Montecillo Trust v
Stevenson Brown Ltd – High Court
Jardboranir HF trading as Iceland Drilling v Summit Hydraulic Solutions Ltd – High Court

Engineers and contractors terms of trade, limitation of liability.

An engineer sending a Short Form Agreement (SFA) to the principal’s project manager two months into the contract and then later with invoices did not mean the SFA formed part of the contract.

The fact that the engineer had sent the project manager SFA’s on 11 prior contracts with different principals was not enough to incorporate the SFA into the contract on the basis of a previous course of dealing.

Adequate notice must be given of terms and conditions during the formation of the contract.

Properly notified terms and conditions will operate to limit liability if clear and unambiguous, and there is adequate notice.

In the first case the Montecillo Trust¹ engaged Mr Rutter for the purposes of design, project management and supervision for the construction of a rest home in Dunedin in 2005. It was the first time Montecillo had engaged Mr Rutter. On Mr Rutter’s recommendation Stevenson Brown (SB), engineers, were engaged in February 2005 to design and supervise the construction of the foundations.

The building suffered settlement. Montecillo issued proceedings on 19 December 2013 against SB for negligence in design and supervision of the construction of the foundations.

In April 2005, two months after SB began work, it sent to Mr Rutter a SFA. Mr Rutter did not send it to Montecillo, nor did he sign and return it. Later the SFA conditions were attached to three separate invoices sent by SB to Montecillo.
Mr Rutter said in evidence he believed the SFA applied to the contract between Montecillo and SB. The terms and conditions reduced the normal six year limitation period and limited liability to $100,000.

The preliminary question for the High Court was whether the SFA was incorporated into the contract between Montecillo and SB by reason of a previous course of dealings between Montecillo’s agent, Mr Rutter, and SB.

At the time of the Montecillo contract, SB had sent 11 SFAs to Mr Rutter regarding different projects not involving Montecillo. None of those SFAs had been signed and returned. Only three were for commercial contracts (as was Montecillo) which contained the limitation of liability clause.

• There was no course of dealings because the other SFAs were not signed. Each needed to be considered separately.
  Generally, knowledge acquired before an agency began, or outside the scope of the agency, should not be imputed to the principal. The exception is where the agent is “an agent to know”.
• Mr Rutter was not an “agent to know” because he did not have any particular knowledge of contractual terms and conditions and because he was not retained due to his knowledge of contractual terms.
• There was no evidence that Mr Rutter had the authority to enter into a contract on behalf of Montecillo which flew in the face of orthodox doctrine that adequate notice must be given of terms and conditions in the formation of contract.

That decision can be contrasted with Jardboranir.² In that case Summit, the engineering contractor, submitted to Jardboranir an application for credit account which included the declaration:

I the undersigned, referred to herein this application for credit as “the Customer” have read the Terms and Conditions of Trade set out over the page and agree that those terms and conditions form an Agreement between the Customer and Summit …

The terms and conditions provided that instructions received by Summit from the customer should constitute a binding contract and acceptance of the terms and conditions. The credit application was signed by Jardboranir and returned to Summit.

Brewer J rejected any suggestion there was a separate oral contract or that work had commenced prior to the signing of the credit application. He found the terms and conditions binding with the effect that liability was limited to $46,444, being the amount charged for the work, and that causes of action in tort and under the Sale of Goods Act should be struck out.

These cases illustrate that relying on previous dealings with an agent, or a course of dealing, to incorporate terms and conditions into a contract is risky and problematic. Good practice demands notice at the time of formation and that acceptance of terms and conditions be recorded in writing.

1. Montecillo Trust v Stevenson Brown Ltd [2016] NZHC 684 per Davidson J
2. Jardboranir HF trading as Iceland Drilling v Summit Hydraulic Solutions Ltd [2016] NZHC 490 per Brewer J

For any further information regarding this please contact Andrea Challis, Peter Hunt or Kiri Harkess.