Contract law underpins nearly every commercial relationship, and most business disputes are contract disputes. The principles are not complicated; the difficulty is that businesses regularly form contracts without realising it and then rely on documents that were never incorporated.
Formation: how a contract comes into existence
A contract requires offer, acceptance, consideration, and an intention to create legal relations. In commercial dealings the intention is presumed.
Two practical points follow:
Contracts do not require signatures. An exchange of emails, a verbal agreement followed by performance, or an order placed and accepted can all form a binding contract. Businesses waiting for a signed document while work proceeds are frequently already bound on terms nobody chose.
The battle of the forms. Where a buyer sends a purchase order with their terms and a supplier responds with an acknowledgement carrying different terms, which prevails is determined by the sequence of offer and acceptance. Generally the last set of terms sent before performance begins tends to govern. Businesses that always respond with their own terms are in a better position than those that file the customer’s terms without reading them.
Incorporating your terms
Standard terms only apply if they were incorporated before or at the time of contracting. Terms printed on an invoice issued after the work was agreed are generally too late.
Practical steps that work:
- Reference the terms clearly on quotes and order acknowledgements, and provide them.
- On a website, require an affirmative acknowledgement before purchase rather than burying a link in the footer.
- For ongoing relationships, put a signed trading terms agreement in place once rather than relying on each transaction.
- Keep evidence of what was sent and when.
The terms that carry the weight
In commercial terms, a handful of clauses do most of the work:
- Price and payment — when payment is due, interest on overdue amounts, and whether set-off is permitted.
- Retention of title — ownership stays with the supplier until payment. To be effective against third parties it generally needs registration on the Personal Property Securities Register, and a clause without registration is much weaker than suppliers assume.
- Limitation of liability — caps and exclusions of consequential loss. Note the Consumer Guarantees Act and Fair Trading Act limits on contracting out, and that contracting out in business-to-business dealings requires both parties in trade, in writing, and must be fair and reasonable.
- Termination — what triggers it, what notice is required, and what survives.
- Force majeure — drafted for whose benefit, and does it cover the events that would actually affect you.
- Dispute resolution — negotiation, mediation, arbitration or court, and where.
Statutory overlay
Contract terms do not operate in isolation. The Consumer Guarantees Act cannot be contracted out of in consumer transactions. The Fair Trading Act prohibits misleading conduct in the lead-up to contracting and allows unfair terms in standard form consumer and small trade contracts to be declared unfair. The Construction Contracts Act imposes a payment regime that overrides contrary contractual arrangements.
The Contract and Commercial Law Act 2017 consolidated much of the general law, including rules on misrepresentation, contractual remedies, and contracts benefiting third parties.
Breach and remedies
Where a party breaches, the innocent party is generally entitled to damages putting them in the position they would have been in had the contract been performed.
Two limits matter commercially. Remoteness — you can recover losses that were reasonably foreseeable, which is why telling the other party at the outset about a particular consequence of failure improves your position. And mitigation — you must take reasonable steps to reduce your loss, and cannot recover losses you could reasonably have avoided.
Cancellation is available for sufficiently serious breach or where the contract provides for it. Cancelling without grounds is itself a breach, which is why the decision warrants advice before it is made rather than after.
Practical habits
- Have written trading terms, incorporate them properly, and review them every few years.
- Read the other party’s terms before accepting an order — particularly liability, indemnity and payment provisions.
- Do not sign an indemnity your insurer will not cover.
- Confirm verbal agreements in writing the same day.
- Register retention of title and other security interests on the PPSR.
- Keep the file: quotes, acceptances, variations, correspondence.
business.govt.nz publishes practical contract guidance and template material, and the legislation is available free at legislation.govt.nz with no copyright in the official text.
General information only, not legal advice.
