Neither party won ‘battle of the forms’
TRANSFORMERS & RECTIFIERS v NEEDS [2015]
This case involved the so-called ‘battle of the forms’ in relation to which terms applied to some contracts. A dispute arose following a long course of dealing: one party said that its terms were applicable because they were printed on the back of its purchase orders; the other party submitted that its terms applied as they were referred to on its acknowledgements of order and that any liability for breach of contract on its part was limited or excluded by those terms and conditions.
Facts:
- Over many years, Transformers & Rectifiers (T&R) placed orders with Needs (N) on almost a weekly basis. Some orders were placed by fax, some were sent by e-mail and others by post.
- The top copy of T&R's purchase orders (POs) had T&R's terms and conditions (Ts & Cs) on the reverse. There was no reference on the face of the PO itself to the existence of the Ts & Cs on the back. N nevertheless accepted that by the time of the POs in question, its management was aware of T&R's Ts & Cs.
- When T&R placed a PO by fax or e-mail, it just sent the front page and did not transmit the Ts & Cs as well. N responded to the receipt of T&R’s PO by sending an acknowledgement of order, which included the following wording, "The quoted prices and deliveries are subject to our normal Ts & Cs of Sale (copies available on request)" . It was acknowledged that N had never provided its terms to T&R.
- T&R submitted that since N was aware of T&R's Ts & Cs, it must be taken to have accepted an offer which included those terms when it returned its acknowledgement of order.
- N maintained that T&R had failed to take sufficient steps to give reasonable notice of its Ts & Cs to N, meaning that they were not incorporated into the contract. N argued that its acknowledgement of order was a counter-offer which T&R accepted by taking delivery of the goods.
Decision:
- The judge began by saying that in cases of this sort the following principles apply:
- where A makes an offer on its Ts & Cs and B accepts that offer subject to its own Ts & Cs and performance follows, assuming that each party's Ts & Cs have been reasonably drawn to the attention of the other, there is a contract on B's Ts & Cs;
- where there is reliance on a previous course of dealing it does not have to be extensive. Three or four occasions over a relatively short period may suffice but the course of dealing has to be consistent and unequivocal;
- a party's standard Ts & Cs will not be incorporated unless the other party has been given reasonable notice of them;
- a party's Ts & Cs do not always need to be included or referred to in the documents forming the contract ie the offer and the acceptance. Generally, terms set out only in an invoice following a contract which has been concluded by a clear offer accepted by the other party, even if only by delivery, will in most cases be too late. Terms set out in invoices may be useful where there is an ongoing course of dealing which indicates acceptance of the terms.
- The Court referred to the case of Balmoral Group v Borealis [2006] in which it was said, “Whether or not one party's standard terms are incorporated depends on whether that which each party says and does is such as to lead a reasonable person in their position to believe that those terms were to govern their legal relations. The Court has to determine what each party was reasonably entitled to conclude from the acts and words of the other ... The question is one of fact".
- A key issue here was the fact that T&R did not place its orders in the same way each time. The majority of POs were sent by fax or e-mail without the Ts & Cs. T&R should have faxed its Ts & Cs together with the PO or, if being sent as a PDF by e-mail, the PDF attachment should have included both the front of the PO and the Ts & Cs. This was essential if the PO did not on its face refer to the Ts & Cs.
- This omission meant that T&R had not made it clear to a reasonable person in N’s position that it was seeking to rely on its own Ts & Cs. The Court therefore agreed with N's submission that T&R did not do what was necessary to incorporate its Ts & Cs into the contract.
- Equally, N should have referred to its own Ts & Cs on the front of the acknowledgement of order so that it was plain that they were to govern the contract and to give T&R reasonable notice of them.
- Alternatively, N could have sent T&R a copy of its Ts & Cs, specifying that they were the only Ts & Cs upon which it was prepared to do business.
- Since N did neither, it did not do enough to bring them to T&R’s attention.
- The Court therefore concluded that neither party’s Ts & Cs were sufficiently incorporated and so neither party had won the ‘battle’. The Court did not go on to specify which terms actually did govern the contract.
Points to note:
- The case serves as a salutary warning to ensure that the terms on which you want to rely are validly incorporated into the contract by giving the required notice to the other party. By getting your documentation and processes properly in order, you at least give yourselves the best chance of contracting subject to your own favoured terms. Both parties had made some classic errors here.
- We have written an article on Standard Terms and Conditions which summarises the benefits of using standard terms, the limitations to bear in mind when using them and how standard terms can best be incorporated effectively. Go to the 'guides and articles' section of our Legal Updates page to download the article.