Supply chain contract management blog series #3: Battle of standard contractual terms: how to ensure your ‘shot’ hits the target

Battle of the forms

Parties will often negotiate and agree terms that apply to a particular deal. In those circumstances, it is generally clear which terms are intended to apply.

In other circumstances two (or more) parties send their standard terms to the other, stating that they apply. Both terms cannot govern the same agreement and so only one winner will emerge.

Last shot fired: the general position

The traditional approach is that the terms presented last before the contract was formed will apply. You will look at when each of the terms were offered, and any rejection or acceptance of those terms either explicitly or by conduct.

So where Party A makes an offer on Party A’s conditions and Party B accepts that offer but on Party B’s conditions – and the parties then perform part of the contract – Party B’s contract applies

In unclear circumstances, the Court will also consider some general principles when deciding on a battle of the forms between Party A and Party B:

• Party A must give reasonable notice to Party B of its terms, and then must be consistent and unequivocal in following those terms.
• Parties can rely on its previous dealings – which can be as little as three or four occasions over a relatively short period – to understand the terms that apply to the current contract.
• Provided reasonable notice has been given, the Court will also consider any trade or industry standard terms for the type of transaction in question.
• Terms can be contained in or referred to in invoices sent subsequently to documents forming the contract – however, an invoice sent following a contract that was clearly accepted on standard terms may be too late.

Care must be taken at each step

Notwithstanding these principles, the parties should take great care at every step. For example, a supplier delivered cases of whisky to a buyer with a delivery note that included the seller’s terms. However, the buyer stamped the delivery note as being accepted under buyer’s terms.

The Court held that the buyer’s stamping of the delivery note constituted their communication of a counter-offer on the buyer’s terms, and that the supplier implicitly accepted this counter offer by handing over the goods. The buyer was deemed as firing the last shot and their terms applied.

First shot fired: importance of parties’ conduct

Contrary to the ‘last shot’ doctrine, the Court decided in TRW v Panasonic, that the ‘first shot’ was the winner of the battle of the forms.

TRW had signed a customer file in 2011, which contained Panasonic’s general conditions. Whilst this did not contractually bind TRW Ltd to purchase any products from Panasonic, the action of signing the customer file meant that TRW had acknowledged the general conditions that would apply to future contracts.

TRW had effectively committed themselves to the general conditions of Panasonic through their conduct, despite the purchase orders they later sent which stated that orders were on TRW’s standard terms. The Judge noted that crucially ‘the last shot missed the target.’

Significance

Terms which are not your own being incorporated into the contract could adversely affect:

• the limitation period for liability under the contract. For instance, the other party may reduce this time period to try and avoid claims being brought against them;
• the jurisdiction in which any claim can be brought. Whoever’s terms prevail will determine the jurisdiction, this could potentially lead to a claim being struck out where the court do not have the relevant jurisdiction (this was the eventual outcome of TRW v Panasonic); or
• the methods in which the contract may be terminated will likely be more favourable for the party whose Terms are incorporated.

Tips and tricks – how to put yourself in the best position to win the battle of the forms:

We have provided below some practical tips to put your company – and its terms – in the best possible position. There is, of course, no guarantee of success.

• Agree framework agreement at the start of the relationship that will apply to all future arrangement, effectively mirroring TRW v Panasonic.
• Include your standard terms in all pre-contractual correspondence/documents. Creating this automatic workflow makes it more likely that your terms will be the ‘last shot’ before the contract is concluded. This could include putting a link within documents, letters and emails to your website page in which the Terms are noted.
• Confirm in all correspondence and documents that you are making an offer and that your terms apply. This will ensure that you give the other party clear and reasonable notice that your terms will apply.
• Act only once your standard terms have been sent to the other party. A supplier should ensure terms are agreed before acting on a purchase order, instead sending an acknowledgment of the order alongside your terms and acting once accepted.
• Have a set order form for the purchase/delivery of goods that includes your terms.
• Introduce company procedures to identify when the other party has sent their terms. This will avoid any accidental performance under any conflicting terms.
• Address the other party’s standard terms in direct and written negotiations. This will resolve conflicting terms at the outset.
• If a course of dealing between the parties can be established, this can displace the traditional offer and acceptance approach to contractual discussions. This will allow for terms to be incorporated into the contract where it can be evidenced, they have been used in other transactions between the parties.

Note: you will need to be able to show a consistent course of dealing either over a period of years or through a number of transactions. This should only be argued as a last resort if your terms have already been challenged.

How can we help

We regularly provide virtual and in-person training on best practices and how to implement good contracting practices. We also provide specialist advice on the terms that are likely to apply, and your rights and obligations under that contract. Should you need detailed or tailored advice, please contact Rob Stewart in our Commercial Dispute Resolution team.