Your Supplier Changed Their Contract Terms: Do You Have To Agree?

A good supplier relationship can be a lot like any other long-term relationship. You've worked together for a while, you know what to expect from each other and, for the most part, things are going pretty well.

Then, seemingly out of nowhere, your supplier decides it's time to change things up.

Maybe they're increasing their prices, shortening your payment deadlines or introducing conditions that weren't part of your original agreement. Suddenly, the arrangement you've relied on isn't quite what you signed up for.

So, can your supplier simply change the terms and expect you to accept them? And what happens if you don't agree, but still need them to keep your business running?

Before agreeing to any changes, it's important to understand what your supplier is legally entitled to do and where your rights as a customer come in.

Can A Supplier Change Contract Terms Without Your Agreement?

Generally, a supplier cannot simply change the terms of an existing contract without your agreement or another legal basis for doing so.

When you enter into a supplier agreement, both parties agree to certain obligations. These might include prices, payment deadlines, delivery arrangements and the circumstances in which either party can end the contract.

Those terms are generally binding. However, some agreements already give suppliers the right to make particular changes, meaning they may not need your approval each time.

The key questions are what your contract allows, whether the supplier has followed the required process and what the proposed changes involve.

It's also worth remembering that not every business relationship involves a formally signed contract. Agreements can be formed through emails, purchase orders and other communications. If there's no single written agreement, determining which terms apply may be more complicated.

What If Your Contract Allows The Supplier To Make Changes?

Some supplier agreements contain unilateral variation clauses, which allow one party to change certain terms without obtaining fresh consent from the other.

These clauses might permit price adjustments, changes to delivery arrangements or updates to operational requirements.

However, the supplier's rights depend on how the clause is written. It may only allow specific changes, require advance notice or give you the option to terminate the agreement if certain changes are introduced.

There's also New Zealand's unfair contract terms legislation to consider.

Under the Fair Trading Act 1986, unfair contract terms protections can apply to standard-form small trade contracts where the trading relationship has an actual or expected annual value of up to $250,000, assessed when the relationship first arises.

A clause giving a supplier broad powers to change prices or important contractual obligations, without reasonable protections for the customer, may raise concerns under these rules.

However, unilateral variation clauses aren't automatically unlawful. The fairness of a term depends on several factors, including the balance of rights between the parties and whether the term is reasonably necessary to protect legitimate business interests.

For ordinary small trade contracts, only the Commerce Commission can apply to a court for a declaration that a term is unfair. If a court makes that declaration, the term cannot be enforced.

If you're unsure about a variation clause, having your supplier contract reviewed can help you understand what changes are permitted and whether the proposed terms raise legal concerns.

Does Continuing To Order Mean You've Accepted The New Terms?

This is where things can become a little complicated.

Your supplier sends an email announcing new prices, and you continue placing orders as usual. You haven't signed anything or expressly agreed to the changes, so does that mean you're still operating under the original contract?

Not necessarily.

Under contract law, acceptance can sometimes be demonstrated through conduct rather than a signature.

If a supplier clearly communicates new terms and you continue ordering goods on that basis, your actions could potentially be interpreted as acceptance.

However, receiving an email, revised invoice or updated terms and conditions doesn't automatically mean your existing contract has changed. Similarly, silence or continued trading doesn't always amount to acceptance.

The original agreement, communications between the parties and circumstances surrounding the transactions will all matter.

This can be particularly difficult when your business depends on the supplier. You might disagree with the new prices but feel you have little choice other than to continue ordering.

If you don't agree with the changes, it's important to communicate your objections clearly and in writing.

Continuing to trade while disputing the changes can create uncertainty about which terms apply. Promptly clarifying your position and obtaining advice where necessary can help protect your business.

Can A Supplier Increase Prices On An Existing Order?

Imagine you've already placed an order for $8,000 worth of stock. Your supplier confirms the order, but a week later informs you that the price has increased to $9,500.

Do you have to pay the difference?

