CASE SUMMARY
Factual background
Techfuel Pty Ltd is a supplier of aviation fuel and support services in New South Wales and Victoria. In October 2021, it entered into two contracts, both with a three-year term, with Coulson Aviation (Australia) Pty Ltd to provide aviation fuel and refuelling services for fire-fighting helicopters operating under agreements between Coulson and the Australasian Fire and Emergency Service Authorities Council Ltd (AFAC). AFAC is the national council for fire and emergency services in Australia and New Zealand, which often acts on behalf of state fire-fighting agencies.
For the first two years, the Techfuel contracts operated successfully. However, in August 2023, Coulson indicated to Techfuel that it would not use its services for the upcoming 2023-24 fire season.
Both of the Techfuel contracts contained clause 6.2, being a bespoke clause inserted at Coulson’s request, that either party could terminate the agreement by giving the other party at least 90 days’ written notice. That clause also stated that if Coulson terminated for convenience and gave notice less than 100 days prior to the start of the fire season, it agreed to pay Techfuel a lump sum amount equal to 90 days of Techfuel’s daily rate.
Shortly after receipt of Coulson’s notice of termination, Techfuel issued a demand for payment of the amount owing under clause 6.2, which Coulson refused to pay. Techfuel thereafter commenced proceedings against Coulson in the District Court of New South Wales for that amount.
First instance proceedings
The case largely turned on the parties’ differing interpretations of the term ‘fire season’, which was not defined within the Techfuel contracts. Techfuel argued that the fire season commences annually on 1 October, which aligned with the term of the contracts and was consistent with the definition of ‘bush fire danger period’ contained in the Rural Fires Act 1997 (NSW). Coulson, meanwhile, adopted a non-definitive position that the ‘fire season’ began when Techfuel’s supply of its services commenced, which hinged upon when Coulson was required to supply its services to AFAC in any given year (being something that Techfuel had no independent knowledge of without being notified by Coulson). This included a contention that the performance of the Techfuel contracts was ‘coterminous’ with Coulson’s contracts with AFAC, being agreements to which Techfuel was not a party.
The significance of this was whether Coulson was liable to pay a fee to Techfuel under clause 6.2. On Techfuel’s construction, Coulson provided notice less than 100 days prior to the start of the fire season (being 1 October). On Coulson’s view, which would have resulted in the fire season commencing on a later date outside the 100-day window, it would not have been liable to pay the amount owing under clause 6.2.
The Court accepted Techfuel’s position, finding that the concept of a ‘fire season’ is not technical or scientific and should carry its ordinary and plain meaning (being a colloquial, albeit an ambiguous, expression in the context of these agreements). The Court found that Techfuel’s construction provided certainty and was consistent with both the fixed term stated in the Techfuel contracts and the New South Wales statutory regime. This had the effect of triggering the amount payable by Coulson to Techfuel under clause 6.2.
Coulson raised additional arguments at trial; namely, that clause 6.2 was unenforceable as a penalty, and that Coulson was entitled to terminate the Techfuel contracts on the basis of an implied term that Techfuel was not insolvent. Neither of those arguments found any favour before the trial judge.
Coulson was therefore ordered to pay the amount payable under clause 6.2 of the contracts as a judgment sum.
Appeal proceedings
On appeal, Coulson contended two issues of construction: namely, that Coulson’s contracts with Techfuel ended automatically when its contracts with AFAC entered (the coterminous argument), and that the trial judge was incorrect to construe the definition of ‘fire season’ as commencing on a fixed date of 1 October.
Coulson’s appeal was dismissed with costs. It held that the services under the Techfuel contracts were not coterminous with Coulson’s AFAC contracts, upholding the principle that clear and unambiguous words and context would be required to cause the Techfuel contracts to come to an end, rather than providing Coulson with an automatic right to terminate. There being no express provisionin the Techfuel contracts to that effect, nor any provision for Coulson to notify Techfuel that its agreements with AFAC had terminated, it could not be the case that the contracts were coterminous.
As for the definition of ‘fire season’, the Court of Appeal upheld the trial judge’s findings. The Court of Appeal went further, however, to note that Coulson’s construction would bring about two additional levels of uncertainty. Firstly, a date turning on a decision being made by the relevant state fire agency under the AFAC contract would mean that, at the time Coulson terminated for convenience, neither party would know whether this would be accompanied by a subsequent obligation to pay. Secondly, Coulson would not know, at the time it terminated, when Techfuel would be required to supply its services (being a date that may never arise if the AFAC contract was subsequently terminated). This would require a counter-factual analysis; something that the Court of Appeal commented would be deeply problematic and contrary to commercial sensibility.
KEY TAKEAWAYS
The contracts the subject of this dispute were prepared in-house and without the assistance of legal advice. They contained various errors, prompting the Court of Appeal to respectfully observe, “Neither document was a model of legal drafting”. Had the agreements been prepared with greater specificity and precision, they would have properly defined each party’s rights and obligations, which may have avoided the dispute altogether. Coulson would have had greater certainty as to when it could terminate the contracts without incurring penalties, while Techfuel would have had a clearer definition to rely upon when requesting payment under clause 6.2.
Some key points to remember:
1. Always make sure your contracts are clear and well-defined. In this case, the whole dispute may have been avoided if a simple phrase, ‘fire season’, was defined in the contracts. While both parties may have understood what that meant, this was not articulated in the agreements themselves, which meant it was ripe for dispute and required the Court’s intervention to construct its meaning.
2. Always make sure you obtain legal advice before negotiating a commercial contract. The parties negotiated these contracts without obtaining legal advice. Had commercial lawyers been involved, they likely would have advised the parties regarding the ambiguities of clause 6.2, which gave rise to the subject matter of the dispute.
At Watson Webb, we have a strong team of commercial lawyers who can assist in drafting clear and well-defined agreements, including termination rights and the circumstances in which penalties or compensation may be payable. This case is also another demonstration of our strong team of litigators, who can enforce their clients’ rights and provide sound legal analysis and contractual interpretation to achieve positive outcomes.
The District Court of New South Wales judgment can be accessed here, while the New South Wales Court of Appeal judgment can be accessed here.
Matthew Sibley is a Partner at Watson Webb who specialises in commercial litigation and insolvency and daily carriage of these matters on behalf of Techfuel. He is a tenacious and personable lawyer who strives to achieve positive outcomes for his clients.
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