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Can ship owners avoid limitations and exclusions contained in contracts for the supply of goods or services to their ship?

13 September 2021

#Transport, Shipping & Logistics

Published by:

Joshua Clarke

Can ship owners avoid limitations and exclusions contained in contracts for the supply of goods or services to their ship?

It is often the case that a charterer or ship manager engages a contractor to provide goods or services to a vessel in Australia (e.g. bunkers or repairs). To whom does the contractor owe duties, and will limitations or exclusions in the contractor’s terms be effective? For answers to those questions, the obvious starting point is the contract itself. But, it would be wrong to stop there.

Under Australian law, the contractor may owe additional statutory or tortious duties, including to people it does not have a direct contractual relationship with, such as the vessel’s owners. But, crucially, limitations and exclusions of liability struck in the contractual bargain with the charterer or ship manager may not apply to any claim brought by the ship owner.

In the recent decision of Tregidga v Pasma Holdings Pty Limited [2021] FCA 721, the Federal Court of Australia (the Court) held that the ship owners were owed duties outside of any contract and were not bound by the limitations and exclusions of liability contained in the relevant contracts. The key takeaways are:

  • ship owners suffering a loss in respect of goods and services provided to a ship in Australia may not be bound by the contractor’s terms and should consider other potential rights against contractors
  • contractors providing goods or services to vessels in Australia should ensure that all relevant stakeholders are parties to any contract and bound by the terms of the contract, or run the risk that contractual limitations and exclusions will not effectively defend any claims.

Background to the decision

In 2015, Ross Tregidga and Catherine Jenkins (the applicants) decided to establish a business in North Queensland sailing tourists from Cairns to the Great Barrier Reef. They incorporated Allure Cruises Pty Limited (Allure) to operate that business. Mr Tregidga travelled to Turkey to find a suitable vessel, and the applicants settled on the “Miss Angel”, a vessel of traditional Turkish design. The applicants purchased the “Miss Angel” in the name of Allure, but ultimately transferred ownership to themselves as individuals according to a bill of sale to export her to Australia in compliance with Turkish law.

When the “Miss Angel” arrived in Cairns, she required extensive works to be brought up to the requisite Australian commercial survey standard. On 28 April 2016, the applicants, through Allure, engaged BSE Cairns Slipways Pty Ltd (BSE) to carry out some of the necessary works according to a written agreement in the form of a “SLIPWAY/REPAIR BOOKING FORM” (Slipway Contract). In addition, BSE recommended specialised contractors for other works, including Pasma Holdings Pty Limited (Pasma) for the requisite electrical works. The applicants subsequently engaged Pasma by verbal agreement to undertake those repairs and upgrade works.

While Pasma was completing the works, a fire started in the “Miss Angel” engine room and caused extensive damage to the vessel. An electrician employed by Pasma, Benjamin Tilton, had been working on the vessel’s battery banks in the engine room earlier that day.

The applicants sued Pasma for damages, alleging that its breach of contract or its breach of a statutory guarantee and/or the negligence of Mr Tilton, for which it was vicariously liable, caused the fire.

Issues

The key issues for the Court’s determination were:

  • ownership of the vessel – who was the owner of the “Miss Angel” at the time of the contract with Pasma and the fire? Allure or the applicants? This would determine which party Pasma owed a duty of care to under general law
  • contracting parties – who did Pasma contract with when it was engaged to work on the vessel? Allure or the applicants? This would determine whether the applicants had any contractual remedy against Pasma
  • application of the Australian Consumer Law (ACL) – were the applicants ‘consumers’ according to the statutory guarantee under section 60 of the ACL? If so, were they entitled to sue Pasma for breach of the guarantee even if they were not parties to a contract with Pasma?
  • applicability of contractual limitations and exclusions of liability – what was the scope of the duty of care under general law, contract and section 60 of the ACL? Was the scope of any such duty determined or affected by either the terms of the contract with Pasma, or the terms of the Slipway Contract between Allure and BSE?
  • breach and causation – did Pasma breach its duty of care, section 60 guarantee or contract? Did the breach cause the fire?

Ownership of the vessel

The Court held that the applicants, rather than Allure, were the legal and equitable owners of the vessel at the time of the contract with Pasma and the fire. An email sent by Mr Tregidga to the vessel’s insurer before the vessel left Turkey showed the applicants intended to transfer ownership back to Allure after it arrived in Australia. However, there was no evidence the applicants had in fact transferred ownership back to Allure before the fire, such as a bill of sale or similar document (required under sections 36 and 37 of the Shipping Registration Act 1981 (Cth)). As a result, the Court found that Pasma owed a duty of care to the applicants.

