Several recent cases highlight the importance of process for both customers and suppliers when contracting on standard terms (or a mixture of standard terms and "bespoke" terms). In this briefing, we highlight some of the key pitfalls for the unwary, particularly around the so-called "battle of the forms".
Standard terms: fighting the right battles
When negotiating the terms of a deal, customers and suppliers will often exchange emails or other correspondence seeking changes to pricing and other key issues, whilst attaching their own standard terms (which they normally intend to govern the rest of the contract). This is known as the "battle of the forms". Where there's no signed contract, the English courts will often examine this exchange in some detail in order to determine whose standard terms should apply (if any). This can make a very significant difference to the outcome of any dispute. For example, supplier-favourable standard terms will almost always contain limitations and exclusions of liability, whereas customer-favourable standard terms may leave the supplier with unlimited liability.
In a "classic" battle of the forms case, the English courts will declare the winner based on the "last shot doctrine". To take a simple example, let's say that following an enquiry from a customer, a supplier sends an email stating that it is prepared to supply the goods or services for £X subject to its standard terms. The customer responds asking for various changes and includes a link to its own standard terms. The supplier incorporates the changes but its email continues to state that its standard terms apply and this time, they are attached in full. The customer responds by email saying "Yes, we're happy to go ahead on that basis", without making any reference to its own standard terms. On these facts, a court applying a classic battle of the forms analysis is likely to conclude that the supplier's terms apply – despite the lack of any signed document from the customer indicating its agreement to those terms. This would be on the basis that "the last shot" in the exchange of correspondence which referred to those terms was fired by the supplier.
Battle of the forms: implications for process
The best position is to get the other party to sign a document which sets out the final agreed terms of the contract in full (which might consist of an order form setting out key issues like quantities, price and deadlines, together with your standard terms which will govern all other aspects of the contract). However, this can sometimes be difficult, particularly where both sides are keen to do a deal quickly or where documents are being exchanged by email. The next best approach is to try to ensure that you always fire the last shot before the contract is formed and that your standard terms are included with any quotation, order or acceptance you send – or that at the very least, a statement is included that the relevant supply will be governed by these terms and a link is provided to the full text of the terms on your website. Keep a record of such communications so that you are able to prove that the other side was aware of your terms (otherwise it will be their word against yours should the matter result in a dispute). But not all cases involving standard terms are resolved based on a "classic" battle of the forms analysis (see textbox below and Section 3) – so it is important to plan for other eventualities as well.
Particular care is needed where the other side has clearly indicated that your standard terms are unacceptable to it. There have been cases where the courts have effectively concluded that neither side was prepared to accept the other's standard terms - and that as a result, it was not appropriate to apply a "battle of the forms" analysis (since this would have involved going against the parties' intentions). See for example, Transformers & Rectifiers Ltd v Needs Ltd (2015). In such circumstances, the court will usually imply such terms as are necessary to make the contract work – but these will normally fall well short of the contractual protections that the parties would have benefitted from if one or other set of standard terms had applied.
In practice, the best approach in this type of situation is to explore whether your standard terms can be modified to make them more acceptable to the other side. If this happens frequently, it may be worth having some standard alternative "compromise" drafting available. If other parties often have sufficient bargaining power to insist on the use of their own standard terms, it will be essential to have clear red lines about what you can and can't accept - and again, it may be helpful to have alternative drafting which you can put forward as a basis for compromise.
It's important to be aware that there are ways of circumventing the "last shot doctrine". For example, in a recent Court of Appeal case concerning a dispute over allegedly defective vehicle components, the customer, TRW, argued that its terms applied because it had fired the last shot during the ordering process. However, at the outset of their relationship, the supplier, Panasonic, had insisted that, as part of its customer approval process, TRW should sign a so-called "customer file". That document included a provision which stated that Panasonic's standard terms would apply "exclusively to the entire business relation with us….unless different terms and conditions, particularly conditions of purchase of the contracting party have expressly been confirmed by us in writing". The Court of Appeal concluded that these terms effectively displaced the last shot doctrine – so even if TRW had "fired the last shot" in any negotiations over the supply of a particular consignment of components, this was irrelevant because it had already agreed that Panasonic's standard terms would apply.