Generally, once a binding contract has been formed at an agreed price, the supplier cannot simply increase that price unless the contract or another legal basis permits it.

However, it's important to establish when the agreement becomes binding.

Some supplier relationships operate under an overarching contract, with individual purchase orders placed throughout the relationship. In other cases, each accepted order forms a separate agreement.

Submitting a purchase order doesn't necessarily mean a binding contract has been formed. That may depend on the supplier's acceptance process and the terms governing the arrangement.

A supplier may also be entitled to propose different prices for future orders, even where existing orders remain subject to previously agreed pricing.

The distinction matters, particularly when your business has already budgeted for stock or committed to supplying your own customers at a particular price.

What Happens If You Refuse The Changes?

If your supplier proposes new terms that aren't authorised by the existing contract, you generally don't have to agree to them.

However, refusing a proposed change is different from refusing a change the supplier is already contractually entitled to make.

Before responding, review your agreement to understand the supplier's variation rights, notice requirements and any relevant termination provisions.

If you believe the changes aren't permitted, you can raise your objections in writing and explain your understanding of the existing terms.

You may also decide to discuss alternative arrangements, such as a gradual price adjustment or revised payment schedule. Any changes you ultimately agree to should be properly documented.

What if your supplier has already started charging the new prices?

You should check the invoices against your agreed terms and promptly raise any discrepancies. Keeping copies of previous invoices, purchase orders, correspondence and agreed pricing can be particularly useful if the issue develops into a dispute.

It's also important not to assume that refusing the changes automatically gives you the right to end the contract.

Your termination rights will depend on the agreement and the circumstances. Ending a supplier relationship without a valid legal basis could potentially expose your business to a breach of contract claim.

What If The Supplier Refuses To Honour The Original Contract?

Sometimes, the supplier may go further than simply proposing different terms.

They might refuse to deliver goods unless you agree to higher prices, stop fulfilling confirmed orders or fail to meet other existing obligations.

Depending on the circumstances, this could amount to a breach of contract.

Under New Zealand's Contract and Commercial Law Act 2017, a party may have the right to cancel a contract in certain circumstances, including where the other party repudiates the agreement or where a breach meets the relevant statutory requirements.

However, not every breach gives you the automatic right to cancel.

The nature of the breach, the contract's terms and its consequences can all affect your options. You may also be entitled to seek damages for losses resulting from a breach.

If you continue with the contract after becoming fully aware of a breach that would otherwise justify cancellation, your actions could amount to affirming the agreement, which may prevent you from cancelling on that basis.

Before withholding payments, cancelling orders or ending the relationship, it's worth obtaining legal advice. Taking action without understanding your contractual rights could create further complications.

How Can You Protect Your Business From Unexpected Contract Changes?

While you can't necessarily prevent a supplier from proposing new terms, a well-drafted agreement can help establish how changes should be handled.

When entering into a supplier relationship, consider whether your contract clearly addresses:

• Price adjustments: When prices can change and whether notice or approval is required.
• Contract variations: How changes must be proposed, communicated and agreed upon.
• Notice requirements: How much warning must be provided before permitted changes take effect.
• Termination rights: When either party can end the agreement and what happens to outstanding obligations.
• Existing orders: Whether previously accepted orders remain subject to the original terms.

These provisions are especially important if your business relies heavily on one supplier or has limited alternatives.

Having a clear Supplier Agreement in place can help both parties understand their obligations and reduce the likelihood of disputes.

Need Help With A Supplier Contract?

Unexpected changes to a supplier's terms can affect everything from your operating costs to your ability to meet customer commitments.

Whether you're reviewing proposed changes, trying to understand an existing agreement or preparing a new supplier contract, it's important to know where you stand before making a decision.

Sprintlaw can assist with contract reviews, contract amendments and redrafting and preparing supplier agreements suited to your business.

Get in touch with our team on 0800 002 184 or email team@sprintlaw.co.nz to find out how we can help.