Battle of the forms
One of the intentions behind the recent amendments to the HGCRA was to increase access to adjudication. One of the by-products of this is that the number of disputes about the precise nature of the contract is likely also to increase. With this in mind, Charlene Linneman discusses one of the potential areas of disagreement, namely whose terms and conditions apply. A building contract should define the relationship between the parties so that each knows what is going to be built, how long it should take and how much it is going to cost. The general requirement is that at some point, the parties who want to enter into a contract reach agreement on the terms of that contract - what is sometimes far from clear is when that point of agreement is reached. Implementing the principles applied to the battle of the forms cases is a good way of working out when that point is reached.
In order for a contract to be formed, there must first be agreement. Generally this is shown by an offer by one party to the contract which is accepted by the other party (either in writing or through that party’s conduct such as starting work on site) for valuable consideration (generally money): this is then incorporated into the formal written contract. However, on occasions, parties exchange, for example, quotations or purchase orders without proceeding to sign any formal contract. Two problems can arise here: what if the negotiations are marked “subject to contract”, and if the parties exchange their own standard terms and conditions, which set will apply? The first question has already been addressed by Andrew Hales, when he reviewed the Immingham v Clear case.
Although the terms of the contract were clear in the Immingham case, if Clear had sent back its agreement to the quotation on its standard order form with its own terms and conditions, which terms and conditions would apply? In these situations, known as “battle of the forms”, the general rule is “the last past the post”, i.e. the last terms and conditions that were exchanged form part of the contract. For example, if a supplier offers to supply equipment subject to the seller’s terms and conditions; the buyer places an order on its own form setting out the buyer’s terms and conditions; and the supplier then signs and returns the buyer’s form, the buyer’s terms and conditions will govern the parties’ contract. Where you have a “battle of the forms”, the approach of the court will typically be this:
(i) as in any other construction contract, the test is objective, albeit that the court must take into account the factual matrix – i.e. what actually happened;
(ii) in most cases, a contract is formed as soon as the last set of forms is sent and no objection is taken;
(iii) acceptance by conduct can be inferred, although conduct will amount to acceptance only if it is clear that the party intended to accept the terms. Acceptance of a delivery, of itself, may not be enough;
(iv) where the parties have not agreed which set of standard terms applies, then the only inference that can be drawn is that their agreement was made on the basis that neither set of standard terms would apply;
(v) if neither party’s terms and conditions are to be incorporated into the contract this will usually mean that the contract will be subject to the terms and conditions implied by statute, for example, the Supply of Goods and Services Act 1982; and
(vi) whilst the subsequent conduct of the parties may be relevant to the enquiry as to whether particular terms were or were not agreed, the subsequent conduct of the parties cannot be relied upon as an aid to the construction of the contract.
In the case of Claxton Engineering Services Ltd v TXM Olaj-es Gazkutato Kft,1 the parties disagreed as to whether an arbitration clause was incorporated into a number of contracts in relation to the manufacture and delivery of engineering equipment. Claxton was an English company that manufactured specialist engineering equipment; TXM was a Hungarian company that was engaged in drilling and exploration in Hungary.
In late 2005 and early 2006 Claxton supplied equipment to TXM on the basis of a quotation and TXM’s purchase order. Although TXM’s purchase order referred to its terms and conditions Claxton had not seen them. TXM later sent purchase orders to confirm items that Claxton had already delivered. These included provision for arbitration in Hungary. In June 2006 Claxton proposed some amendments to TXM’s terms, including giving the English courts exclusive jurisdiction. TXM did not respond to these. From mid-2006 to late 2007 Claxton signed further TXM purchase orders but queried the terms. Claxton then signed a further six purchase orders but without querying the terms.
TXM argued that the parties’ contract incorporated its own terms. The court disagreed. TXM’s initial offer had been rejected by Claxton’s counter-offer of an English jurisdiction clause and that TXM had then accepted that counter-offer through its continued performance. This was the key factor and it did not matter that TXM had continued to send purchase orders referring to its standard terms and conditions without amendment. TXM were therefore bound by terms and conditions it had never expressly agreed to.
This decision was reinforced by the Court of Appeal decision in Tekdata Interconnections Ltd v Amphenol Ltd.2 Here, the sellers quoted on their terms and conditions, the buyers generated a purchase order which stated that the purchase was on their terms and conditions, and when the sellers acknowledged the purchase order, they repeated that their own terms and conditions applied. The judge at first instance said that whilst the traditional view would be that the contract terms were those of the sellers, since their acknowledgement was the last shot, in fact other circumstances indicated that the parties intended that the buyers’ terms should apply. Here there was a commercial history under which the parties had contracted on the buyers’ terms.
The Court of Appeal disagreed. The traditional analysis had to be adopted unless the parties’ previous conduct showed that their common intention was that some other terms were intended to prevail. There needed to be a clear course of dealing. There was not one here. Dyson LJ said:
“But the rules which govern the formation of contracts have been long established and they are grounded in the concepts of offer and acceptance. . . it seems to me that the general rule should be that the traditional offer and acceptance analysis is to be applied in battle of the forms cases. That has the great merit of providing a degree of certainty which is both desirable and necessary in order to promote effective commercial relationships.”
This mattered in the Trebor v ADT3 case because Trebor had argued that there was a previous course of dealing between the parties which incorporated their own terms and conditions. What had happened was that ADT was invited to quote for a job because they were the suppliers of the fire protection systems to Trebor at Monkhill. ADT was provided with very little information on which to quote. They had some generic drawings and they scaled from these and made various assumptions as to the size of the hoppers and elevators. Those assumptions were then set out in their specification and quotation of 28 August 2003. On 3 September 2003, the claimant sent to the defendant a purchase order which was based on the claimant’s terms and conditions. The defendant then started work and on 17 September 2003, the defendant produced an updated specification.
So what was the last shot? The answer was the 3 September 2003 purchase order. The critical work was carried out by the defendant in accordance with the exchanges made at the end of August and the beginning of September. Therefore, work was taking place in accordance with the 3 September 2003 purchase order. This meant that the revised specification of 17 September was immaterial, because the work was being undertaken pursuant to earlier documents.
Finally, remember to ask to see the other party’s standard terms and conditions if these have been referred to but not provided. If the order says they have been supplied then you have not only alerted the defendant to the existence of these other terms and conditions, but also alerted them at least to the possibility, if not the probability, that you have already contracted on them in the past.