limitation of liability

• Why not try for a limit of liability (loss and
  time)?
• Note if you have achieved a fair and balanced
  contract you may not need to rely on it.
• Argument for all liability is in effect limited,
  so this gives greater certainty of what losses
  can be recovered.
• Argument against if the party has behaved so
  recklessly and negligently, why should there be a
  limit on the amount recoverable?

13
What will the Courts do?

• Courts will consider
• The background facts
• The setting in which negotiations took place
• The negotiations
• The facts objectively known to the parties
• What they said, wrote and did or did not do
• Any other matters which bear on the question.
• Conduct of the parties and the written word is
  key.

14
ACEA Standard Consultant Contract

• Hyder Consulting v Wilh Wilhemsen 2001 NSWCA
  331
• Hyder (engineer) put in writing, We propose that
  our appointment be in accordance with the ACEA
  Conditions of Engagement.
• Wilh Wilhemsen (architect) confirmed the
  engagement and replied, Please forward to Mr G
  Northausen client a copy of ACEA Conditions of
  Engagement, for his information and approval at
  your earliest convenience.

15
ACEA Standard Consultant Contract (cont)

• Engineer did not provide a copy of the ACEA
  conditions of engagement.
• Were the ACEA conditions of engagement
  incorporated into the contract?
• A500,000 question.
• Court of Appeal held that the engineer performed
  the work, the client paid and took the benefit
  by conduct the terms had been accepted.

16
Outcome of case re ACEA limitation of liability

• The ACEA contract contains a limit of liability,
  both in quantum and time.
• Case was dismissed because the case had been
  brought after the expiry of the 1 year limitation
  of liability.
• Success for standard terms and conditions, Court
  noted that copies were readily available from
  ACEA and they were known in the market place.

17
Standard conditions of contract

• Are they a help or a hindrance?
• Issues
• Are they fair and equitable?
• Have the parties to the contract negotiated them?
• How regularly are they reviewed?
• Major role for Member Associations in encouraging
  the use of fair and equitable standard terms.

18
Benefits of Standard Contract - Checklist

• Consistency, clarity, certainty between the
  parties.
• A document (not necessarily) that
• Allocates rights and obligations
• Contains the entire agreement.
• A process that creates a business relationship.
• Establishes expectations.
• Lowers the risk of dispute and magnitude of
  dispute.