May 2005

Machenair Ltd -v- Gill & Wilkinson
Technology & Construction Court

It may not be enough for a contractor to refer to his own terms and conditions, particularly if they are not in an industry standard form - or even to say that they are available on request. Best practice is to supply a copy of the conditions.

The English TCC has considered what must be done in order to incorporate standard terms and conditions into a sub-contract.

The law has long been that, in order for terms to be incorporated by reference, there must be reasonably sufficient notice of them. What that "reasonable notice" should consist of depends on all the circumstances. Usually, where there is explicit reference to a set of terms, that would be sufficient to incorporate them - especially if the terms are industry standard or have been used between the parties before.

In this case, there were three sub-sub-contracts between Machenair and Gill & Wilkinson, for Machenair to carry out the mechanical package on a university sponsored project. The contracts each comprised a quotation by Machenair and a purchase order by Gill & Wilkinson.

The purchase orders said: "This order is placed subject to our conditions of purchase, a copy of which is available on request".

The court found that:

• The standard terms were not generally available in the industry (i.e. the answer might have been different had they been, e.g., a DOM standard form);

• The terms had never been given to Machenair;

• The conditions were extensive and there was no summary of them on the form.

Even though Machenair's attention had been drawn to the existence of the conditions, and although the apparent intention was clear: that they would form part of the contract, the attempt to incorporate those conditions failed, because Machenair had not seen them.

It is dangerous to extrapolate the effect of this decision too far, as in determining what 'reasonable' notice is in each case, the particular facts will be critical. It is equally important to recognise that the court's decision on this point was not the issue upon which the decision turned. The case is therefore only persuasive, not strictly binding. It is also the subject of appeal.

Best Practice

This decision is, however, an important one showing how incorporation of terms by reference can work - or not work - in practice. It generates a clear best practice guide in relation to incorporation of standard terms: if a set of your company's standard terms and conditions is referred to, you should ensure that it is also supplied.

If you would like more information on this case, or the incorporation of terms by reference generally, please contact Colin Fraser or Simona Williamson.

Colin Fraser
Partner, Construction & Engineering Team