Sunday, November 14, 2004

High Court Smackdown! Flu shot for NSW Court of Appeal

In a recent decision, the High Court has unanimously reversed the NSW Court of Appeal, which had gone on a frolic of its own into what ought to have been a simple application of contract law. The case, Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52, concerned a shipment of temperature-sensitive flu vaccine that was destroyed by being transported at too cold a temperature. Toll relied on an exclusion of liability clause contained on the back of a signed form, but Alphapharm succeeded in convincing the District Court of Court of Appeal that it was not bound by the clause because its agent did not read the contract before he signed it, and because his attention was not drawn to the clause by Toll. As the court noted:

Each of the four parties to the case is a substantial commercial organisation, capable of looking after its own interests. This hardly seems an auspicious setting for an argument that a party who signs a contractual document is not bound by its terms because its representative did not read the document.

The High Court reaffirmed the rule in L'Estrange v Graucob [1934] 2 KB 394 that you're bound by what you sign, whether you read it or not.

The reasoning of the primary judge, accepted by the Court of Appeal, was based upon the proposition that, in order for those terms and conditions to be made part of the contract, it was necessary for [Toll] to establish that it had done what was reasonably sufficient to give [the agent] notice of the terms and conditions (the major premise), and the further proposition that [Toll] had not done what was reasonably sufficient to give [the agent] such notice (the minor premise).

It would be possible to dispose of the appeal by disagreeing with the minor premise. What more [Toll] could have done to give [the agent] notice of the terms and conditions than requiring their representative to sign a document, and to place his signature immediately below a request that he read the conditions on the reverse side of the document before signing, is difficult to imagine.
But it was the major premise that gave the High Court the opportunity for the big smackdown. Of the major premise, they said that
If correct, it involves a serious qualification to the general principle concerning the effect of signing a contract without reading it. The proposition appears to be that a person who signs a contractual document without reading it is bound by its terms only if the other party has done what is reasonably sufficient to give notice of those terms. If the proposition is limited to some terms and not others, it is not easy to see what the discrimen might be.
The High Court noted that the whole idea of 'sufficient notice' is derived from ticket cases and other situations where the terms of the contract are compiled from multiple documents. However, so far as wholly written contracts are concerned:
When an attempt is made to introduce the concept of sufficient notice into the field of signed contracts, there is a danger of subverting fundamental principle based on sound legal policy.
The appeal was allowed, and Alphapharm had to hand back the $683,061.86 damages it had been given below. On a more tangential note, this is two losses out of two for Alphapharm in recent High Court cases. The other was their loss in Aktiebolaget Hassle v Alphapharm Pty Ltd (2002) 212 CLR 411, a case about the meaning of "inventive step" in patents law. Clearly, not a very good batting average.