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The risk of parallel negotiation

29/11/2010

The Port Macquarie-Hastings Council invited expressions of interest for a supermarket development site. The process contemplated that one preferred bidder would be selected and expected to spend a considerable sum in realising the opportunity.  However, the request for expressions expressly negatived any contract limiting the process.  Both Woolworths and Coles responded.   Council preferred Woolworths’ bid and various drafts of contract were exchanged.  Negotiations with Woolworths reached an impasse over contamination, which Woolworths staff repeatedly described as a “dealbreaker”. The Council negotiated with and exchanged contracts with Coles.

Woolworths sued both Council and Coles. It claimed that:

  • it would have bought the land on the terms required by Council, rather than lose the site to Coles,
  • Council’s conduct was misleading or deceptive and contravened s.42 of the Fair Trading Act 1987 (NSW) and
  • Woolworths had suffered a loss as a result of that conduct.

Anyone in Woolworths’ position would expect that Council would not clandestinely conduct negotiations outside the framework of the process without telling Woolworths that negotiations were no longer exclusive. Council’s deliberate actions fell far short of the normative conduct required by the Act.  Silence was in the circumstances misleading or deceptive and a contravention of the Act.  However, Woolworths only suffered a loss if it would have done something different but for the infringing conduct.  Woolworths had left no doubt that it was prepared to walk away by using the term “deal breaker”.  The evidence suggested that Woolworths would not have forsaken its principles, even if it knew that Coles was still in play.

Woolworths refurbished another store it operated in Port Macquarie and constructed a liquor store next door.  Woolworths’ loss was the difference between the net present values of the respective future revenues of the proposed development and the refurbished store.

This case illustrates the importance of avoiding protracted negotiations which involve significant costs to both parties. It also serves as a warning that threats to walk away should not be bandied around without careful consideration, as this may impact on a party’s ability to claim damages in the future, if the transaction were to fall through.

Read the full text of the judgement in Fabcot Pty Ltd v Port Macquarie-Hastings Council

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