Dangerous discretions

Dangerous discretions – don’t rely on implied terms of good faith

A RECENT case provides an important reminder of the potential hazards that may exist in commercial contracts.

The contract concerned provided that Mobile Innovations would be paid according to how many new customers it introduced to Vodafone.

The contract provided that Vodafone was entitled to vary the target levels of new customers that Mobile Innovations was expected to attract.

The dispute arose because Vodafone set the target levels to zero, effectively shutting Mobile Innovations out from the benefit of the contract.

Vodafone’s actions were initially found to be a breach of contract, based on an implied term imposing a duty of good faith.

That is, Vodafone had failed to act reasonably and in good faith and to do what was necessary to enable Mobile Innovations to have the benefit of the contract.

The New South Wales Court of Appeal overtuned the decision of the trial judge and allowed Vodafone’s appeal.

While the appeal court found that there was generally an implied term in commercial contracts to act with good faith and reasonableness, it also held that the express provisions of the Vodafone contract excluded implied terms.

More importantly, even if the term had been implied, the appeal court found that Vodafone was entitled to use the discretion to vary target levels.

This included setting target levels of nil.

Part of the appeal court’s reasoning was that, unlike other discretions in the contract in relation to which the parties were required to act reasonably, Vodafone’s discretion to set target levels was unqualified and absolute.

The decision sounds the following warnings to parties entering commercial contracts:

p Be clear about what the express provisions of your contract says; and

p Do not assume that you will be entitled to the protection of duties of fairness – your contract may contain terms that either exclude such duties, alternatively, what you consider as unfair may be authorised by the contract.

Tony Heaver-Wren, associate

9288 6920

Right to transfer employee between sites – a contractual issue

THE Australian Industrial Relations Commission has found that an employer can not move an employee from one worksite to another if there is a contractual provision that expressly provides that the employee’s work will be at a particular place of work.

A funeral directors’ company wished to transfer an employee from his St Kilda workplace to another location.

The employee informed the employer that he did not accept the proposed transfer.

The employer argued that the transfer was due to the operational requirements of the business and claimed that there had been a downturn in its business at the St Kilda premises.

However, the commission accepted the employee’s evidence that the location of his place of work formed an express term of contract of employment entered into when he was engaged.

The commission looked to the employment contract and found that the terms of the contract of employment, arrived at orally at the point of engagement, expressly provided that the place of work would be at St Kilda.

The commission said that no legal duty to transfer from the place of work could be implied, except in accordance with the contractual provision for helping out in other areas occasionally from the St Kilda premises.

In arriving at the decision, the commission stated that the common law of employment would only imply a term in an employment contract that an employee may be required to work at a different place of work where there is no express term of the contract dealing with the location of the work.

However, where there is an express term of the contract in relation to the location of work, no such implication arises.

Carla Paratore, solicitor - 9288 6940

Ian Curlewis, partner - 9288 6756

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