A key factor in the Panasonic case was the existence of an earlier document which the customer had signed. The English courts tend to place considerable weight on signed documents, which made it very difficult for TRW to argue that it had not agreed to the relationship being governed by Panasonic's standard terms. However, in many cases involving standard terms, there is no signed document anywhere in the correspondence – which is why the courts resort to examining that correspondence in some detail.
That said, you could have a situation where, despite the lack of a signed document, the court concluded that the parties entered into a framework agreement at the outset of their relationship - and that under this framework, all future supplies will be governed by one side's standard terms. If that were the analysis, then any future exchanges of standard terms ahead of orders being placed would probably be irrelevant (unless there was a clear indication that the parties intended to depart from the agreed framework). An argument along these lines was made by the customer in a second recent case highlighted in Section 3 below; although it was ultimately unsuccessful, if the court had accepted it, the outcome of the dispute could have been different.
Provimi was a supplier of chickenfeed to poultry farmers. Its customers complained that their chickens were suffering from vitamin D deficiency. Investigations indicated that the vitamin D in the feed had deteriorated during hot weather due to lack of a gelatin coating. Provimi agreed to compensate those customers to the tune of several million euros (the customers were based in the EU). It then sued its vitamin supplier, Stour Bay, on the basis that the latter had failed to provide vitamin D of suitably durable quality. A key issue was whether Stour Bay should have ensured that the product had a gelatin coating. Provimi's own internal guidance was that it should do and their standard specification required it. Rather like Panasonic's approval process for new customers (see above), Provimi also had an approvals process for suppliers. However, despite this approvals process and despite having sent the specification to Stour Bay, the court ruled that there was no contractual requirement for a gelatin coating (and Stour Bay was not liable).
What went wrong with the process
The court found that Stour Bay had arranged for samples of the vitamin D from its Indian supplier to be sent to Provimi for approval. Provimi had then approved these samples, even though it would have been clear from the accompanying data sheet that there was no gelatin coating. Later on in the negotiations, Provimi responded to quotations from Stour Bay attaching its standard specification – which did require a gelatin coating. However, the court concluded that given the outcome of the approvals process, Stour Bay had been entitled to assume that Provimi was well aware that there was no gelatin coating on its vitamin D product and that it could simply disregard the specification. In any event, the court ruled that the specification had not been incorporated into the contract, which was found to be on Stour Bay's standard terms (with prices and quantities agreed by email).
Not a "battle of the forms" case
In reaching this conclusion, the court did not apply a classic "battle of the forms" analysis, in part because the judge took the view that Provimi had not put its own standard terms of purchase into play during the negotiations – so the court was not being asked to decide between two rival sets of standard terms. Instead, the court looked at "all the evidence from start to finish" in order to form a view as to the terms of the parties' bargain. In particular, it noted that Stour Bay's standard terms were "almost invariably" printed on the reverse of invoices; it concluded that Provimi must have been aware of them based on a previous course of dealing of around 5 years prior to the contract giving rise to the dispute. Since Provimi had failed to put forward a coherent alternative set of terms, the court concluded that it must have been content to enter into the agreement largely on Stour Bay's terms.
- If you have an approvals process, make sure it works in your favour (as in the Panasonic case), not against you (as in the Provimi case).
- Communicate your standard terms to the other side and make clear that you intend them to apply to the contract being negotiated (in Provimi, the court found that the buyer had failed to do this).
- Include standard terms in full on the back of purchase orders, acceptance documentation, invoices or other similar regularly generated documentation (note that whilst invoices will usually come too late to be decisive in any battle of the forms analysis, they can be helpful in establishing that standard terms have been incorporated based on a previous course of dealing, as in the Provimi case).
We have considerable experience of drafting and advising on the implementation of standard terms for use in a wide range of different contexts – and we will also advise you on how best to integrate them into your business processes (which, as explained above, is often key to ensuring that your standard terms are effective in practice).
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