Contract Law-Whose T&Cs Apply?

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In legal circles it is called the "Battle of the Forms".

Contracting parties usually have their own standard terms and conditions which they will wish to incorporate into any contract they have with the other party. Most commonly these can be found in supply contracts. But they are often forgotten about and an issue only comes to light when there is a dispute. Whose T&Cs apply?

This could be of vital importance if for example the seller's T&Cs have an exclusion clause limiting liability.

In a common situation a buyer will ask for a quote. The seller will then respond with an offer incorporating it's own standard T&Cs. The buyer will then place an order but state that it is on it's own T&Cs. The seller then delivers the goods. In English law the buyer's order stating that it is subject to it's own T&Cs will be a counter-offer. If the seller, without more, then delivers it will be deemed to have accepted the counter offer, so the buyer's T&Cs will apply. This is called the "last shot rule".

But commercial life is rarely that simple. A court could find that neither party's T&Cs were incorporated in the contract. In those circumstances the terms will be those implied by English law and in particular the Sale of Goods Act.

Such was the case in the recent court decision of Transformer & Rectifiers Ltd v Needs Ltd (2015). Here the parties had traded for over 20 years. Orders for nitrile gaskets were placed by the Claimant buyer with the Defendant seller often on a weekly basis. A dispute arose over the suitability of the goods supplied under 2 specific contracts. The Defendant tried to rely on an exclusion clause in its T&Cs limiting liability. The court had to decide whose T&Cs applied to the contract if any.

The court found that neither side's T&Cs applied, so the Defendant could not rely on it's exclusion clause.

The facts were as follows. Over the course of the business relationship some orders were placed by post, some faxed, some sent by e-mail, and some placed by telephone.

The Claimant said that its T&Cs applied because they were printed on the back of purchase orders, although there was no reference to them on the face of the orders. The Defendant argued that its T&Cs applied as they were referred to in its acknowledgement of the orders. 

The judge set out the basic legal principles which apply to this situation where there is a "Battle of the Forms".

i) Where A makes an offer on its conditions and B accepts that offer on its conditions and, without more, performance follows, the correct analysis, assuming that each party's conditions have been reasonably drawn to the attention of the other, is that there is a contract on B's conditions

ii) Where there is reliance on a previous course of dealing, where T&Cs were established, it does not have to be extensive. Three or four occasions over a relatively short period may suffice

iii) The course of dealing by the party claiming that its terms and conditions are incorporated has to be consistent and unequivocal

iv) Where trade or industry standard terms exist for the type of transaction in question, it will usually be easier for a party contending for those conditions to persuade the court that they should be incorporated, provided that reasonable notice of the application of the terms has been given

v) A party's standard terms and conditions will not be incorporated unless that party has given the other party reasonable notice of those terms and conditions

vi) It is not always necessary for a party's terms and conditions to be included or referred to in the documents forming the contract; it may be sufficient if they are clearly contained in or referred to in invoices sent subsequently

vii) By contrast, an invoice following a concluded contract effected by a clear offer on standard terms which are accepted, even if only by delivery, will or may be too late

In the Transformers case both parties failed to do sufficient to incorporate their terms into the relevant contracts.

The judge set out his reasoning and useful pointers.

“It seems to me that one problem facing the Claimant” (the Buyer) “is the fact that it did not place its orders in the same way each time. Whilst I accept that from time to time purchase orders were sent by post, with the result that the Defendant” (the Seller) “became aware of the existence of the terms and conditions on the back of them, I find that the great majority of purchase orders were sent by fax or e-mail (as was the case with the two orders in question) when the terms and conditions were not sent.

In my judgment a buyer who wishes to incorporate his own standard terms and conditions when orders are sent by fax or e-mail must give the seller reasonable notice of the terms and conditions and must do so in circumstances that make it clear to the other party that he intends to rely on them.

.......that is to say to fax the terms and conditions on the back of the purchase order as a separate document together with the purchase order or, if being sent by e-mail, to ensure that the pdf attachment includes both the face of the purchase order and the terms and conditions on its back. In my view this is essential if the purchase order does not on its face refer to the terms and conditions on the back.

I consider that by not sending its terms and conditions when placing the purchase orders by fax or e-mail, even though they were printed on the reverse of purchase orders which from time to time were sent by post, the Claimant did not make it clear to a reasonable person in the position of the Defendant that it was seeking to rely on them. In my judgment if the Claimant did not follow a consistent practice of enclosing its terms and conditions with every purchase order, particularly in circumstances where the purchase order that was sent did not on its face refer to any terms and conditions, the Defendant was entitled to assume that the Claimant was not intending to rely on the

..... the Defendant's terms and conditions. As I have already mentioned, the Defendant took no steps to provide the Claimant with a copy of these terms and conditions and at the time the Claimant did not ask for them. They were not standard terms and conditions of some trade association, but were the terms and conditions of the Defendant. 

.... it seems to me that a seller who wishes to incorporate his terms and conditions by referring to them in his acknowledgement of order - thus making it a counter offer - must, at the very least, refer to those conditions on the face of the acknowledgement of order in terms that make it plain that they are to govern the contract. Having done that, if the conditions are not in a form that is in common use in the relevant industry, the seller must give the buyer reasonable notice of the conditions by printing them on the reverse of the acknowledgement of order accompanied by a statement on the face of the acknowledgement of order that it is subject to the conditions on the back.

An alternative way in which the same end may be achieved (if the terms and conditions are not printed on the back of the order) is for the seller to send the buyer a copy of his terms and conditions, making it clear that they are the only terms and conditions upon which the seller is prepared to do business.

I accept that the position may be different if the terms and conditions which the seller seeks to impose are those which are routinely applied to contracts of the type in question, because, for example, they are the terms and conditions of a particular trade association...... In those circumstances it may be sufficient for the seller simply to refer to those conditions on the face of the acknowledgement of order stating that copies are available on request - but that is not this case.

Since the Defendant neither printed its terms and conditions on the reverse of the acknowledgement of order nor provided the Claimant with a copy of those terms and conditions, I consider that it did not do enough to bring those terms and conditions to the attention of the Claimant and thereby turn the acknowledgement of order into a counter offer."

So the moral is that any "Battle of the Forms" is likely to be complex and costly, the outcome depending on the particular facts of each case. So if you are faced with a dispute where the T&Cs themselves are relevant and disputed, it is recommended that you obtain early legal advice.

Nigel Musgrove
Business and Litigation Solicitor
Tel: 0845 003 5639

For free advice on this topic please call us on 0845 003 5639.