Using standard terms in contracts - the battle of the forms

Transcript

Laura:

Welcome to Wright Hassall’s podcast on “the Battle of the Forms”.

This podcast is part of the Series ‘Common Contract Problems’ and today we are exploring the potential pitfalls that businesses may encounter when contracting on standard terms and conditions.

I have with me today Justin Byrne, a Consultant in our Commercial Litigation Team at Wright Hassall, good morning Justin.

Justin:

Yes, most businesses will have their own standard terms and conditions which they will want to rely on but the issue is making sure that your terms and conditions are the terms incorporated into the contract.  If they are not incorporated into the contract then you won’t be able to rely on them.

Suppliers and customers would ideally prefer to rely on their own respective standard conditions. Sometimes supplier and purchaser present each other with their own standard terms resulting in two conflicting documents jockeying for precedence; the so-called "battle of the forms".

Laura:

So by way of an example, you send out a quote for the supply of goods, together with your standard terms and conditions. The other party responds with an email confirming that they wish to go ahead with the order but refer to and enclose a copy of their standard terms and conditions which are to apply.  What happens if the supplier proceeds on that basis?

Justin:

• In that scenario, if the supplier were to proceed without further reference to their own terms and conditions, it is likely that the purchasers standard and terms and conditions would apply.
• This is because the terms of a contract are determined by looking at the ‘offer’ and the ‘acceptance’
• In the scenario you have just mentioned, the supplier has only ‘offered’ to supply good on their standard terms and conditions
• The purchaser has not accepted the offer on those terms and conditions, he has essentially made a counter offer which says ‘I will purchase those goods at the quoted price but on my standard terms and conditions which are attached’.
• If the supplier simply proceeds with supplying the goods ordered, he is essentially accepting the purchaser’s counter offer and agreeing to the terms and conditions of the purchaser.

Laura: So what could the supplier do to avoid being bound by the purchaser’s standard terms

Justin:

The supplier would need to respond to the purchaser to say that the request to order X is accepted on the basis of the supplier’s terms and conditions and it would be sensible to send another copy of those to the purchaser at the same time.  In doing so, the supplier is again essentially making a counter offer to supply based on his own standard terms.  If the purchaser does not respond and accepts delivery of the goods, it is likely the supplier’s terms would apply.

Laura: So the danger here is that both parties keep going back and forth referring to their own standard terms until the other party agrees or doesn’t respond.  This is what the lawyers refer to as the battle of the forms, where the last shot wins

Justin:

Yes.  If each side seeks to impose its own terms, there is no acceptance at all. In practice, this means that the last set of terms, dispatched prior to acceptance or performance (the last shot fired in the battle of the forms), will prevail.

It is important to note that timing here is essential.  The terms and conditions have to be part of the agreed contract terms so sending a ‘last shot’ retrospectively, after the contract has been concluded will not take effect.  For example:

• The supplier delivers the goods after receiving the purchaser’s standard terms and conditions and the purchaser takes delivery. If the supplier then encloses a further copy of their own standard terms and conditions with the invoice which is sent 2 days later, that shot will be too late.
• If however, the supplier goes ahead with delivery after receiving the purchaser’s standard terms and conditions, but upon delivery asks the purchaser to sign for receipt of the goods and the form signed refers to the standard terms and conditions of the supplier, then the supplier’s terms are likely to be the incorporated terms

Laura:  You say ‘likely’ to be incorporated – does this mean that there are other factors which influence whether standard terms are incorporated.

Justin:  Yes, so far we’ve talked about the general principle that the last shot wins but there are other things which would need to be taken into account, such as:

• Whether the reference to the terms and conditions could be seen on the paperwork – i.e. was it one form for which there was no need to turn over and the reference was on the back and therefore would not reasonably be seen by the signing party, or was the reference immediately above the signature box in bold type for example.
• Another issue may be whether the terms and conditions could be reasonably viewed. A reference to standard terms and conditions will not have any effect if they are not made available to the other party such as by a hard copy, email attachment or a weblink which works.

Laura: Making sure that your terms are properly referred to and up to date on your website is clearly really important.  What can businesses do to improve their chances of reliance on their own standard terms and conditions?

Justin:

Businesses using standard terms or buying products on standard terms need to take all reasonable steps to bring the conditions to the other side's attention. The best way is to point out the conditions expressly in pre-contract correspondence, and to make sure that their standard terms are the last terms referred to before the contract is performed.  Performance is key here because even though there may be an attempt to refer again to one party’s standard terms and conditions at the point of delivery, for example, that reference may be considered to be a variation of the agreed terms rather than the 'last shot’ if performance of the contract has already taken place.

Laura: What about businesses that contract with larger organisations that adopt a position of, you contract on our standardd terms or not at all.  Is there anything they can do to avoid being bound by those potentially onerous terms?

Justin:

Standard terms and conditions are usually drafted to operate in favour of the author which means that the other contracting party could be at a significant disadvantage if they agree to those terms.  There may therefore be circumstances in which businesses would be in a better position if they do not agree to the standard terms and conditions.  This means potentially not signing the contract present, or setting out in writing the terms which they do not accept.  This does mean that doubt will be created over the terms of the contract, however, where terms are not express, the law implies terms into the contract and, whilst this approach lacks certainty, some businesses may ultimately be better off where the bargaining positions are otherwise highly imbalanced.

Ideally, however, if you have a concern over standard terms and conditions which you feel cannot be negotiated, it would be sensible to obtain expert legal advice on your options and the risks involved in agreeing to, or not agreeing to, the terms presented.  This enables you to manage the risk from the outset before any performance takes place.  It may also assist with highlighting other areas of risk that you have not considered.

Summary

Laura: Early advice is therefore be a sensible option where there are concerns over standard terms.  What key things should listeners take away?    

Justin:

1. Are your standard terms and conditions up to date and the latest version on your website? Now may be a good time to review them
2. Are you taking the right steps to include your standard terms in the contract? Ideally you need to fire the last shot before performance and be alive to any attempts to amend the terms thereafter.
3. If the other contracting party attempt to refer to their standard terms and conditions, make sure that you respond in writing confirming your standard terms.
4. Be careful not to commence performance before you are happy with the terms you are contracting on.
5. Timing is everything - attempting to rely on terms at the point of invoicing is too late.
6. If the bargaining positions are inequal or the standard terms proposed are too onerous, take early advice before agreeing to them or undertaking performance.