ESR Investment Management 2 (Australia) Pty Limited v AllRoads Pty Ltd [2023] QSC 235

Michael Creedon | Laura Berry | Aidan Kleynhans

Key takeout

There can be a fine line between communicating that a project has a negative effect on a party’s financial position and a statement that it is financially unable to proceed with the contract. Parties to a contract should carefully consider the language used when communicating with other parties about the financial impacts associated with a project.

Provisions relating to keeping and providing records should also treated with caution, as ‘records’ may cover a wider scope of documents than anticipated.

Facts

ESR Investment Management 2 (Australia) Pty Limited (ESR) entered into a contract (general conditions amended AS 2124-1992) with AllRoads Pty Ltd (AllRoads) for civil works (contract).

In August 2023, AllRoads sent a letter to ESR outlining significant impacts on the project’s timeline and costs. The letter included the statements ‘it has become evident that the cost to complete on our ongoing project far outweighs the projected revenue we will earn’ and ‘it has become increasingly unviable to continue this project as per the original contractual obligations’.  

ESR said that the letter triggered clause 44.11 of the contract as it constituted a statement that AllRoads was financially unable to proceed with the contract. When triggered, clause 44.11 gave ESR the right to terminate the contract, which ESR purported to exercise.

AllRoads disputed that the letter amounted to a statement that it was financially unable to proceed with the contract, and alleged that ESR had repudiated the contract by its purported termination.

ESR demanded that AllRoads produce documents including quality assurance documents, documents required for certification, test results, design documents and applications made to statutory authorities. It sought to rely alternatively on three provisions of the contract which it contended gave it the right to access those documents:

• Clause 44.5 – which provided that where ESR terminated the contract pursuant to clause 44.11, ESR could direct AllRoads to return all property of ESR in its possession (including documents, information and materials);
• Clause 44.10 – which more broadly provided that if the contract was terminated by either party then AllRoads must provide to ESR any documents prepared by AllRoads or its subcontractors in relation to the works to which ESR would otherwise have been entitled under the contract but for the termination; and
• Clause 31.10 – which stated that AllRoads must grant ESR access to inspect and copy records of all matters relating to the work under the contract.

Ultimately, the parties proceeded on the basis that the contract had been terminated and did not require the court to make findings as to the legal basis for termination.  The application before the court concerned ESR’s application for specific performance of AllRoads obligation to provide documents, which ESR contended survived termination.

Decision

The court made a declaration in relation to each issue for determination, the overall effect being that:

• AllRoads’ letter to ESR did not constitute a statement that it was financially unable to proceed with the contract (therefore, clause 44.5 was not applicable).
• Clause 44.10 was limited to documents which, had been prepared at the time of termination, and in respect of which ESR was entitled to be provided. 
• The documents sought by ESR did constitute records of matters relating to work under the contract within the meaning of clause 31.10.

Clause 44.5 – procedure when Principal takes over the works

The court accepted AllRoads’ argument that there is a difference between AllRoads lacking the financial ability to carry out the contract and AllRoads incurring a financial loss because of carrying out the contract. The court accepted that clause 44.11 should be understood as relating to AllRoad’s financial position. The court found that the language in AllRoads’ letter did not convey the meaning that AllRoads was unable to proceed with the contract, but rather that it would make a financial loss from performing the contract.

Clause 44.10 – rights of the parties on termination

The court considered that the language used in the clause pointed towards an entitlement (existing at the time of termination) to the immediate provision of documents that had already been prepared. ESR raised a variety of arguments in support of the existence of such an entitlement, all of which were rejected.

Clause 31.10 – record keeping

AllRoads argued that ‘records’ should be narrowly interpreted so as to be limited to ‘what are normally regarded as records’ such as ‘documents that record interactions between parties’. Noting the relevance of context in discerning the meaning of the term, the court observed that ‘records’ was used in connection with the very broad phrase ‘all matters relating to’.

It found no intention in clause 31.10 to confine the meaning of the term ‘record’ and considered that it could include plain meanings of the term including ‘information preserved in writing’.

The court also considered that a reference in clause 31.10 to electronic records made it clear that the term ‘records’ included electronic records.