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Can you rely on your terms and conditions?

Fri, 04 Nov 2016

A recent Court of Appeal decision serves as a reminder to businesses to ensure that their terms and conditions have been sufficiently brought to the notice of other contracting parties.

Steel Co Ltd (Steel Co) sourced pipes from China and supplied them to Pipes NZ Ltd (Pipes NZ) as part of a one-off contractual arrangement (Contract). Pipes NZ then onsold the pipes to third parties. The pipes were deficient, with many requiring repair or replacement. Pipes NZ recoated and repaired some pipes themselves. As a result, delays were experienced in Pipes NZ's supply to third parties. Pipes NZ then faced claims from those third parties.

Pipes NZ sued Steel Co for breach of contract and claimed the costs incurred in repairing the pipes. It also sought the liquidated damages it had paid to third parties for delayed supply. Steel Co denied liability by relying on various exclusions and limitations of liability as set out in its standard terms and conditions of sale (Terms and Conditions).

The Terms and Conditions were not expressly referred to in the Contract. However, Steel Co argued that it had previously brought the Terms and Conditions to Pipe NZ's notice through prior contractual arrangements. The Court of Appeal considered the question of whether Steel Co's Terms and Conditions formed part of the Contract focusing on whether the Terms and Conditions had been sufficiently brought to the notice of Pipes NZ.

What did the Court of Appeal say?

The Court of Appeal held that Steel Co failed to establish it had sufficiently brought its Terms and Conditions to the notice of Pipes NZ:

  • Steel Co relied on the fact that it had a list of the customers that it had sent a letter to. This letter contained its Terms and Conditions in an attachment. On the list, Pipes NZ appeared with a tick next to its name. However, Steel Co had no record or copy of the original letter it claimed that it had sent to Pipes NZ. According to the Court, the list was insufficient to prove Pipes NZ had notice of the Terms and Conditions; and
  • in 2009, Pipes NZ purchased the business from its previous owner (Pipes 1). On the sale of its business, Pipes 1 wrote to Steel Co seeking to confirm the contractual terms and conditions between the companies as part of the due diligence required by Pipes NZ. Steel Co replied by letter advising that it would continue the supply of consignment stock to Pipes NZ. Various references were made in the letter to certain Terms and Conditions. However, the full Terms and Conditions were not provided nor was the clause in question mentioned in the letter.

As a result, Steel Co could not rely on the exclusion and limitation of liability term as a defence to Pipe NZ's claim.

What does this mean for you?

Terms and conditions should always be provided to parties you contract with. In the event that you need to rely on a particular term or condition, you will need to show that any terms and conditions intended to form part of the contract were brought to the attention of the party.

Here are some general tips you can follow to incorporate your terms into existing contracts:

  • make your terms and conditions available on your website;
  • make sure to refer contracting parties to your specific URL webpage that contains your terms and conditions;
  • attach your terms and conditions to any contractual documents, whether electronic or hardcopy;
  • keep a file containing evidence of all documents you provide to contracting parties; and
  • if a business you have a contract with is sold or restructured, be sure to provide your terms and conditions to the replacing party.

 

Thanks to Nicole Ashby and Peter Stubbs of Simpson Grierson for supplying this article.