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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