In this article I discuss two scenarios which may cause problems for exporters:
An exporter offers to supply products to a customer and notes that these products will be supplied on the exporter's standard terms and conditions. The exporter provides the customer with a copy of the exporter's terms and conditions. However, the customer accepts the offer on a form which contains the customer's own terms and conditions.
Whose terms and conditions will apply to the deal in that scenario?
New Zealand is a party to the United Nations Convention on Contracts for the International Sale of Goods. This Convention sets out rules which apply to transactions involving the exportation of products to other member nations. Member nations include many of New Zealand's trading partners such as Australia, United States, China and Japan (though the United Kingdom and India are amongst the nations who are not members). Article 19 of that Convention provides that if a reply to an offer contains additional or different terms but these do not materially alter the deal, the terms of the contract will be the terms of the original offer plus the modifications (unless the offeror objects). The Convention specifically states that material terms will include terms relating to price, payment, quality and quantity of the goods, place and time of delivery and the extent of liability of one party to the other.
In this scenario if the exporter does not object to the customer's terms and these terms are not materially different to the exporter's own terms, the terms of the contract will be the exporter's terms together with the customer's terms.
However, it is possible in this scenario that the customer's terms will be materially different to the exporter's terms. If that is the case, the customer's reply may amount to a rejection of the exporter's offer and instead will be a counter-offer. Strictly speaking if the exporter does not accept the customer's counter-offer a contract has not been formed. However, that does not address the situation where the parties proceed with the transaction each assuming their own terms will apply. In that situation, it may be that a court would try to reconcile the different terms.
As you can see, this scenario could get messy. To avoid a dispute you should always ensure that your customers clearly agree that your terms of trade will apply before proceeding with a transaction.
An exporter wishes to supply products to a large overseas organisation, "Gigantic Co". Gigantic Co tells the exporter that if the exporter wishes to supply products to it, the exporter will need to agree to Gigantic Co's standard terms and conditions. The exporter agrees. As the relationship progresses, various departments within Gigantic Co ask the exporter to sign agreements containing different terms and conditions.
Will the terms in the later agreements override terms in the earlier agreements?
Sometimes an agreement may include an entire agreement clause along the following lines, "This agreement contains the entire understanding between the parties regarding the subject matter of this agreement. This agreement will supersede and replace any prior representations, discussions, communications and agreements between the parties."
If an entire agreement clause is included in a later agreement this will likely mean that the terms of the prior agreement will not apply to the parties. This may not be what the exporter intends.
What if the later agreement does not contain an entire agreement clause and a dispute arises about which terms apply?
In this situation, courts may try to reconcile the terms in the different agreements in an effort to make them work together. Alternatively, a court may decide that the last agreement records the parties' intentions and therefore overrides the terms of the earlier agreements. How a court will approach a dispute of this sort will depend on the facts in each case.
The lesson to be learned here is to always read the fine print in an agreement before you sign it to ensure you understand its implications for your business. You need to understand how various agreements work together. If there is any inconsistency you should point this out to your customer before you sign a new agreement so that it can be resolved. You cannot assume that different departments in a large organisation will know what other departments are doing.
Always ensure you understand what terms and conditions apply to a deal before supplying products to your customers. You should consider obtaining legal advice before agreeing to terms and conditions or if you are unsure whose terms and conditions should apply to a deal.
If you are dealing with an overseas customer there may be some uncertainty about whether New Zealand law or the law of the customer's country applies. In that case you should also consider obtaining legal advice from a lawyer in the customer's country.
Wynn Williams is the only New Zealand member of the State Capital Group, the world's largest network of independent law firms. We are uniquely placed to provide you with access to international legal advice from overseas members of the State Capital Group.