2020-02-17
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Whose Terms and Conditions apply – if anyone’s?

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Posted by Pete Maguire on 23 June 2015

Pete Maguire - Commercial Contracts Lawyer
Pete Maguire Partner

Clients in the AME Sector will regularly be involved in the supply, or purchase of, components and will usually want their own terms and conditions to apply to that transaction. The recent case of Transformers & Rectifiers v Needs underlines that if you wish to rely on your standard terms and conditions, you must take sufficient steps to make sure that the other party is given reasonable notice of both your terms and conditions and your intention to rely on them.

The claim concerned a dispute between Transformers & Rectifiers Ltd (T&R) and Needs Limited (Needs). Each party contended that their own terms and conditions had been incorporated into the contract.

Background

The parties had dealt with each other for several years. T&R would place an order by sending a purchase order and Needs would respond with its acknowledgement. The problem T&R had was that it did not place its orders in a consistent way, changing between fax, e-mail and post, sometimes there was a phone conversation and sometimes not. Although the purchase order from T&R had its terms and conditions printed on the back, the front page of the order made no reference to them. In addition, orders sent by fax or e-mail did not include the terms and conditions, as the terms and conditions were printed on the back of the order form. However, Needs admitted that at the time of the orders concerned, it knew that there were terms and conditions on the back of the order. Despite this, Needs' acknowledgement of T&R's order stated that its quoted prices and deliveries were subject to its “normal Terms and Conditions”; however, those terms were not actually sent with the acknowledgement (instead, there was a statement that copies were “available on request”).

Case law position

The Court confirmed that there is a general principle such that, if a buyer makes an offer on its own conditions and the seller accepts that offer but on its conditions and performance follows, the seller's terms and conditions apply, as they act as a counter offer. However, this is subject to the proviso each party had taken reasonable steps to draw its terms to the attention of the other party. In this particular situation, the court held that neither party had done so and therefore concluded that neither parties’ terms actually applied.

Decision

The Court found that T&R had not made it clear that it intended to rely on its terms and conditions for each order. Given that T&R had not taken a consistent approach of enclosing its terms and conditions with each order, particularly where the order did not refer to those terms and conditions on its face, the Court held that Needs was entitled to assume T&R was not relying on them for that transaction, despite it being aware of their general existence.

With regard to Needs’ terms, the Court found that a seller must at the very least refer to its terms and conditions on the face of its acknowledgement of order and make it clear that it is intended that these will apply. If the terms and conditions are not standard terms in the relevant trade/industry, but are the seller's own, the seller must also give the buyer reasonable notice of those terms and conditions, either by printing them on the reverse of the acknowledgement and making this clear on the face of the order, or sending the buyer a copy of the terms and conditions. As Needs had never provided T&R with a copy of its terms and conditions it had therefore failed to do enough for those terms and conditions to be incorporated into the contract.

Practical steps for AME clients to take

To avoid arguments as to whose terms and conditions apply it is always better to have a contract which has been signed by both parties and includes the required terms and wherever possible to be consistent in the way in which dealings are carried out (i.e. ideally one of fax/e-mail/post), although we do recognise that this may not always be possible; or (more importantly) practical)

Whether you are the buyer or the seller does not actually matter - if you want to incorporate your own terms and conditions into a transaction via a purchase order or subsequent acknowledgement of order, it is crucial that your documents clearly identify that those terms and conditions will apply and that the other party is provided with a copy alongside that purchase order or acknowledgement. You must also ensure that your practice is consistent and that terms and conditions are referred to and sent on every occasion that you deal with a party. Finally, if you are a buyer, be aware that if the seller's terms and conditions are referred to or included in their acknowledgement of your order, these could apply if no issue is raised with them, and you will need to respond stating that you are only proceeding on the basis that your terms apply (this is the “battle of the forms” argument).

About the author

Pete specialises in the drafting and negotiation of outsourcing and commercial contracts.

Pete Maguire

Pete specialises in the drafting and negotiation of outsourcing and commercial contracts.

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