Exclusion Clauses in Terms of Trade

Exclusion Clauses in Terms of Trade

The value of a customer’s acknowledgement of terms and conditions at the start of a contract and the inclusion of unambiguous exclusion clauses in those terms and conditions have been highlighted in a recent case where a construction labour hire company was able to enforce a statutory demand for unpaid amounts.  In circumstances which are not entirely uncommon, there have been no earlier dispute as to the balance outstanding, but when pressure was applied for payment, a range of excuses were raised as to poor workmanship and over-charging to avoid, or at least reduce, the amount outstanding.

The case involved a company called Bishop Industries (Wellington) Limited who were successful in winning a contract with the Ministry of Education for carrying out construction work at a school in Johnsonville, Wellington.  In order to fulfil that contract, Bishop approached Construction Labour Hire Limited (CLH), a specialist construction labour hire company in the business of supplying skilled and unskilled personnel to companies involved in construction projects.

Relevant email correspondence made it clear that CLH never intended to assume responsibility for overall supervision of the work, but merely to supply workers to Bishop to enable it to perform the contract with the Ministry.  In particular, it did not agree to provide a site supervisor or foreman for the school job, and therefore did not assume responsibility for the quality of workmanship.

This was critical in the context of whether the exclusion clause in CLH’s terms and conditions would apply to negate the claim by Bishop that CLH should be responsible for defective workmanship.  The exclusion clause expressly provided that Bishop would be responsible for all acts, errors or omissions of CLH staff whether wilful, negligent or otherwise and that CLH accepted no liability however arising.  CLH was able to clearly show that the terms and conditions were sufficiently brought to the attention of Bishop and acknowledged by them as binding and that clear and unambiguous language was used in relation to the exclusion clause.

Legislative changes to the Fair Trading Act and Consumer Guarantees Act in 2014 have put increased onus on businesses to ensure that terms and conditions in their contracts with consumers are fair and reasonable and do not contain unfair contract terms.  One can’t emphasise enough the importance of clearly defining at the outset goods or services to be provided by a business to a customer or client and the terms and conditions under which those services are provided.  A letter of engagement or credit application is a useful means to notify the customer or client of the company’s terms and conditions at the start of the contract.  Ideally, these should be specifically acknowledged in writing by the customer or client, and any special terms highlighted.  It may be too late after the event.

It is also important to ensure that any oral or written representations (including by email) are consistent with the initial engagement letter, to avoid later arguments that the terms and conditions are varied or that the customer or client has been induced to enter into a contract for which they later seek to claim some loss.