The case for having Terms of Trade

17 December 2020

A recent case in the High Court is a good reminder for why every business should have Terms of Trade.

In Moffitt Dairy Ltd v Hazlett Ltd[1], a Temuka farmer (MDL) purchased approximately $60,000 worth of seed in 2019 from Hazlett Ltd (Hazlett) to grow supplementary feed for their herd. MDL claimed it had grown the same type of seed for the past 10 years which had typically produced around 20-30 tonnes of feed per hectare. However, MDL says that the seed purchased from Hazlett had a low strike rate and only yielded about 12 tonnes per hectare.

MDL refused to pay for the original seed purchased in 2019 claiming it was sub-standard. Hazlett demanded payment of the outstanding amount. MDL applied to the court to set aside the demand, claiming that the supply by Hazlett of sub-standard seed had cost MDL substantially more than the amount claimed by Hazlett.

The Judge found that although it was reasonably arguable that the seed was sub-standard, MDL was still liable to pay for the seed because of the agreement between the parties found in Hazlett’s standard terms of trade. In particular Hazlett’s terms of trade stated that:

  • MDL agreed to contract out of particular sections of the Fair Trading Act 1986 (FTA);
  • Any warranties or conditions imposed by the Sale of Goods Act 1908, now the Contract and Commercial Law Act 2017 (CCLA), do not apply; and
  • Hazlett would not be liable for any loss or damage to MDL whatsoever.

If Hazlett had not had terms of trade, or if their terms of trade had not adequately covered these potential issues, MDL may have successfully avoided paying Hazlett for the sub-standard seed. However, the Judge found that the parties had validly contracted out of the CCLA and the FTA so they were not liable for any breach of implied conditions of the quality of the seed, or misleading or deceptive conduct in relation to the seed.

This case demonstrates the importance of having adequate Terms of Trade to minimise your liability. If Hazlett did not have their Terms of Trade in place, they may have suffered a substantial financial loss.

If you need Terms of Trade for your business, or your existing terms have not been updated in a while, don’t hesitate to contact us.

[1] Moffitt Dairy Ltd v Hazlett Ltd [2020] NZHC 2060.

Chris Steenstra and Aaron Young are part of our Corporate & Commercial team at Norris Ward McKinnon.