Battle of the Forms: Part 1

“Terms Agreed” – But whose terms?

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In a recent decision of the Technology & Construction Court, both sides lost out in a “battle of the forms” as to whose standard terms and conditions (T&Cs) applied. The case demonstrates again the dangers of assuming that your latest contract, or even a long-term business relationship is governed by your T&Cs.

FACTS

In Transformers & Rectifiers Ltd v Needs Ltd, the parties had been doing business for around 20 years on a weekly basis. The buyer, Transformers & Rectifiers Ltd regularly ordered nitrile gaskets from the supplier (Needs Ltd).

The buyer complained that two lots of gaskets were not fit for purpose and in breach of contract. There was a dispute to be decided as a preliminary issue as to whose terms applied and whether the supplier could rely on their exclusion clause to limit liability? The supplier contended that its liability was limited or excluded by its terms of sale.

The buyer gave orders by different methods, including by fax, email or post. Their standard T&Cs were printed on the reverse of their standard form purchase orders when sent by post. However, there was no reference to the terms on the face of the purchase order itself. When a fax or email order was sent, the back page wasn’t included.

The supplier acknowledged purchase orders by sending an acknowledgement of order that stated “The quoted prices and deliveries are subject to our normal terms and conditions of sale (copies available upon request)”. However, the supplier hadn’t ever sent their T&Cs to the buyer.

DECISION

The Judge, Edwards-Stuart J found that it was not obvious on reading the front page of the Order that the T&Cs were on the reverse. Also, because the buyer didn’t issue purchase orders in the same way each time, its standard T&Cs were frequently omitted as it usually sent only the front page of its purchase orders via fax or email.

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  1. The Judge found that neither parties’ standard T&Cs were incorporated into their contracts: neither side had done enough to draw the other’s attention to its standard terms. The commercial result was that the supplier could not rely on exclusion clauses within its standard terms, and the buyer couldn’t rely on their T&Cs either. He outlined the following broad principles:
  2. Where X makes an offer on its conditions and Y accepts that offer on its conditions and, performance follows (without more correspondence), on the assumption that each party’s conditions have been reasonably drawn to the attention of the other, there is a contract on Y’s conditions;
  3. Where there is reliance on a previous course of dealing it doesn’t have to be extensive. However, the course of dealing by the party contending that its conditions are incorporated has to be consistent and unequivocal;
  4. Where trade standard terms exist, it will usually be easier to persuade the court that they should be incorporated, provided that reasonable notice of those terms has been provided;
  5. A party’s standard terms will not be incorporated unless that party has given the other side reasonable notice of them;

COMMENT

Frequently, whose terms apply is a question of negotiation between the parties. A “battle of the forms” arises when two businesses are negotiating the terms of a contract and each party wants to contract on the basis of its own T&Cs. This often happens where e.g. a Buyer offers to buy goods from a Supplier on the Buyer’s standard terms and the Supplier purports to accept the offer on the basis of its own standard terms.

In this situation, the Court often decides that the battle is won by the side that fired the “last shot”, i.e., the last party to put forward T&Cs that were not explicitly rejected by the recipient.

If neither side’s T&Cs apply, as in this case, the contract is governed by the implied terms of the Sale of Goods Act 1979. Therefore the seller won’t be able to exclude or limit its liability for defective goods, which a seller can normally restrict by contract subject to the reasonableness test in the Unfair Contract Terms Act 1977.

The case provides a timely reminder that general words in purchase orders and other documents are insufficient to install a party’s T&Cs, unless a copy of the T&Cs are sent. Businesses should also note that e-mailing and faxing purchase orders or acknowledgements may result in T&Cs on the reverse not being included. 

ACTION POINTS

  • A business should ensure that its terms are incorporated into its contracts. To achieve this, terms and conditions should be provided with and/or referred to in pre contractual documentation, such as quotations and orders. A business that relies upon printing their terms on delivery notes or invoices (post contractual documentation) runs the risk that it will not be able to rely upon those terms should a dispute arise.
  • It is important to ensure that T&Cs are properly used in order to effectively incorporate them into the contract of sale so that the supplier is not exposed to increased liability. A well drafted set of terms and conditions will take into account the manner in which a business operates, and what it hopes to achieve.
  • Another post will explore additional steps that can be taken to gain the advantage in the Battle of the forms.

Case: Transformers and Rectifiers Ltd v Needs Ltd [2015] EWHC 269 (TCC).

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What price Justice? Magna Carta invoked after 8 centuries

Court fees rocket by up to 622% (e.g. from £1,315 to £9,500)

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UK Government celebrates this year’s 800th anniversary of Magna Carta by

  • increasing Court fees at a stroke by up to 622%
  • reducing access to Justice for all but a privileged few and big business
  • damaging our legal system
  • for commercial cases, making England a profoundly uncompetitive place to resolve foreign disputes, to the delight of our competitors.

The Ministry of Justice is imposing plans to raise revenue from the courts system by introducing a new structure for fees for bringing money claims over the value of £10,000. The announcement can be found here, with the fee hike starting on 9 March 2015 (subject to approval by the House of Lords this week):  

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/396887/cm8971-enhance-fees-response.pdf 

Under the new scheme a levy of 5% is charged to issue a money claim of more than £10,000.

The fee increases for money claims mean:

  1. The fee for claims from £1 to £9,999 will remain unchanged.
  2. The fee for claims from £10,000 to £199,999 will be 5% of the claim.
  3. The fee for claims £200,000 and above will be fixed at £10,000.
  4. There will be a 10% discount on fees for claims from £10,000 – £99,999 filed electronically.
  5. A fee to issue a £190,000 legal claim is currently £1,315. From 9 March 2015 this fee is now £9,500, which represents a rise of over 622%.*

The changes are opposed by a wide array of consumers groups, business, lawyers and judges who condemn the changes as unconstitutional, a threat to access to justice, and ill conceived. An application for Judicial Review to challenge the new fees is being prepared.

