Over the last few weeks we have looked at how parties to English contracts try to deal with unexpected events (Force Majeure clauses), how English contract law deal with unexpected events where the parties have not (the doctrine of frustration) and offered some advice and guidance on what businesses should do when moving to selling on-line. In each, a recurring theme is that it is necessary to return to the terms of the contract and to work out what was agreed. This seems fairly simple but in practice it may not be clear which document needs to be looked at to determine the terms.
Take two businesses in a contractual trading relationship, the buying business sent its standard terms of purchase and the selling business sent its standard terms of sale. To which one should we refer when we need to know what was agreed? This is known as a ‘battle of the forms’ and businesses need to know something about this because it crops up quite a lot.
The starting point is that there is no general rule. If a dispute of this type ends up in court the judge will have to assess how the contract was formed and what the parties must objectively be said to have intended. If there is a dispute, it follows naturally that both parties would subjectively say they are dealing on their own terms, so it is necessary to look at this from the outside.
There are some guidelines that can be used to try to determine which set of terms will prevail. Firstly (not very useful if you are trying to head off a dispute and contract on your terms), you could look at how the parties have actually dealt with each other. This can be extremely messy and any business in this position should have specialist litigation advice. If two businesses have exchanged terms, but not truly dealt with agreeing terms, the court can try to align the trading to see which were ‘agreed’. Things such as the price paid, the invoicing procedure, how notices were given, etc. There is plenty of scope for argument, which is best avoided.
Pre-emptive guidelines begin with the fundamentals of contract formation: offer and acceptance. At its simplest, A sends B the terms on which they will deal and B accepts: the contract is on A’s terms (the only terms). What if B does not just accept, but says they will accept on their own terms and A then supplies the goods? Now you have A making an offer, B making a counter-offer, and A accepting: likelihood is B’s terms prevail.
In the real world, things are never that clear cut. What if B’s terms were sent in the post without a covering letter and everything else by e-mail? It may be back to A’s terms because B may not have given reasonable notice to A of its terms. An example from case-law is where the terms were printed on the reverse of the acceptance but the fax only sent one side, an embarrassing and expensive oversight.
Any business which wants a contract to be on their terms will have to ensure that they ensure their terms are reasonably brought to the attention of the business with which they are contracting, in a way which is clear that those terms are intended to be the terms on which the parties contract and before the contract is concluded. Adding “subject to our terms and conditions” to the end of an invoice after the fact is not sufficient because you have a) not provided the terms and conditions and b) the contract was already completed.
Problems can happen where a business has done all of the above but is presented with the other business’s terms right at the conclusion of the contract. This is known as the ‘last shot’ doctrine and can be summed up as the last terms sent to which no objection is received are the terms incorporated (subject to ‘reasonable notice’, as above).
‘Last shot’ can be very difficult to avoid. An example from case law is a delivery driver handed over a delivery note with the seller’s terms printed on it; this was stamped by the buyer as ‘received under the buyer’s conditions’. The seller’s delivery driver then unloaded the goods. At court, the buyer’s stamp was the ‘last shot’ and it was their terms and conditions which prevailed.
A way that businesses try to avoid such situations is to include a ‘prevail clause’, something like ‘these terms and conditions prevail over any the other party seeks to impose on the contract’. There is nothing special about these clauses, so they are subject to the same considerations above. You may have such a clause but the other side sending their terms and conditions will still be a counteroffer which kills your offer, including the term.
The lessons from the above, summarised and paraphrased, are:
- Make sure your terms and conditions are brought to the attention of the other business;
- Make sure it is clear that you intend to deal on your terms;
- Look for other terms and conditions being sent in and make sure you respond to them; and
- Make sure that the way you deal with the other business is in line with your terms and conditions.
The big take-away should be that it is much better to talk, negotiate and agree your contractual relationships beforehand, rather than to have to sift through the details later.
Finally, what could be the effect of getting this wrong? Most obvious is that you end up bound by terms that you would not have agreed, which may put onerous burdens or reduce your ability to exit. Another outcome could be protracted litigation which ends in a judge deciding the terms of the contract, to neither side’s satisfaction; possibly just reverting to the default provisions in the Sale of Goods Act or similar.
Quite unlikely, but still a possibility, is that there is no binding contract. It would have to be quite a discrepancy, but it is worth considering.
If you need to speak to someone about any of the issues covered above, please contact Tony Wentworth at firstname.lastname@example.org or David Artley at email@example.com or call 01642 356500/0191 2322574.