Both Sides Lose 'Battle of the Forms'

Many companies spend a lot of money getting their own terms and conditions of business (both for sale and purchase) drafted, but take inadequate steps to make sure that these terms become incorporated into their contracts when dealing with other organisations. Typically both parties will seek to trade on their own standard terms and conditions and, when a dispute arises will assert that their terms rather the other party’s terms form the basis of the contract. The court was asked to examine this “battle of the forms” and to make a determination on the facts as to which terms and conditions apply.

The problem

The recent case of Transformers and Rectifiers Limited v Need provides an illustration of the reasons why conduct is important. In this case both buyer and seller sought to trade on their own terms and never clarified between themselves which terms would apply nor did they take any steps to try and negotiate terms that would be specific to their relationship. They traded for twenty years on this basis. If either party had entered into that trading relationship on the basis that they assumed that their own terms applied, they were mistaken.

The purchaser’s terms and conditions were endorsed in faint writing on the reverse of their purchase order form but the existence of those terms was not drawn to the attention of the seller on the front of the form. In addition, although many purchase orders were sent by post, it became clear that they were sometimes sent by email or by fax. Evidence showed that where such orders were sent by fax and by email, the terms endorsed on the reverse on the purchase order form were not included. The judge concluded that the purchaser had not taken sufficient steps to draw the terms to the attention of the seller.

The seller had not printed its terms and conditions on the reverse of its order acknowledgement form nor had it provided the purchaser with a copy of those terms. The judge found that the seller had also not taken sufficient steps to give the purchaser reasonable notice of its terms and conditions e.g. by printing them on the back of the order acknowledgement and stating on the face of the form that the contract was subject to the terms and conditions printed on the reverse.

Summary and Recommendations

As is often the case, the problems were only identified once a dispute had arisen. By then it is too late to rectify the position. It seems extraordinary that these issues only arose after twenty years of trading.

Even if the early exchanges with another contracting party are undertaken carefully, complacency can set in. Consider keeping these arrangements under review. Where such contracts are significant, make sure that you understand the basis upon which you are trading and the terms of business which will apply should a dispute arise.