Contracting parties

On the other hand, the Court agreed with Pasma that it was Allure, not the applicants, with whom Pasma had contracted to undertake the electrical works. An objective assessment of the relevant surrounding circumstances led to this finding. In particular, almost all dealings with the “Miss Angel” after she arrived in Australia were conducted by Allure and certain contemporaneous documents supported this.

For example, the Slipway Contract with BSE bore Allure’s full legal name, Australian Company Number and address. Further, Pasma’s invoice for the electrical works rendered before the fire was issued to Allure and contained details of the company, including its business address, which the applicants themselves most likely provided. A witness for the respondent claimed Mr Tregidga had asked that invoices be addressed to Allure, which Mr Tregidga did not deny. All of this, the Court held, was consistent with the applicants’ original intention that Allure would conduct the tourism business.

Accordingly, Pasma owed no contractual obligations to the applicants that they could enforce in their own right.

Application of the ACL

Despite not being party to a contract with Pasma, the applicants maintained that, as ‘consumers’, they were still entitled to rely on the guarantee in section 60 of the ACL, which states:

“If a person supplies, in trade or commerce, services to a consumer, there is a guarantee that the services will be rendered with due care and skill.”

The right to pursue damages for a breach of the guarantee provided by section 60 is contained in section 267(4) of the ACL, which states that:

“The consumer may, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure.”

At the time, a person was taken to have acquired services as a ‘consumer’ if:

  • the amount paid for the services did not exceed A$40,000, or
  • the services were of a kind ordinarily acquired for personal, domestic or household use or consumption.

The expression ‘acquire’ is defined in section 2 of the ACL to include ‘accepting’ the provision of services.

The Court agreed with the applicants that they were protected by the guarantee in section 60 of the ACL. As the Court pointed out, case law establishes that the ACL’s consumer guarantees can apply whether or not there is a contract, including where the beneficiary of the services is a third party.

The applicants were beneficiaries of the works that Pasma carried out on the “Miss Angel” under its agreement with Allure. Because they ‘acquired’ those services, in the sense of having accepted them, they could qualify as being consumers of those services. Moreover, Pasma’s invoice evidenced that the amount paid for the works was A$4,122.38 – well within the statutory threshold in force at the time. Accordingly, the applicants were entitled to pursue damages under section 267(4) of the ACL.

Were the ship owners bound by contractual limitations and exclusions of liability?

Under the Slipway Contract between Allure and BSE, BSE excluded all liability of itself and any contractors. Pasma sought to invoke this contractual exclusion of liability in response to the claim by the applicants. The Court ultimately held that Pasma was not a party to that contract and so could not rely on the exclusion. Although it was not necessary for the Court to consider the issue, it would likely have held that the exclusion could not be used as a shield against the claim of the applicant as:

  • the applicant was not a party to that contract and was therefore not bound by its terms
  • Pasma was subject to the statutory duty to exercise due care and skill, which cannot be excluded under the ACL in any event.

Pasma further sought to rely on limitations and exclusions in its own terms and conditions, which were referred to in its invoices to Allure. Again, the Court held that, as the applicants were not a party to such contract, they could not be subject to any such terms.

The scope of Pasma’s duty of care to the applicants was therefore dictated by the statutory ACL, rather than any terms of contract between any of the entities involved. As a result, Pasma could not rely on any of the contractual limitations or exclusions of liability.

Breach and causation

Ultimately, the Court held that Pasma had not breached its duty of care, and in any case that the conduct of its employee did not cause the fire. These conclusions were based on factual findings relating to the particular work done by Mr Tilton on the day of the fire and the particular mechanism which caused the fire, among other things. Accordingly, Pasma had also not breached its section 60 ACL guarantee of due care and skill in carrying out the works.

Conclusion and takeaways

While the applicants were ultimately unsuccessful in their claim against Pasma on factual grounds, several notable preliminary issues were decided in their favour. These issues have broader significance to ship owners and those providing goods or services to them or for their benefit:

  • when doing business in Australia, commercial parties may have rights and obligations beyond what is written in any contract. Therefore, even if it is not your signature on the dotted line, you may still owe or be owed duties under general law or under the ACL
  • the consumer guarantees under the ACL apply to certain transactions even when there is no contract in place. Where there is a contract, these guarantees may extend protection to non-parties in some circumstances. The ACL frequently provides remedies beyond those available under general law or contract, which contractual limitations of liability cannot exclude
  • on 1 July 2021, reforms to the ACL raised the ceiling on the ‘consumer’ threshold from A$40,000 to A$100,000. This means that goods and services costing A$100,000 or less will now come within the scope of the ACL and its consumer guarantees, capturing a much greater range of transactions. This has potentially significant implications for businesses, especially those who may not have previously been subject to the ACL.

Holding Redlich has extensive experience in helping and advising businesses on ACL compliance. If you have any questions, please get in touch with us.

Authors: Nathan Cecil & Joshua Clarke

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Joshua Clarke

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