The importance of having robust terms and conditions: Noreside Construction -v- Irish Asphalt (2014)

Noreside Construction v. Irish Asphalt¹  concerned a contract for the sale of aggregate for use in the foundations of residential units in Finglas, Dublin, that was entered into in 2003.  Some five years after the sale of the aggregate, the defendant notified the plaintiff that aggregate from its Bay Lane quarry contained pyrite, and should not be used in building.

By 2008, a number of residential and commercial developments in Dublin and in surrounding counties had suffered significant damage due to excessive pyrite content in the aggregates used in their construction.  The effect of excessive pyrite in aggregate used for foundation infill is that the walls of the building can heave upwards, leading to cracking in walls and floors, and necessitating extensive remedial works.

The plaintiff sought an indemnity from the defendant in respect damage to the development in Finglas where aggregate from the Bay Lane quarry had been used, and where significant damage had occurred to the units due to pyritic heave.  The defendant sought to rely on a limitation on liability in its standard terms and conditions, while the plaintiff claimed that it had purchased the aggregate on its own standard terms.  Considerable evidence was put before the Court as to the exchange of correspondence between the parties, in order to establish what terms had been incorporated into their contract.

The Court ultimately concluded that neither party’s standard terms and conditions of supply had been incorporated, and that the contract had in fact been formed when two senior employees of the plaintiff and defendant had agreed, orally, for the supply of aggregate, and when a purchase order was sent by the plaintiff to the defendant.  There were limited express terms in the order, no warranties and no limitation on liability.

The Court held that the delivery dockets accompanying the aggregate did not create new contracts on each delivery, and were intended to record the volume delivered, and that the operatives in charge of those deliveries had no authority to vary the original contract.

The effect of the finding was that the defendant’s limitation on liability was not part of the contract; the Court accepted the plaintiff’s contention that the implied term of merchantable quality from s. 14 (2) of the Sale of Goods Act 1893 did apply, on the basis that there was no evidence to support the exclusion of that term.

The defendant appealed to the Supreme Court; the Court dismissed the appeal in late 2014.²  The appeal turned on the defendant’s claim that the trial judge had been wrong in finding that there was only one contract formed between the parties, and that the delivery dockets did not have the effect of varying the terms of the contract.

Instead, the defendant claimed that the contract entered into was a ‘master’ contract, but that separate contracts were entered into with each delivery of aggregates, which themselves were subject to terms and conditions referred to (but not included in) the delivery dockets accompanying each delivery of aggregates.  The defendants then claimed that their terms and conditions, although not specified in the delivery dockets, were incorporate by reasonable notice, or a course of dealing between the parties.

The Supreme Court was prepared to accept that a separate contract was entered into with each delivery of aggregates; however, the Court did not accept that the defendant’s terms and conditions were incorporated into each of those contracts.

One of the crucial points in the Supreme Court’s analysis is that the inclusion of a reference to terms and conditions being ‘available on request’ was not sufficient to incorporate those terms and conditions into the contract between the parties.  This was the case notwithstanding the fact that the plaintiff’s site foreman or other representative would have signed the docket upon each delivery of aggregates.

This was a fundamental issue for the defendants; their terms and conditions contained a limitation on their liability, while the original contract agreed with the plaintiff for the supply of aggregates did not.

The message for parties and their advisers is to ensure that written contracts, dealing with the agreed risk allocation between the parties, are put in place prior to the commencement of works or supply of materials or goods.  Ms Justice Dunne in the Supreme Court observed that the defendant could have ensured that its terms and conditions had been properly incorporated by printing all of the terms and conditions on delivery dockets and invoices.

For further information on this topic please contact Peter Kearney in our litigation department at pkearney@reddycharlton.ie

¹Noreside Construction v Irish Asphalt, [2011] IEHC 364

²[2014] IESC 68