Court reinforces law on incorporation of terms

This blog post was written by Peter Fernando, a senior associate specialising in commercial contracts and information technology law.

In an earlier blog we discussed a case where liability limitations were incorporated into a contract via a signed document that was referred to in that document. In a judgment released in May 2016 the Court of Appeal determined that one company’s standard terms (including liability limitations) were not part of the deal.

The new case involved Steel Co sourcing pipes from China and supplying them to Pipes NZ. Pipes NZ then supplied the pipes for use in two hydroelectric schemes—Esk Valley (Hawke’s Bay) and Amethyst (West Coast). The pipes were deficient, and in the end Pipes NZ suffered losses, including liquidated damages it agreed to pay to its customers.

Steel Co traded with Pipes NZ entities for several years. But the flow of events was such that Steel Co was unable to convey to the court how its standard terms were ever brought to Pipes’ attention. Particular issues were uncertainty about who sent which documents to whom and whether Steel Co could prove that Pipes NZ had agreed to those terms. So, its exclusions and limitations of liability did not offer iron-clad protection.

The appellant needed to temper its enthusiasm and steel itself for a disappointing result. For now its pipe dream is over, with the appeal dismissed and judgement of $416,580 standing.

The lesson from both recent decisions is to make sure that the contract terms you want are part of the contract.iStock_000051145794_Oil pipes.jpg

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