The use of standard terms in business to business contracts has become increasingly commonplace. They offer certainty as to a party’s rights, obligations and potential liability under a commercial contract. However, where both parties to a commercial transaction try to contract by reference to their standard terms of business, a situation can arise which is commonly known as a ‘battle of the forms’.

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 has come into existence at all.

The situation often occurs unwittingly, and it is only when a dispute arises and one party seeks to rely upon a particular contractual term that the issue of which terms are operative comes into question.

Butler Machine Tool v Ex-Cell-O Corporation

The decision in Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd [1977] EWCA Civ 9 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 when 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.

Traditional Contractual Interpretation

In another case, Tekdata Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209, orders were placed which stated that the purchase was to be on the buyer’s standard terms. The seller would then send an acknowledgement of the buyer’s order, which stated that the order would be governed by the seller’s standard terms, following which delivery would be made.

When the buyer subsequently accepted the goods it was deemed to have accepted the seller’s standard terms as it had taken delivery without challenging those terms. Tekdata confirmed that a traditional analysis of offer and acceptance must prima facie be applied to battle of the forms situations.

Similarly, in Claxton Engineering Services Ltd v TXM Olaj-Es Gazkutato Kft [2010] EWHC 2567 (Comm), one party (a manufacturer) reviewed a buyer’s standard terms of business and put forward modifications, including the exclusion of certain clauses relating to jurisdiction. This constituted a counter-offer which the buyer was deemed to have accepted when the parties continued to trade without any explicit rejection of the counter-offer. Consequently, the buyer could not 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, as in GHSP Inc v AB Electronic Ltd [2010] EWHC 1828 (Comm). In their place, implied statutory terms will often govern the contract.

Conclusion

There are four possible outcomes to battle of the forms situations:

  • The parties are contracting on A’s standard terms of business;
  • The parties are contracting on B’s standard terms of business;
  • The parties are contracting on some other terms (e.g. those implied by statute);
  • There is no contract and the party seeking payment must rely on the doctrine of Quantum Meruit.

It is vitally important to consider the rights granted and obligations imposed under standard terms of business. If standard terms have been varied or excluded, then the terms that the transaction will be based upon are either the limited terms that the two parties have agreed or the terms implied by law. This often provides minimal protection from risk and liability.

Charles Goldblatt | Solicitor