Transformers & Rectifiers Limited v Needs Limited [2015]

The Technology and Construction Court recently revisited the applicable law in circumstances where each party sought to rely on its respective standard terms and conditions – the so-called “battle of the forms” – in the case ofTransformers & Rectifiers Limited v Needs Limited [2015]. The dispute regarding applicable contract terms was dealt with as a preliminary issue.

The facts

The claim concerned the sale and supply of nitrate rubber gaskets by the Defendant, with the Claimant alleging they were defective, unfit for purpose, and not in accordance with the Claimant’s contract terms. The Defendant contended that its own standard terms governed the contract, and any liability it might face was limited or excluded by those terms.

The parties had a trading relationship dating back around 20 years, with the Claimant placing orders on an almost weekly basis.

The Claimant’s purchase orders made no reference to standard terms on their face. The reverse included – in small and faint type – standard terms, but these were only supplied to the defendant on the rare occasions that purchase orders were sent by post. More usually, the Claimant sent a purchase order by fax or email and did not include the second, “reverse”, page which set out the standard terms. The Defendant’s management nonetheless conceded that, by the time the disputed orders were placed, they were aware that terms and conditions were included on the reverse of purchase orders sent in hard copy.

Upon receipt of an order, the Defendant would send the Claimant an acknowledgement, which included the statement “The quoted prices and deliveries are subject to our normal Terms and Conditions of Sale (copies available on request)”. However, those terms had never been supplied to the Claimant.

The Claimant’s purchase orders on their face required a certificate of conformity as well as the gaskets, and the gaskets were delivered accompanied by a delivery note incorporating a certificate of conformity.

The law

Having reviewed the relevant authorities, the Judge found the principles relevant to the “battle of the forms” to be as follows:

  1. Where A makes an offer on its conditions to B and B accepts that offer on its conditions and, without more, performance follows, the correct analysis (assuming that each party’s conditions have been reasonably drawn to the attention of the other) is that there is a contract on B’s conditions.
  2. Where there is reliance on a previous course of dealing it does not have to be extensive: three or four occasions over a relatively short period may suffice.
  3. The course of dealing by the party contending that its terms and conditions are incorporated has to be consistent and unequivocal.
  4. Where trade or industry standard terms exist for the type of transaction in question, it will usually be easier for a party contending for those conditions to persuade the court that they should be incorporated, provided that reasonable notice of the application of those terms has been given.
  5. A party’s standard terms will not be incorporated unless that party has given the other party reasonable notice of those terms and conditions.
  6. It is not always necessary for a party’s terms and conditions to be included or referred to in the documents forming the contract: it may be sufficient if they are contained in or referred to in invoices sent separately.
  7. By contrast, an invoice following a concluded contract effected by a clear offer on standard terms which are accepted, even if only by delivery, will or may be too late.

The decision

The Judge considered the whole picture in order to determine the applicable contract terms as understood by a hypothetical objective bystander, and found that:

  • Whilst the Defendant was aware of the Claimant’s terms, the Claimant had not given reasonable notice that it intended to rely on them.
  • The Defendant had indicated to the Claimant that it had its own terms. However, as these were bespoke (rather than being those of a trade or industry association), and had never been provided to the Claimant, the order acknowledgement could not amount to a counter-offer.
  • Accordingly, neither party’s standard terms “won” the battle of the forms. Nonetheless, there was sufficient agreement of key terms for there to be a binding contract between the parties.

The implications

  • A mere reference to or inclusion of terms in a document provided to the other party will not suffice to win the battle of the forms, and a party must be explicit about its intent to rely on its standard terms.
  • Where neither party’s contract terms apply, the contract will be governed by the Sale of Goods Act 1979, and the supplier will not enjoy the benefit of any liability cap or exclusion of liability.
  • Ideally, parties will sign a framework agreement and expressly agree the terms they intend to govern future orders.
  • Failing that, parties should be careful to provide all the relevant information in exchanges intended to form binding contracts. Best practice will be for a party intending to rely on its standard terms to expressly draw the other party’s attention to this, and to include a copy of those terms as a separate document.