This decision of the Western Australian Supreme Court of Appeal sheds light on the circumstances in which an exclusion clause will be incorporated into an oral contract as a result of a prior course of dealing.

Key Learnings

It is common for parties operating across a wide range of industry sectors to wish to incorporate written terms into informally constituted contracts. Shrink-wrap and click-wrap terms in IT contracts, entry terms for facilities, storage terms, hire terms and cartage terms for goods are all familiar examples. For incorporation to be successful the party seeking to rely on the term will need to be able to establish that appropriate steps had been taken to give the other party actual or constructive knowledge of the term.

It may be possible to rely on past dealings to establish that the counterparty has effectively been put on notice of the relevant term, but attempts to rely on terms included in documents which are not part of the process of contract formation, such as the invoices in this case, will be very difficult.

Background

Mr La Rosa was transporting a drill rig on a low-loader semi-trailer from Perth to Kalgoorlie for Nudrill Pty Ltd (Nudrill) in 2001. When Mr La Rosa was negotiating a roundabout, the wheels on the right-hand side of the vehicle lifted and the drill rig fell and was damaged. At first instance, in the District Court of Western Australia, Keen DCJ found that Mr La Rosa failed to exercise reasonable care and skill when driving and concluded that he drove at an excessive speed in the circumstances. Keen DCJ therefore upheld Nudrill's claims in contract, negligence and bailment for damage caused by Mr La Rosa's actions.

The Appeal

Mr La Rosa appealed on two grounds. The Court of Appeal dismissed both grounds of appeal.

First, Mr La Rosa argued that the trial judge erred in finding that he had driven at an excessive speed in the circumstances. On this ground all three judges found that it was open to the trial judge to draw the inference that the appellant had been driving at an excessive speed. There was no evidence that anything else could have caused the accident.

Secondly, Mr La Rosa argued that the trial judge erred in finding that an exclusion clause was not incorporated in the oral contract between the parties. Mr La Rosa argued that there was a consistent course of dealing between the parties over a period of time which meant that Nudrill evinced an acceptance of and readiness to be bound by the conditions on the back of the invoice rendered in relation to the cartage contract.

On this second ground of appeal the relevant facts were:

  1. The appellant had performed a number of cartage jobs for the respondent over a period of time.
  2. After each job, the appellant sent an invoice to the respondent specifying the equipment carried, the location of the pickup, the place of delivery and the cost of the work.
  3. Invoices were endorsed with a statement that the terms and conditions were set out on the reverse side of the invoice. Those terms and conditions contained the following exclusion clause: 'All goods are handled, lifted or carried at owner's risk. 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 act, default or negligence on the part of the Contractor, and/or his servants'.
  4. Both parties accepted that a telephone conversation between them gave rise to a cartage contract and was confined to matters of price, destination, pickup and time. The contract was oral and the only written component was the invoice claiming payment for the service already provided.

Incorporation of an Exclusion Clause Through a Prior Course of Dealing

The trial judge found the terms and conditions on the reverse side of the invoice were not incorporated into the contract. He found that Mr La Rosa needed to show that one of the earlier contracts in the course of dealing contained the exclusion clause.

The Court of Appeal found that the trial judge's view that Mr La Rosa needed to show that one of the earlier contracts in the course of dealing contained the exclusion clause was wrong. The relevant test was whether the party seeking to rely on a term had done what was reasonably sufficient to give the other party notice of the term.

McLure P (with whom Murphy JA agreed) held that found that the facts did not support an inference that the exclusion clause endorsed on the invoices had been incorporated into the cartage contract. The critical issue was that the invoices were not 'contractual documents'. They had been supplied after the services had been supplied and their purpose was to secure payment. Therefore, Nudrill's receipt of an invoice did not justify an inference that it had accepted and was ready to be bound by the terms on the invoices.

Buss JA delivered a separate judgement, but his conclusion was the same. He found that Mr La Rosa could not rely on an exemption clause contained in an unsigned document unless he did everything that was reasonably necessary to notify Nudrill of the clause. It was a question of fact and degree to ascertain whether the term was incorporated. Relevant factors include the number of prior dealings, how recent they were, and the consistency of the prior dealings with the dealing in question. Applied in this case Buss JA found the following.

  • The prior transactions were not sufficiently proximate to the formation of the 2001 contract to constitute a relevant course of dealings.
  • The transactions in the four years before the 2001 accident were not sufficiently numerous to constitute a proper foundation for inferring that Nudrill assented to the incorporation.
  • Nudrill did not have actual knowledge of the existence of the terms and conditions. Although not essential, any such knowledge is a relevant factor.
  • Each invoice was sent after the contract had been performed and a reasonable person would infer it was merely a demand for payment.
  • The parties always contracted orally without incorporation of written terms.

Therefore, like McLure P and Murphy JA, Buss JA concluded that Mr La Rosa was not reasonably entitled to conclude from Nudrill's actions that it had accepted or agreed to be bound by the terms and conditions on the invoice, and therefore they were not incorporated into the contract by a prior course of dealings.

To see the full judgement, please click here.