What Terms? / Which Contract?

In two Supreme Court judgments both delivered on 2 December 2014, Noreside Construction Limited -v- Irish Asphalt Limited [2014] IESC 68 (the ‘Noreside case’) and James Elliott Construction Limited -v- Irish Asphalt Limited [2014] IESC 74 (the ‘Elliott case’), the Court rejected Irish Ashphalt Limited’s claims, made in a bid to limit its liability for defective goods supplied, that the terms and conditions on its delivery dockets were incorporated into its contracts for supply.

The decisions of the Supreme Court stand as clear warnings to parties contracting with each other the importance of establishing, at the time of negotiation, the specific terms and conditions intended to govern the contract and thereby avoid a “battle of the forms” scenario where, in the event of a dispute, each party seeks to rely on its own terms and conditions to the exclusion of the other’s.

The appeal in the Noreside case was limited only to the High Court’s finding that Irish Asphalt Limited’s terms and conditions, referred to on its delivery dockets, were not incorporated into the ultimate contract, and among the findings the Court found that:

An oral agreement was reached between the parties, an express term of which was that Irish Asphalt Limited would supply the materials to Noreside Construction Limited and this was recorded by way of the purchase order sent by fax from Noreside Construction Limited to Irish Asphalt Limited on the same day.
The contract between the parties did not include either Noreside Construction Limited's conditions (which contained an indemnity printed on the reverse side of the purchase order), or Irish Asphalt Limited's terms and conditions (which contained a limitation of liability clause within its standard terms and conditions referred to, but not included on, its delivery dockets).
No limitation on Irish Asphalt Limited's liability could be imposed by custom into the said contract of supply between the parties.
There was an implied condition of merchantable quality pursuant to section 14(2) of the Sale of Goods Act 1893, as inserted by section 10 of the Sale of Goods and Supply of Services Act 1980, in the contract of supply between the parties.

The Supreme Court was not satisfied that Irish Ashphalt Limited’s terms and conditions were incorporated by reference or by custom and practice and in the course of the appeal the following points were noted:

Delivery dockets were not contractual documents. For delivery dockets/invoices to be viewed as contractual documents, the relevant terms and conditions should be printed on the document, and the delivery dockets/invoices. The crucial point is that the delivery docket or other document at issue must contain the relevant terms and conditions or at the very least contain a reference to terms and conditions well known in a particular industry.
Terms and conditions being available on request is not sufficient to incorporate such into a contract. In the Noreside case, Irish Asphalt Limited's terms and conditions were never provided or made known to Noreside Construction Limited and Irish Asphalt Limited did not establish that there was a custom and practice in the industry such that terms and conditions could be implied or incorporated into the contract between the parties.
In order for terms and conditions to be incorporated by reason of well-known custom and practice in an industry there must be evidence of such well known practice. The Supreme Court agreed with the High Court in that it was not satisfied that there was evidence of a well-known practice in the quarry industry entitling such operators to limit liability for defective products. Indeed the Court went further in finding that the practice, insofar as it existed, was for the inclusion of such an express contractual term.

In the Elliott case where Irish Asphalt Limited sought to rely on standard terms and conditions on its delivery dockets, claiming their incorporation into the contract between the parties, it was claimed that such terms were incorporated by:

signature, where delivery dockets were signed by the James Elliot Construction Limited site foreman;
actual notice, where its terms and conditions were set out in three credit notes provided to the Plaintiff;
reasonable notice, where it claimed James Elliot Construction Limited site foreman had such reasonable notice;
a consistent course of dealings between the parties; and
reference to trade custom.

Irish Asphalt Limited failed on each of the above grounds with the Court finding that:

Signature of delivery dockets did not constitute signature of a contractual document and the signature of the foreman was not sufficient to incorporate Irish Asphalt Limited’s terms and conditions.
Credit notes were provided to the accounts department to rectify payment errors and could not be used as a means of incorporating a limitation of liability clause.
Notice of a site foreman was not reasonable notice. Reasonable notice of the terms and conditions should be given to the senior personnel who had negotiated the contract.
Numerous historic interactions were not enough to establish a course of dealings between the parties sufficient to incorporate terms and conditions into a contract.

The rulings in both the Noreside case and the Elliott case are important as they demonstrate the importance of the parties to a contract for the supply of goods clearly establishing, agreeing and providing the express terms and conditions intended to govern their contractual relations. Contracting parties cannot rely on references to standard terms and conditions that have never been produced and/or rely, in the absence of clear supporting evidence, on understandings of custom and practice as to conduct of relations between them or in the relevant industry.

For further information please contact Bríd McCoy (Partner), Andrea de Courcey (Associate), or your usual AMOSS contact.