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The Civil Justice Council

Representing Judges, says the effects of implementing such major increases could be dramatic in terms of:

  • acting as a barrier to entry to the justice system through pricing many court users out of the courts;
  • reducing access to justice for those litigants for whom court fees form a significant cost element of the overall process;
  • making alternatives to the civil process a far more attractive proposition, undermining the very intention behind the court fee increase and so risking significantly reduced fee income, critical to funding the courts and the justice system;   
  • having a disproportionately adverse effect on some groups e.g. small and medium enterprises, low income individuals; and
  • undermining equality before the law. 

The Law Society has collected case studies from solicitors showing what impact the increased fees would have on ordinary people seeking justice. 

  • Claimants suffering from serious personal injury or clinical negligence will be deterred from claiming compensation, with catastrophic results for them individually, society at large, and the public finances.
  • One case study found that a young girl with brain damage due to a failure by doctors to diagnose meningitis as a toddler will now require £10,000 to mount any fight for a secure financial settlement. That is even before the work involved and cost of obtaining the medical records and obtaining reports from medical expert witnesses
  • The development of case law will b e impeded.
  • Civil Justice isn’t just for those people who bring cases to court, it effects everybody in terms of the Rule of Law – where wrong doers are held to account. This is a Public Good, which is being undermined.
  • Some SMEs are forced to begin legal proceedings when buyers delay payment, as these actions can have a devastating impact on the cash flow of the business.
  • Similarly, a pensioner with limited financial means could be forced to begin legal proceedings against a financial adviser who gave them bad advice, leaving them with little to no funds in their retirement.
  • One concerned a pensioner with a claim against a financial adviser for the loss of his entire pension fund, for which the fee for applying to begin court proceedings will increase from £910 to £5,000
  • Few people can afford the extra £8,000 court fee  they would need to make a £190,000 claim, particularly if they are elderly or have been out of thoure workforce for some time due to personal injury. Such fee increases can actually be prohibitive, and this will deter people from starting claims altogether, thereby denying them access to justice.

http://www.lawsociety.org.uk/policy-campaigns/parliamentary-briefings/documents/Court-fees-joint-parliamentary-briefing/

I am also concerned about the evidence base that the MoJ used to come to its decision to increase court fees. The department claims that 90% of money claims will not be affected, but it is clear to me that the potential impact is much more serious than anticipated.

 A further debate will be held in the Lords this week, and subject to clearing that hurdle the fees will come into force on 9 March.

Law Society president Andrew Caplen said:

‘The government appears to be on a mission to turn the courts into a profit centre, amounting to a flat tax on those seeking justice. People whose lives have been turned upside down by life-changing injuries suffered through no fault of their own may no longer be able to afford to access the courts to seek compensation to fund their care. 

‘As well as affecting those who have been injured, the increases may leave small and medium-sized businesses saddled with debts they are due but unable to afford to recover.’

The fees are designed to raise £120m a year to help the government cover the cost of funding the court service in England and Wales.

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Magna Carta

Objectors to the fee increase are applying for Judicial Review of the decision,  contending that it is unconstitutional. Magna Carta, or Great Charter, was an attempt by England’s Barons to limit the Crown’s power. It was signed by King John on 15 June 1215 at Runnymede. Many of the clauses dealt with specific issues and grievances raised by the Barons. However, Magna Carta described vital legal principles, including that no ‘freeman’ could be punished except by lawful judgment of his peers, or by the law of the land.

Clause 29 of Magna Carta states:

‘We will sell to no man, we will not deny or defer to any man either Justice or Right.’ 

Lord Denning described Magna Carta as

the greatest constitutional document of all times – the foundation of the freedom of the individual against the arbitrary authority of the despot.

In this anniversary year, Magna Carta is relevant in the 21st century.  In a 2009 committee debate, Tom Brake, Liberal Democrat MP for Carshalton and Wallington, raised this argument in relation to a number of statutory instruments which introduced a change from partial to full recovery of court costs in civil proceedings:

We are now proposing to sell justice to people and make a profit out of it, because the objective behind full cost recovery is to charge so much in cases where there is no fee remission that we make enough profit to pay for fee remission

The rule of law is a public good, to the extent that it affects those people who do not go to court because, hopefully, they follow the rule of law, as well as those who do go to court. If people feel that justice in this country is only available to people on benefits and those with lots of money, we are cutting out a lot of people from the rule of law.

A Tax On Justice

Making the swingeing changes proposed amounts to selling justice, contrary to Clause 29 of Magna Carta.

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Furthermore, the proposals for enhanced fee charging in commercial proceedings will substantially undermine England and particularly London’s attractiveness as a centre for international litigation. Research conducted for the Ministry of Justice by the Centre for Commercial Law Studies at Queen Mary shows that the proposed fees would make court fees in London the most expensive in the world. The only jurisdiction that charges issue fees comparable to those proposed is the Dubai International Financial Centre.

For example in the courts of New York, (London’s strongest competitor), it costs as little as $400 to issue a claim. Foreign attorneys will not be slow to seize on any significant disparity in court fees to the cost of the United Kingdom economy, as the UK Government negates Magna Carta.

Whilst there are other alternatives to a state funded court system for resolving legal disputes, (such as Alternative Dispute Resolution, the pilot scheme for  adjudication of professional negligence claims, and the newly proposed online “low value” [up to £25,000] ebay type civil dispute court) these are either substantially dependent for their effectiveness  on the traditional civil court being readily accessible as a fall back, or a pale shadow of what we have assumed to be due process and natural justice providing remedies to right wrongs.

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