The Facts
Pharmaceutical company buys shipment of flu vaccines
An Australian pharmaceutical company purchased a shipment of influenza vaccines from the United Kingdom in preparation for the 1999 flu season.
The vaccine was required to be stored at a certain temperature and meet other delivery requirements.
The collection, storage and transportation of the vaccine was to be handled by a separate company. This process was arranged by a retailer of medical supplies.
Agent signs contract without reading conditions
As an agent for the pharmaceutical company, the retailer entered into a contract with the company employed to store and deliver the vaccine.
When it came to settling the contract, the agent signed it without inspecting a declaration appearing just above the place where a signature was required: “Please read ‘Conditions of Contract’ (Overleaf) prior to signing.”
The agent neglected to read the relevant conditions and exemption clauses of the contract, nor were they communicated in any dialogue between the parties. Importantly, one of these clauses provided that the carrier would not be responsible for any damage to the vaccine shipments.
Pharmaceutical company sues transport company for negligence
During delivery the vaccine was destroyed, as it was stored at the incorrect temperature.
The pharmaceutical company subsequently sued the transport company for damages for negligence.
However, the transport company claimed it was not liable for the destruction of the vaccines due to one of the exemption clauses in the contract.
It was up to the court to decide if the transport company was indeed liable for the destruction of the vaccines.
Expert commentary on the court's decision
High Court rules in favour of vaccine transport company
In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165; 79 ALJR 129; 211 ALR 342, the High Court found in favour of Toll – unanimously overturning the two prior decisions.
Initially, judgment was entered for Alphapharm in the form of damages for negligence ($683,061.86).
The District Court of NSW and the NSW Court of Appeal determined that Toll had not provided Richard Thomson (Alphapharm’s agent) with adequate notice of the existence of the conditions on the reverse page of the contract.
As Toll was unable to rely on the exemption clauses in the contract, it was held liable for the damage to the vaccine shipment that occurred during delivery.
High Court rejects legal rationale used by District Court and Court of Appeal
However, on appeal to the High Court of Australia, this legal principle was rejected. An objective test was applied to determine whether a “reasonable” person in the position of each party would assume an intention to create legal relations.
The High Court concluded that the language and conduct of the parties would have led a reasonable person to believe there was a goal to manifest a contractual relationship.
A party which doesn’t physically sign a contract can still be bound by it
It was also found that as Alphapharm would benefit from Toll’s delivery duties and had provided Richard Thomson with the delivery information and instructions to pass on to Toll, Alphapharm was indeed a party to the contract.
A signature is an intent to be contractually bound
Chief Justice Gleeson, as well as Justices Gummow, Hayne, Callinan and Heydon, unanimously held that as Richard Thomson had signed the contract, with no vitiating factors present (such as duress, fraud or misrepresentation), the agreement between the parties was valid and Toll could ultimately rely on the exemption clauses. The court stated:
Significance in the world of commercial transactions
The High Court’s decision will undoubtedly hold commercial corporations accountable for their legal conduct.
Large companies which are quite “capable of looking after [their] own interests” are no longer entitled to assume that they are not bound by the contracts they have signed, just because their agent or representative did not comprehensively read the terms and conditions.
Alphapharm ordered to repay Toll money awarded for damages
At the conclusion of the hearing, Alphapharm agreed to repay Toll the full amount it was originally awarded for damages, $683,061.86.
Alphapharm similarly complied with the court’s request to cover the costs of the appeal.