Michael Hill Jeweller (Australia) Pty Ltd v Gispac Pty Ltd (No 2)1 (Michael Hill v Gispac) concerned a dispute involving sales agreements for Gispac to deliver bags to Michael Hill stores.
Michael Hill engaged Gispac to provide packaging for it from 2003 to 2018. This packaging was ordered by Michael Hill on an ‘as needs’ basis, with each order being subject to a separate sales agreement that was signed by a Michael Hill representative.
In 2012, Gispac changed the sales agreements so that they included a ‘tick box’ that incorporated Gispac’s standard terms and conditions (2012 Terms). The 2012 Terms included obligations on Michael Hill to order a minimum quantity of bags per annum (being 25% of the annual quantity) and an exclusivity provision. Michael Hill did not tick the relevant box on any sales agreement until 2014 and the parties’ conduct did not change after the introduction of the 2012 Terms (even once Michael Hill started ticking the relevant box in 2014).
In 2017, Gispac contacted Michael Hill asking them to pay a ‘shortfall’ for ordering less than what Gispac believed was the annual minimum order quantity. This was the first occasion on which Gispac attempted to enforce the minimum annual quantity against Michael Hill and also the first occasion in which Michael Hill had been provided with a copy of the 2012 Terms. Michael Hill refused to pay the shortfall amount and shortly following this, in May 2018, Michael Hill placed its last order of packaging with Gispac and ended the relationship between the parties.
The appeal focused on three sales agreements executed in 2014 and 2015. In each of these sales agreements, the Michael Hill representative ticked a box that incorporated the 2012 Terms and signed the agreement.
The questions before the Court were whether the 2012 Terms were incorporated, if Michael Hill was obligated to order a minimum quantity of bags a quarter as implicated by the 2012 Terms, and if Michael Hill’s relationship with Gispac was subject to the exclusivity provision in the 2012 Terms. The primary judge had agreed with Gispac on all three grounds, awarding Gispac damages of around $2.26 million.
On appeal, the judges agreed that the act of ticking the relevant box in a signed contract incorporated the referenced terms. The majority agreed that the parties were bound by the 2012 Terms on the basis that Gispac demonstrated those terms – or an identical set of terms – existed at the relevant time, despite uncertainty as to whether the terms referenced in the sales agreements were in fact the 2012 Terms and whether they were available at the URL specified in the sales agreements. However, the dissenting judge considered that there was no evidence as to the content of the 2012 Terms, and there was no indication from the conduct of the parties that they intended to vary the contractual relationship between them.
The decision of the majority (and of the primary judge) reflects the general principle that, in a signed contract, parties are bound by the terms irrespective of whether they have read those terms. This finding regarding incorporation of the 2012 Terms also led to the majority confirming the enforceability of the exclusivity provision.
All three judges on appeal agreed that, while the sales agreements referred to a ‘QTY’, this was not the same as an ‘annual quantity’ which was not specified in any of the sales agreements. Further, the conduct of the parties indicated that packaging was ordered on an ‘as needs basis’, where new sales agreements were put in place after the exhaustion of the previous production run, rather than annually. As such, Michael Hill was under no obligation to order a minimum annual quantity, as there was no annual quantity specified in the agreements.
On this basis, the Court reduced the judgment amount by almost $2 million to around $360,000.
Michael Hill v Gispac reveals a complicated and messy contractual and commercial relationship, with some valuable lessons to help avoid ending up in a similar situation.
Practical lessons
This case is a reminder of simple actions businesses can take to improve the enforceability of terms referenced in an agreement (especially when updating those terms), and avoid costly and time-consuming disputes:
- where a party has been given a contract to sign which incorporates terms by reference (signing party), those terms will apply regardless of whether the signing party has a copy of those terms or reads them, so the signing party should ensure it has a process in place to review, and retain on record, any terms incorporated by reference in their current form as at the signing date;
- a party providing a contract which incorporates terms (offering party) should ensure that it has clear records of those terms at the signing date and as they are varied over time;
- although referenced terms will be taken to be incorporated regardless, an offering party should ensure that:
- URLs to incorporated terms work and render a current version of the terms;
- file names written in agreements are consistent with those kept on file or accessible at the relevant URL (for example, ensuring that all documents are file named ‘standardterms_January2012.pdf’); and
- terminology is used consistently across sales agreements, purchase orders or the equivalent and the incorporated terms (for example, including an ‘Annual Quantity’ as well as, or instead of, a ‘QTY’); and
- if an offering party wants to update the terms applicable to an established business arrangement, it should ensure the parties’ conduct changes accordingly (for example, adopting annual sales agreements rather than continuing to enter into new agreements each time a production run ran out of stock).
Overall, it is important that businesses are aware of how terms are incorporated by reference in a signed contract, regardless of whether the terms have been properly read and understood.
HWL Ebsworth’s Intellectual Property and Information Technology team has broad experience assisting with commercial IP/IT matters including digital contracts. If you have questions or concerns, please do not hesitate to contact us.
This article was written by Luke Dale, Partner, Nikki Macor Heath, Special Counsel, Maximillian Soulsby, Solicitor and Bellarose Watts, Law Clerk.
1 [2024] NSWCA 211.
