Prior dealings and contractual terms

Articles Written by Richard Lilly (Partner), Tom Barrett (Senior Associate)

The WA Court of Appeal recently revisited the incorporation of contractual terms through prior dealings in La Rosa v Nudrill Pty Ltd [2013] WASCA 18. The decision indicates that there are no circumstances where a prior course of dealings will automatically incorporate a contractual term; it will always depend on the facts.

Facts in La Rosa v Nudrill

  • The appellant, Mr La Rosa (La Rosa), carried on a cartage business and had previously transported equipment for the respondent, Nudrill Pty Ltd (Nudrill).
  • The cartage contracts between La Rosa and Nudrill were oral, except for the invoice La Rosa would send to Nudrill following the completion of the work. Those invoices contained an exclusion clause purporting to exclude La Rosa's liability for any loss or damage that occurred to property during transportation.
  • In August 2001 Nudrill and La Rosa negotiated a cartage contract for the transportation of a drill rig via telephone conversation. That conversation was confined to the price, destination, pick up and time of the transportation of the drill rig.
  • During transportation, the drill rig fell from La Rosa's trailer and sustained damage.
  • One of the questions before the WA Court of Appeal was whether the exclusion clause contained in the invoices had been incorporated into the cartage contract thereby excluding La Rosa's liability for the damage to the drill rig.

Decision in La Rosa v Nudrill

Findings of the majority

McLure P confirmed that:

  • there is no single test for the incorporation of a term into a contract based on prior dealings; and
  • it is not essential in a prior dealings case that the term in issue must have been incorporated in a previous contract between the parties, whether by 'contractual document' or otherwise.

McLure P indicated that a 'contractual document' in prior dealings cases was a document in which a reasonable person would expect to find contractual terms and also a document which the parties had, by their conduct, accepted or treated as a 'contractual document'. McLure P found that there were two tests for the incorporation of an express term into a contract by way of prior dealings, being:

  • the "ticket cases" test, which examines whether the party seeking to rely on the term did what was reasonably sufficient to give the other contracting party notice of the term, which was a question of fact having regard to the circumstances; and
  • the test enunciated by Anderson J in Brambles Holdings Ltd v WMC Engineering Services Pty Ltd (Unreported, WASCA, Library No 990096, 4 March 1999), which examines whether there was a consistent course of dealing, the only reasonable inference from which is that the party who is not seeking to rely on the inclusion of the clause was evincing an acceptance of, and a readiness to be bound by, the clause.

McLure P then found that actual knowledge of the term sought to be incorporated is not essential under either of the tests above, and that the Brambles test seemed more appropriate in determining whether an express term had been incorporated into a contract in circumstances in which prior dealings were relied on. McLure P ultimately concluded that the exclusion clause was not incorporated into the cartage contract. This conclusion was based on the finding that receipt of the invoices was not:

  • sufficient in all of the circumstances to justify an inference of acceptance of, and a readiness to be bound by, the terms on the invoices, including the exclusion clause; and
  • sufficient notice to Nudrill of the terms on which La Rosa would do business in the future.

McLure P supported these findings by noting that the invoices were not a 'contractual document' and were only issued for services already provided and to secure payment for those services. Murphy JA agreed with McLure P.

Findings of Buss JA

Buss JA found that Australia had adopted the 'reasonable objective expectation test' in relation to the incorporation of an express term by a prior course of dealings, which examines what each party was reasonably entitled to conclude from the actions or conduct of the other. Buss JA went on to find that it would be a question of fact and degree as to whether parties had incorporated a term into their contract by a previous course of dealings and that a court would have regard to various factors, including the number of prior dealings, how proximate the dealings were to one another and the similarity of the prior dealings to the dealing in question.

Similar to McLure P, Buss JA found that it was not essential to establish that the party sought to be bound by a term had actual knowledge of the term where a previous course of dealings was being relied on to incorporate a contractual term. Buss JA also noted that it is not an essential pre-condition to the incorporation of a term by a previous course of dealings that:

  • a document containing the relevant term had been sent or given to the party sought to be bound at or prior to the formation of each of the contracts constituting the previous course of dealings; or
  • the relevant term had been incorporated in at least one of the contracts constituting the previous course of dealings.

Ultimately, Buss JA also found that La Rosa was not entitled to conclude from Nudrill's conduct that Nudrill had accepted and agreed to be bound by the terms and conditions contained on the invoices, including the exclusion clause. Buss JA supported this conclusion by noting:

  • the prior dealings sought to be relied on by La Rosa were not sufficiently proximate with the cartage contract or numerous or frequent;
  • no representative of Nudrill had actual knowledge of the exclusion clause;
  • a reasonable person in Nudrill's position would have regarded the invoices merely as a demand for payment and would not have expected to find contractual terms for the completed work in them; and
  • the cartage contracts between La Rosa and Nudrill were always oral and there was never an incorporation of written terms into those contracts.

Commercial implications of the decision in La Rosa v Nudrill

The decision reinforces the need for businesses to carefully examine documents that are frequently provided in an ongoing relationship which could be considered 'contractual documents' and is illustrative of the benefits of expressly making it known that a contract is subject to a term at the time of entering into the contract, as doing so should eliminate any leeway for the party sought to be bound to contend that it was unaware of the term.

These principles are particularly relevant in operational or procurement contexts, where businesses may allow more informality in their contractual arrangements.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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