When it comes to written agreements in a commercial context, attention is often paid to the drafting and scope of terms. However, evidence suggests, that often, “incorporation” of those terms is key. In other words, the scope of the terms has no weight if they are not properly incorporated into the contract.
Case Study: terms and conditions of sale not part of the agreement:
Our client, a supplier of building products on credit, sought to enforce its standard terms and conditions of sale (Terms) of a credit agreement during court proceedings against a debtor in an effort to recoup the debt. The Terms were beautifully drafted to give our client the benefit of a number of favourable clauses, including:
- a ‘no set-off’ clause which precluded the debtor from bringing a set off claim;
- a ‘limitation of liability’ clause, which reduced the amount of damage that our client could be held liable for under the agreement;
- a higher ‘interest’ clause providing for an interest rate well above the industry standard; and
- an ‘indemnity costs’ clause, allowing our client to have all of their costs paid in the event of any dispute under the agreement.
However, the debtor argued that the Terms did not apply to the credit agreement, as they were not provided when the debtor had signed the initial credit application. Unfortunately, our client was unable to produce a copy of the Terms document that it believed it had given to the debtor at the outset.
Nonetheless, our client argued that it was their standard practice to provide the Terms to customers together with the credit application. Alternatively, our client sought to rely on the fact that the Terms were also provided to the debtor by other means, being:
- the Terms were printed on the back of delivery dockets provided to customers (and the debtor) after every delivery; and
- our client’s invoices noted that the supply of goods within this invoice was subject to their terms and conditions of sale.
Unfortunately, when having regard to the case law on this issue (summarised below), neither of the arguments raised by our client were successful, and the Terms did not form part of the agreement. Our client lost out on the entitlements it would have otherwise had if the Terms applied (such as a claim to indemnity costs and a higher contractual interest rate).
What does the relevant case law say?
The general position of the courts on this situation can be summarised as follows:
- to determine whether the terms and conditions of sale will apply to an agreement, the court will consider whether a reasonable person would consider that the terms have been provided in a manner and on a document that can be reasonably considered to form part of the agreement;
- where the terms and conditions of sale are not provided together with the initial agreement or application, documents that are not contractual in nature, such as invoices, delivery dockets and receipts, will not be a sufficient means to provide terms and conditions of sale;
- where any clause falls outside of what is to be reasonably expected from that kind of agreement, attention must be drawn to the existence of the clause; and
- terms need to be presented in a way that conveys that they are intended to be binding and to form part of the contract.
This means that businesses need to be careful to ensure their terms and conditions are brought to the attention of their customers in the right manner and at the right time, otherwise they may not apply.
To ensure your business can rely on its terms and conditions of sale when seeking to enforce its agreement with a customer, the best practice is to ensure that the terms and conditions of sale are provided to customers at the outset, ideally as a single package of documents, so that there can be no dispute that the terms apply to the agreement being formed. It is then equally important to ensure these documents are duly preserved and kept on record so that they can be produced if necessary.
 La Rosa v Nudrill Pty Ltd  WASCA 18; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.
 D J Hill Co Pty Ltd v Walter H Wright Pty Ltd  VR 749.
 Surfstone Pty Ltd & Anor v Morgan Consulting Engineers Pty Ltd.
 La Rosa v Nudrill Pty Ltd  WASCA 18; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; D J Hill Co Pty Ltd v Walter H Wright Pty Ltd  VR 749; Surfstone Pty Ltd & Anor v Morgan Consulting Engineers Pty Ltd.