In November 2009, the Federal Court of Australia (in Hine v New South Wales Land and Housing Corporation [2009] FCA 1242) considered whether or not a legal remedy was available for perceived injustices arising from a direction given by the Department of Housing (DOH) to its contractors, in circumstances where losses claimed were pure economic losses arising from dealings in a wholly commercial context.
Background
Mr Hine, the first applicant, was sole director and shareholder of the second applicant, CPR Property Pty Ltd (CPR), a company that carried out cleaning and maintenance work as a sub-contractor on behalf of the first respondent, the New South Wales Land and Housing Corporation (the Corporation), a statutory body associated with the DOH (the State of New South Wales was the second respondent). O n 24 March 2004, the Corporation issued directions to its contractors prohibiting them from using CPR as a sub-contractor (relying on a contractual provision with its contractors). Clause 16 provided that DOH was entitled to prohibit a contractor from using any subcontractor if DOH 's representative "reasonably regarded" that subcontractor as incompetent, negligent or otherwise unsuitable.
The applicants alleged that the respondents had contravened s 42 of the Fair Trading Act 1987 (NSW) by using language that misled CPR's contractors as to the permanency of the prohibition against using CPR and that DOH 's representative could not have reasonably regarded CPR to be permanently incompetent at the time of making the statement. In the alternative, the applicants argued that DOH 's representative could not have had a reasonable basis for the opinion that CPR was incompetent (in the first instance) and that the representative's statement was therefore misleading. Both arguments claimed that the subject directions, containing misleading representations, caused loss to the applicants.
Judgment
In finding that the respondents' representations were reasonable (due to the state of mind of each of the respondents), and dismissing the temporal distinction between permanent unsuitability and temporary unsuitability, Jagot J commented that the term "reasonable" was not, as the respondents submitted, an opinion that is honestly held but rather a view that is rational having regard to the circumstances known to the person at the time. An assessment of rationality must therefore be undertaken recognising the statutory structure within which a company operates and the commercial realities in which it exercises its functions. The mere fact that an opinion may turn out to be incorrect does not prove that it was misleading when conveyed. Jagot J held that the same applies to negligent misstatement.
Second, the applicants alleged that the respondents breached a duty of care owed by them, namely, to exercise reasonable care and skill in determining whether the contractual conditions of clause 16 had been fulfilled.
Her Honour rejected this claim, stating that "the fact that the harm suffered by the applicants (loss of profits from the business of CPR Property) was a reasonably foreseeable consequence of the issue of the directions under cl 16... does not mean that the respondents are liable in the tort of negligence to the applicants". Each party was entitled to act in what it perceived was in its best interests.
Finally, Jagot J addressed the tort of inducing a breach of contract, which involves knowingly and intentionally interfering with contractual relations (or the contractual rights of the applicants), thereby causing damage to that person/s where there is no sufficient justification for that interference. Her Honour stated plainly that since the directions were authorised by clause 16, the direction could not be an unlawful interference between contractors and subcontractors.
Her Honour dismissed the case entirely. The decision is a timely reminder that, especially in a commercial context, legal remedies are not always available to disgruntled parties.
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