Introduction

Documents issued after the formation of a contract sometimes purport to contain “terms and conditions” that were never mentioned at the time of making the agreement. When parties have a recurring relationship, these terms can potentially be incorporated into future contracts between the parties. This is especially true for the informal agreements that follow short discussions covering only scope, price and timing.

The recent Western Australia Court of Appeal decision in La Rosa v Nudrill Pty Ltd [2013] WASCA 18 deals with when terms in documents from parties’ previous dealings will be incorporated into subsequent contracts. It is important law for clients who enter into oral agreements and want to avoid being saddled with terms and conditions to which they haven’t explicitly agreed .

Facts

An employee of Nudrill Pty Ltd (Nudrill) telephoned Giuseppe La Rosa (La Rosa) to engage his services in transporting a drill rig from Perth to Kalgoorlie. A contract to transport the drill rig was formed in the course of this conversation.

Just outside of Kalgoorlie, the drill rig fell off the truck as La Rosa was driving through a roundabout. The District Court found that La Rosa drove though the roundabout at excessive speed and thus breached his duty to exercise reasonable skill and care in transporting the drill rig.

The parties had made 27 similar transportation agreements over the previous 12 years. After each job, La Rosa issued an invoice to Nudrill, which set out “Terms and Conditions” on the back of the invoice. These “Terms and Conditions” contained, amongst other things, an exclusion clause which stated that:

“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.”

No one at Nudrill had ever read this exclusion clause or knew that the term existed. La Rosa argued that the exclusion clause from the previous invoices was incorporated into the oral agreement (and it was therefore not liable for the damage to the drill rig).

Decision

The Court of Appeal rejected La Rosa’s argument and found that the exclusion clause was not part of the agreement. In making this determination, the Court of Appeal found that there was no single test for the incorporation of a term into a contract based on prior dealings. It will be a question of fact and degree as to whether parties, by their conduct, have incorporated a term into their contract by a previous course of dealings. A number of relevant considerations include:

  • the frequency and recentness of the parties’ previous dealings;
  • whether the past dealings have been consistent;
  • whether the party that provided the document containing the term gave reasonable notice of the term’s existence;
  • whether the party that received the document containing the term has read the term or has actual knowledge of its existence;
  • whether the term has been incorporated into a previous contract; and
  • whether the document containing the term was provided before the formation of the agreement.

In this case the following factors led the judges to reject the incorporation of the term:

  • the exclusion clause was contained in tax invoices, which Nudrill was entitled to treat as normal requests for payment rather than as contractual documents;
  • while Nudrill and La Rosa had contracted numerous time in the past, there had been long gaps in the dealings and the recent dealings were few; and
  • Nudrill did not have actual knowledge of the exclusion clause.

What it means

Because the test for incorporation is a matter of “fact and degree”, there is no bright line between the circumstances where terms will be incorporated and when they will not be. The judges in La Rosa discuss a number of cases where terms were incorporated in circumstances that may surprise the reader.

For example, in Chattis Nominees Pty Ltd v Norman Ross Homeworks Pty Ltd (receiver appointed) (in liq) (1992) 28 NSWLR 338 a furniture manufacturer issued invoices containing a clause to the effect that it retained title of goods until payment. One buyer noticed the clause and informed a representative of the manufacturer that it did not recognise terms of that type. The manufacturer’s representative said he had no authority to remove the clause from the invoices, and the buyer did not take the matter further. As dealing continued, a court found that the clause was incorporated into subsequent contracts.

La Rosa might have had a different result if Nudrill had more notice of the clause or if their dealings had been more frequent. The lesson for clients is to be careful about contractual language arising in documents issued by those with whom they do recurring business. Unless the issue is addressed directly, these documents can affect the legal relations between parties in ways they haven’t explicitly agreed.