A REMINDER OF THE IMPORTANCE OF PROFESSIONALLY PREPARED COMMERCIAL AGREEMENTS

A recent decision in the Supreme Court of Queensland’s Court of Appeal, RMI Pty Limited v Spray Coupe Pty Ltd [2021] QCA 37, is a powerful reminder of the importance of professionally prepared commercial agreements.  

RMI Pty Limited (“RMI”) is a cotton grower, and between 1996 and December 2019, engaged Spray Coupe Pty Ltd (“Spray Coupe”) to deliver pesticide and spray management services to its 18,000 hectares of farming country.

In April 2016, the two parties entered into negotiations concerning the future arrangements for the provision of spraying services, which was ultimately formalised into a commercial agreement for a fixed period of 5 years.

Due to the seasonal nature of the spraying services, a dispute arose between the parties, which resulted in litigation being commenced by RMI against Spray Coupe in the District Court of Queensland.

The primary issue of the litigated dispute was the interpretation of clause 8 in the commercial agreement, which read as follows:

“Refer to Annexure D, RMI Pty Ltd will pay Spray Coupe Pty Ltd a monthly retainer of $40,000, in advance against their monthly spraying charges, for services supplied during the month.”

In the proceedings, the fundamental question to be determined were two alternative constructions of clause 8 pressed by the parties, namely:

1. Spray Coupe were guaranteed a minimum monthly payment of $40,000.00 from RMI, irrespective of the services provided for that month; or
2. RMI would make a monthly retainer payment of $40,000.00 as a payment in advance, and if Spray Coupe services provided for the month resulted in invoices of less than $40,000.00, any difference could be carried forward and entitle RMI to a credit.

Initial Judgment

The primary judge in the District Court of Queensland concluded that the correct construction of clause 8 provided that the $40,000.00 monthly payment was to be applied against the monthly spraying charges for that month solely, and RMI did not have a right to apply any surplus payments to any future months.

Spray Coupe obtained judgment against RMI in the amount of $329,986.65 for debts owed by RMI, and an order for their costs of and incidental to the proceedings to be paid by RMI on the standard basis.

Appealed Judgement

RMI appealed the decision of the primary judge to the Supreme Court of Queensland’s Court of Appeal.

The appellate judges unanimously agreed that the primary judge erred in the construction of clause 8, and held that the proper construction of clause 8 provides that RMI was entitled to a credit for any balance of the $40,000.00 not utilised in a month, and to apply the credit against charges for services in the months subsequent to any such individual payment.

The appeal judges ordered that:

1. RMI’s appeal be allowed;
2. The judgment Spray Coupe obtained against RMI be set aside;
3. Spray Coupe’s claim be dismissed; and
4. RMI’s costs of and incidental to the District Court of Queensland proceedings and the Supreme Court of Queensland’s Court of Appeal proceedings be paid by Spray Coupe.

How we can help

Commercial agreements form the legal foundation for the essential operations of a business.

The decision is a timely reminder to businesses of the importance of carefully considering the commercial agreements that they may currently have in place, or any future commercial agreements that may be required.

At Marino Law we understand the complex nature of commercial agreements. We have the unique advantage of having a team of both commercial solicitors experienced in the review and preparation of commercial agreements, and litigators experienced in resolving and litigating disputes arising from or surrounding commercial agreements.

Whether you require assistance in the preparation or review of a commercial agreement, or advice in respect to a disputed commercial agreement, contact our experienced commercial and litigation lawyers on (07) 5526 0157 for cost effective, strategic and resolution focused advice.