Standard Terms of Business are commonplace in commercial transactions. They offer certainty as to a party’s obligations and potential liability under a contract. However, where one of the parties to a commercial transaction try to contract by reference to one or more standard terms of business, a situation can arise commonly known as Battle of the Forms in English law and contract formation cases.
A contract is formed where an offer made by one party is accepted by another. Consideration and intention to create the contract are also required. When two commercial entities of equal bargaining power are in negotiation over the terms of a transaction, each party will commonly want to use their own standard terms to govern the contract.
The provision of standard terms by one party to another will usually constitute an offer, which is capable of acceptance. If the other party does not unequivocally accept the other’s offer (e.g. by seeking to vary the standard terms, or putting forward their own), this is deemed to be a counter-offer, and an implied rejection of the original party’s offer. A situation can arise whereby the two parties, in attempting to incorporate their own standard terms, can often throw into question which terms govern the contract and in some cases, whether a contract is in existence at all.
This is commonly known as a ‘battle of the forms’. The situation often occurs unwittingly and it is only when a dispute arises and parties seek to rely upon a particular contractual term that the issue of which terms are operative comes into question.
The decision in Butler Machine Tool v Ex-Cell-O Corporation [1977] provides that when this situation arises, first, it must be established whether a contract has been entered into and, second, it must be determined which terms apply to the contract.
The first question is usually determined by the conduct of the parties, e.g. where one party supplies goods or services to another in exchange for payment and the other party has accepted these goods and paid. The second question is what typically gives rise to uncertainty.
Butler Machine Tool states that the binding terms are found by looking for a point where one party gives the other the impression that they have agreed to the other party’s terms. In that case, this was where the suppliers sent back a signed tear off slip from the buyer which stated that by signing the slip they would be bound by the buyer’s terms (as opposed to the supplier’s).
This is known as the ‘last shot wins’ principle. It is often, but not always the case, that the last party to put forward their standard terms which are not explicitly rejected by the recipient ‘wins’ the battle.
In another case, Tekdata Interconnections Ltd v Amphenol [2009], the seller acknowledged the buyer’s order (stating the order was on the buyer’s standard terms) but the seller included its own terms in this note before delivering the goods. When the buyer accepted the goods delivered by the seller it was deemed to have accepted the seller’s standard terms as it had taken delivery without challenging the terms. Tekdata confirmed that traditional analysis of offer and acceptance must prima facie be applied to battle of the forms situations.
Similarly, in Claxton Engineering Services Limited v TXM Olaj-ÉsGázkutató KFT [2010], one party challenged the standard terms of the second party on its order form by agreeing to the contract minus certain clauses. This constituted a counter-offer, which the second party was deemed to have accepted when it delivered the goods in accordance with the order form. The suppliers could not then rely on the standard terms which had been removed.
Increasingly, the courts have held that neither party’s standard terms of business are applied to the contract. In their place, implied terms under the Sale of Goods Act 1979 will often govern the contract.
There are four possible outcomes to Battle of the Forms situations:
It is vitally important to consider the rights granted and obligations imposed under standard terms of business. If no standard terms have been agreed, then the terms that the transaction will be based upon are either the few terms that the two parties have actually agreed upon or the terms implied by law. This often provides minimal protection for your business.
For specialist advice about drafting standard terms of business or creating a policy for their use, contact Charlie Goldblatt on +44 20 7353 1770.