In the second of our new series of articles on "How to Avoid..." common legal problems, Liane Bylett provides some practical advice on steps that you can take to ensure that you don't become embroiled in a dispute over whose terms and conditions apply to a contract, otherwise known as the "Battle of the Forms".
Key points to remember:
How to avoid... disputes over your terms and conditions:
- Negotiate the Contract
- Fire the Last Shot
- Beware the Exceptions
- Train Your Staff
In business, you may enter into contracts with your customers or suppliers on a regular basis and naturally the process can sometimes become a casual affair. However if things go wrong then disputes can arise as to whose terms and conditions apply to the contract. The situation can often be unclear, particularly when you both send paperwork to each other that attempts to incorporate your own standard terms of business into the contract and no specific agreement is then made as to whose terms will apply.
This is called the "Battle of the Forms" and it is easy to lose the battle if you are not alive to the issues. So what can you do to reduce this risk?
1 – Negotiate the Contract
One way to avoid a battle of the forms is to negotiate the terms of the contract with your customer or supplier and record the agreement in a signed document. This should ensure that both you and the other party are aware of and agree to the terms of the contract. Whilst this will not necessarily avoid a contractual dispute later on, this should ensure that the terms you have agreed are incorporated into the contract.
However we appreciate that it may not always be practicable to negotiate each and every contract, particularly when you could be making or receiving orders on a daily basis. You might therefore choose to negotiate terms at the outset of the relationship in an overarching agreement and then contract on those terms thereafter, which will create a course of dealing.
2 – Fire the Last Shot
The general rule is that if you ensure that you "fire the last shot" before delivery of the goods, you will win the Battle of the Forms. This is illustrated by the following examples:
Scenario A
The seller sends a quotation to the purchaser which states that any sale will be concluded on the seller's terms of business. In response, the purchaser sends a purchase order confirming the order and referring to its own terms of business. On the basis that the order has been placed, the seller simply delivers the goods. So whose terms will apply?
In this scenario the contract has been concluded upon the purchaser's terms and conditions. This is because the purchase order acts as a counteroffer (rather than an acceptance of the seller's quotation/offer) and that counteroffer is accepted by the seller's conduct (i.e. delivery). Accordingly the purchaser has "fired the last shot", because it was the last person to refer to its terms and conditions before delivery. Even if the delivery note provided by the seller refers to its own terms of business, this would be too late because the contract has been concluded by conduct i.e. by delivery. This could be bad news if you are the seller, particularly if you want to rely on any limitations of liability contained your own terms of business.
Scenario B
Now imagine that, instead of simply just delivering the goods, the seller sends back an order acceptance form which refers to it own terms of business. Delivery then takes place some time afterwards. In this scenario, the seller has fired the last shot and so the seller's terms of business will prevail.
3 – Beware the Exceptions
As explained above, the usual position is that the terms and conditions of person who fires the last shot will apply to the contract. However there are exceptions to that rule.
Recent case law indicates that if there is clear evidence of "contrary intention" that alternative terms and conditions should apply, then the party who fired the last shot may not win the battle. This means that if there is a long-standing course of dealing between you and your customer or supplier, whereby you always contract on a particular basis, then you (or they) may be able to argue that those terms will apply to any future contracts. This issue is explored in more detail in our earlier article. In these circumstances, if you want to avoid those terms applying, you should expressly agree terms with the other party (as indicated at point 1).
Perhaps more worryingly, in a recent case in which terms were not agreed (indeed each party had expressly rejected the other's terms), the Court decided that neither party's terms applied. In this situation, the terms specified in the Sale of Goods Act 1979 applied - which may leave a seller open to potentially wider liability. This issue is explored in more detail in another of our earlier articles. In a similar situation where you have both rejected the other party's terms, you should ensure that some conclusion about the applicable terms is reached before delivery is made.
4 – Train Your Staff
All too often it will be your junior staff who are tasked with making and receiving orders and so it is important that you ensure they are aware of the consequences of any paperwork they send (or fail to send), and, equally, receive.
As can be seen from point 2 above, it is important to ensure that you fire the last shot in the battle of the forms. You should therefore ensure that your staff take control of the process and ensure that all paperwork sent to the other party is stated to be subject to your terms and conditions. You could also consider giving your staff a checklist to work from when they are dealing with your suppliers or customers to ensure that you fire the last shot. In addition, if you are the seller, you may also want to persuade purchasers to submit orders on your own order forms which naturally will be subject to your own terms and conditions if you have included them.
Do contact us if you would like to learn more about this issue or if you would like to discuss the possibility of a member of our Commercial Disputes Team providing training for your staff.
Summary
You may be thinking that it will not matter whose terms and conditions apply to your contract because nothing will go wrong. However it is important to consider the small but significant number of cases when things do go wrong. This could be anything from disputes over the quality of the goods or simply an unpaid bill. In those circumstances, if you have gone to the trouble of creating your own terms and conditions, then you want to make sure that they will assist you in the event of a dispute. It is therefore important to ensure that you take all possible steps to emerge victorious in the battle of the forms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
