A recent Court of Appeal case, Stephenson Brown Limited v Montecillo Trust, underscores the importance of ensuring that contractual documents are duly notified to and signed by all parties.
The Montecillo Trust (Trust) had, through an agent, hired Stephenson Brown Limited (SBL) to design and supervise construction on a building’s foundations. However, there were no signed agreements for the agent or SBL. The Trust alleged that physical settlement after the project’s completion, which caused $5M in damage, was due to SBL’s negligence.
However, the preliminary issue before the Court of Appeal in this case was not whether SBL was negligent, but only whether SBL’s liability could be limited by a clause in its standard terms and conditions. Although neither the agent nor the Trust had signed those terms, the Court of Appeal considered that the Trust through its agent had an oral contract with SBL for the general project, and had at least received a copy of the terms. Generally, if the parties’ conduct shows that a clause affecting liability has been notified and accepted by all, it will apply despite an agreement not having been formally signed.
The Court of Appeal focussed on the parties’ conduct, and whether there was an objective display of agreement despite the lack of signatures. The Court of Appeal noted that the Trust’s lack of objection to the terms, after receiving them, did not in itself equate to acceptance. The agent’s prior knowledge of SBL’s business practices (such as sending its terms, but not insisting on their signature) might have been attributable to the Trust, but the Court of Appeal found that here the agent was not an “agent to know” and had not been engaged on the basis of having that sort of knowledge.
In the result, the Court of Appeal found that there was insufficient evidence to show that the Trust had knowledge of and accepted the terms, including the limitation clause. The case highlights that the safest bet for contracting parties is to insist that contractual documents be signed, and avoid the exigencies involved in having to prove that they were notified and accepted despite a lack of formal execution.