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Australia – “Would You Like Our Standard Terms With That Order?”: The Incorporation Of Terms And Conditions On Purchase Order Engagements.

21 July, 2014

 

Legal News & Analysis – Asia Pacific – Australia – Construction & Real Estate

 

What You Need To Know

 

  • Many contractors, suppliers and service providers are often engaged on a “purchase order” basis, often over the phone or by email. Where contracts are made in this manner, the parties will need to consider how the terms and conditions governing the engagement are incorporated into the contract.
  • This is particularly important for a party wishing to rely on its standard exclusion and limitations of liability clauses.

 
What You Need To Do

 

  • Where parties contract by placing purchase orders over the telephone or by email correspondence, and seek to rely on their own terms and conditions as governing the engagement, they will need to show that the other party had knowledge of, and accepted, those terms and conditions applying to the engagement at the time the contract is formed.
  • If a contracted party is relying on terms and conditions in an invoice or purchase order, those terms and conditions should be bought to the attention or sent to the other party at the time of entering into the contract, not after the work or services have been performed.
  • It will be a factual assessment as to which terms and conditions were incorporated at the time of formation of each contract. Where parties contract on a regular basis, the parties should clearly agree and sign up to the terms and conditions which will apply to their ongoing contractual arrangements.

 
Many contractors, suppliers and service providers are often engaged on a “purchase order” basis, often over the telephone or by email. Service providers and contractors generally seek to rely on their standard terms and conditions applying to these arrangements. However, where these terms and conditions are contained in standard purchase orders or invoices, there is a risk that they may not be incorporated at the time the contract is formed.

 
Disputes as to whether a party’s standard terms are incorporated into the contract are most likely to arise in these cases in circumstances where a party seeks to rely on a limitation of liability or exclusion of liability clause.

 
Where a dispute arises, a court would need to consider all the correspondence which has passed between the parties as a whole to determine at what point in time a binding contract is formed, and the terms and conditions of that contract at that time. In some cases, the court may also consider the history of past dealings between the parties as a basis to determine whether and what terms and conditions are incorporated into the contract between the parties.

 
This article considers this issue in the context of the recent case of La Rosa v Nudrill Pty Ltd [2013] WASC 18, and considers the steps parties should take to ensure that their terms and conditions are incorporated into the contract.

 

 La Rosa v Nudrill Pty Ltd [2013] WASC 18

 
The Facts

 
In August 2001, Giuseppe La Rosa (La Rosa) was engaged by Nudrill Pty Ltd (Nudrill), under an oral contract made over a telephone call, for the transport of a drill rig by La Rosa from Perth to Kalgoorlie. The parties only discussed price, destination, pick up and time during the telephone conversation which gave rise to the transport contract.

 
The parties had entered into transport contracts on a number of previous occasions. All previous contracts between the parties were also oral, made over the telephone. After performing each job, La Rosa (under a number of various business names) would send an invoice to Nudrill. The invoices stated that the terms and conditions were set out on the reverse side of the invoice. The terms and conditions contained the following exclusion clause:

 

The Contractor shall not be liable for any loss or damage of property and/or goods of the Client whether such damage was caused by any act, default or negligence on the part of the Contractor, and/or his servants.


While La Rosa was driving around a roundabout at excessive speed, the drill rig fell off the truck causing damage to the drill rig. Nudrill sought damages from La Rosa, who sort to rely on the exclusion clause to deny any liability for the damage. La Rosa argued that the exclusion clause was incorporated into the oral contract, through the course of previous dealings between the parties.

 
Issue: Was The Exclusion Clause, By The Course Of Previous Dealings, Incorporated Into The Oral Contract?

 
The Court of Appeal (Court) considered a number of previous cases, and the tests adopted in those cases, to determine if the terms and conditions were incorporated by a course of previous dealings. However, in this case the Court held that (at paragraph 47):

 

“[R]egardless of which test is applied, the facts in this case do not support an inference that the exclusion clause was incorporated in the cartage contract as a result of the prior dealings between the parties…The invoices were not a ‘contractual document’ within either the narrow or wider meaning of the expression. In each case the invoice was provided to the respondent for services already supplied pursuant to a prior contract. The purpose of the invoices was to secure payment for those services. The receipt of the invoices by [Nudrill] in all the circumstances is not sufficient to justify an inference of an acceptance by [Nudrill] of, and readiness to be bound by, the terms on the reverse of the invoices. Nor is it sufficient notice to [Nudrill] of the terms on which the appellant would do business in the future.”

 
The Court stated whether a term has been incorporated into a contract on the basis of prior dealings will depend on the particular facts and circumstances the case. However, Buss J stated that factors which will be relevant to determine if the term is incorporated include (at paragraphs 68 and 72):

 

  • the number of prior dealings and engagements;
  • how recent the prior dealings were and the consistencies and similarities in the prior dealings and the engagement in question; and
  • the time when the document containing the term was given or sent to the party to be bound, and that party’s degree of knowledge of the document or the alleged term.

 
In this case, it was established that no representative of Nudrill had actual knowledge of the existence of the conditions on the earlier invoices or had actually read them. In addition, the invoices which contained the conditions were sent after the contract had been performed. In these circumstances, the Court held that a reasonable person, in Nudrill’s position, would have been entitled to consider the invoice as a request for payment, and not to expect to find contractual terms in relation to the completed work the subject of the invoice (at paragraph 88).

 
The Court found that, on the facts of this case, La Rosa could not conclude from the actions or conduct of Nudrill that Nudrill had knowledge of, and had accepted and agreed to be bound by, the printed conditions on the reverse of the previous invoices. Consequently, the exclusion clause was not, by a previous course of dealings, incorporated into the contract between Nudrill and La Rosa (at paragraph 79).

 

Conclusions And Recommendations

 
Where parties contract by placing purchase orders over the telephone or by email correspondence, and seek to rely on their own terms and conditions as governing the engagement, they will need to show that the other party had knowledge of, and accepted, those terms and conditions applying to the engagement at the time the contract is formed.

 
If a contracted party is relying on terms and conditions in an invoice, those terms and conditions should be bought to the attention or sent to the other party at the time of entering into the contract, not after the work or services have been performed. For example, they could be bought to the attention of the other party by confirming at time of placing the order by referring to “on our usual terms and conditions” or similar words, and stating where those terms and conditions are found. Alternatively,the contracting party could be required to sign a purchase order or similar document to confirm that it has acknowledged and agreed to the standard terms and conditions. However, this may not be effective where both parties to the engagement seek to rely on and incorporate their own terms and conditions for the engagement.

 
It will be a factual assessment as to what terms and conditions were incorporated at the time of formation of a contract. Where parties contract on a regular basis, the parties should clearly agree and sign up to the terms and conditions which will apply to their ongoing contractual arrangements. Otherwise, parties may find themselves exposed like Mr La Rosa, and risk not being covered by terms and conditions which are designed to protect them.


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For further information, please contact:

 

Grant Rowlands, Partner, Ashurst
grant.rowlands@ashurst.com

 
Joseph Mulcahy, Partner, Ashurst
jos.mulcahy@ashurst.com

 

Laura McRae, Ashurst
laura.mcrae@ashurst.com

 

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