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How a well-written purchase order can make all the difference

in Business Law by Robert Auricchio on

Invoices, quotations and purchase orders – for many businesses it’s probably referred to as ‘paperwork’. But in the absence of a written contract between two parties this paperwork can take on extra importance, and the wording within could be assessed in a dispute.

Commercial disputes often arise from contracts where one party alleges that the contract they signed did not reflect the agreement reached. Often a contract is ambiguous, in some cases the only real evidence of a contract is the invoice or purchase order. In high volume or high turnover businesses, it can be critical to ensure that the wording on quotations, invoices or purchase orders is detailed and accurate. 

When a dispute arises around the terms of a contract, there are accepted ways any ambiguity on terms will be resolved. In the first instance the court will look to the text of the contract and not at any extrinsic material such as emails or other documents.

Given the primary importance of the terms of what’s written in the contract, careful attention must be taken in the day-to-day running of your business to avoid disputes arising from even simple contractual transactions based off an invoice or quotation.

The High Court in the recent case of Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited [2015] HCA 37 confirmed that if a dispute arises around the terms of a contract, the following matters may be considered:

  1. If the terms of a contract are clear, evidence of surrounding circumstances cannot be used to contradict the plain meaning of those terms.
  2. If a contract is unclear, events, circumstances and other factors external to the contract may be necessary to identify the commercial purpose of the contract or to give clarity to the terms of the contract.
  3. Only events, circumstances and factors external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction are admissible.
  4. A commercial contract should be interpreted so as to avoid it "making commercial nonsense or working commercial inconvenience".  This means where the terms are unclear, a court will not favour an interpretation that would clearly be at odds with the standard industry practice.

In short, parties to a contract will be bound by the written language of the contract. However, where there is ambiguity, the circumstances of the particular contract or industry custom and practice may be important to determine what the parties intended. To avoid these contractual disputes, care should be taken to document an agreement even where the contractual terms are contained in documents as simple as quotations and invoices.

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