Have you sufficiently brought your terms and conditions of trade to the attention of your customers and contractors to ensure they will take effect should something go wrong? For one New Zealand company recently, the answer was unfortunately "no".

 

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In the 2016 case Pipes NZ Ltd v Steel Co Ltd, Pipes NZ Ltd ("Pipes NZ"), contracted Steel Co Ltd ("Steel Co"), to source pipes from China, which Pipes NZ then on-sold to two electricity companies, Trustpower and Westpower, for use in those companies' hydroelectric projects in Hawkes Bay and the West Coast respectively. When the pipes arrived from China damaged and unfit for purpose, Pipes NZ was forced to make the repairs themselves. This led to costly delays and subjected Pipes NZ to claims for compensation from both electricity companies.

Pipes NZ sued Steel Co for breach of contract to recover the costs incurred in repairing the faulty pipes and the damages it had paid to the electricity companies as a result of the delays incurred in commissioning the projects.

Steel Co attempted to rely on a limitation of liability clause contained in its standard terms and conditions of trade, which it claimed to be part of the contract between the parties.

The question before the Court therefore was whether the terms and conditions formed part of the contract between the parties and, for this to be established, it would need be shown that the document containing the terms and conditions was brought to the attention of Pipes NZ before, or at the time the contract was concluded.

Steel Co accepted that its terms and conditions were not expressly referred to in the contract in question, but argued that they did still form part of the contract as they had been previously disclosed to Pipes NZ in previous contracts entered into between the parties.

The Court examined this question carefully and identified that while Steel Co had previously supplied its terms, the entity to which the terms were supplied was a predecessor of Pipes NZ. Steel Co failed to prove to the Court that these terms and conditions had been resupplied to Pipes NZ after the date it purchased the business from its predecessor. The Court dismissed Steel Co's defence and ordered Steel Co to pay to Pipes NZ $416,580 in damages.

In summary, the general position of the courts is that where terms of a contract have not been signed, it is necessary to prove to the court that the other party was aware, or ought to have been aware, that those terms formed part of the contract.

It is therefore best practice to:

  1. Include in the contract being signed a provision which states that the parties acknowledge and agree that the company's standard terms and conditions form part of the contract, and attach a copy of those terms to the contract itself;
  2. Ensure that you disclose your terms and conditions to the replacing entity of any business you are contracted with which is restructured or sold; and
  3. Ensure that any changes to your terms and conditions are brought to the attention of your customers.

Further information