The recent case of Transformers & Rectifiers v Needs highlights some common pitfalls for contracting parties. The High Court found that both parties lost out in the “battle of the forms” so that neither of their sets of terms and conditions were incorporated into the supply contract being disputed.
What is the “battle of the forms”
The expression “battle of the forms” refers to a disagreement between two parties as to whose standard terms and conditions are incorporated into the contract between them.
It typically occurs when party A offers to buy goods from party B on A’s standard terms and B purports to accept the offer on the basis of its own standard terms. In this situation, the battle is often won by the party who fired the “last shot”, that is, the last party to put forward terms and conditions that were not explicitly rejected by the recipient. However, this will not always follow, as the decision in Transformers & Rectifiers v Needs demonstrates.
The commercial relationship between the seller (Needs Ltd) and the buyer (Transformers & Rectifiers Ltd) went back over twenty years. During that period Transformers placed many orders with Needs for nitrile gaskets and other components. Orders were placed on a regular basis (almost weekly).
Transformers subsequently alleged that the gaskets supplied were unsuitable for their purpose and not in accordance with the contract. The question for the High Court was whose terms were incorporated into the contract and whether Needs could rely on the exclusion clause in its own terms to limit its liability.
The buyer’s terms
Transformers had not placed its orders in a consistent way, sometimes orders were placed by fax, sometimes as an attachment to an email and, occasionally, by post. Its standard terms were printed in small lettering on the reverse of the purchase orders it sent by post, but this was not obvious on reading since no clear reference was made to the terms on the front page. When orders were placed by fax or email the terms and conditions were frequently not sent at all.
The seller’s terms
Needs responded to receiving the purchase orders by sending an acknowledgement of order, with a footer stating that the quoted prices and deliveries were “subject to our normal Terms and Conditions of Sale (copies available on request)”. However, it did not supply a copy of these terms, and Transformers did not request them.
On the facts, the High Court found that neither parties’ terms were incorporated into the contract since neither had done enough to draw the other’s attention to its standard terms. The result was that Needs could not rely on the exclusion clauses within its standard terms.
Businesses should not automatically assume that by printing a reference to them in correspondence their standard terms will apply to the contract. To avoid the common pitfalls they should:
- Include a copy of their standard terms and conditions consistently, both on entering into a contract and on sending their purchase orders / invoices;
- Draw the other party’s attention to their standard terms, making it clear that these are the only terms on which they are contracting;
- Avoid unintentionally accepting counter offers – if the other party responds to a PO / invoice with a conflicting set of its own standard terms, businesses should expressly reject these in favour of the terms which they have already provided.