Incorporating your Standard Terms and Conditions

The recent case of Transformers and Rectifiers Ltd v Needs Ltd serves as a useful reminder of the potential pitfalls when trying to incorporate terms and conditions into a contract.

In the above case, the commercial relationship between the parties extended over 20 years.  In that time Transformers ("the Purchaser") had placed orders on almost a weekly basis by post, fax and by email attachment.  The High Court was asked to determine the terms of the contracts made between the parties after it was alleged by the Purchaser that the gaskets supplied by Needs Ltd ("the Seller") were unsuitable for their purpose and were not in accordance with the contract.

The Purchaser argued that its terms and conditions applied because its purchase order contained its terms and conditions on the reverse.  However, there was no reference to the terms and conditions on the front page of the order and when placing an order by fax or email, it was often only the front page that was sent to the Seller.

The Seller argued that its terms and conditions applied because its acknowledgements of order referred to its terms and conditions.  The Seller's terms and conditions were not included on the acknowledgements of order and the terms and conditions had not been provided to the Purchaser separately.

Where both parties attempt to incorporate their own standard conditions into a contract it often results in what is known as a "battle of the forms".  In such a scenario it has often been said that he who "fires the last shot" (i.e. sends the last document incorporating a set of standard conditions) wins the battle.  The case of Lidl UK GmbH v Hertford Foods Ltd however demonstrated that there are two other possibilities;

(i) there may be no contract at all and

(ii) where the parties have agreed on express terms sufficient to bring a legally binding contract into existence, those express terms may apply to the contract with the remaining terms of the contract governed by common law and statute.     

In the present case the Court held that neither party's terms and conditions applied to the contract.  The Court also reaffirmed some key principles with regards to incorporating terms and conditions:

  1. If a purchaser wishes to incorporate its own standard terms and conditions when placing an order by fax or e-mail, it must give the seller reasonable notice of the terms and conditions and must do so in circumstances that make it clear to the other party that it intends to rely on them.  Where the terms and conditions are included on the back of the purchase order, if sending by fax the best way to achieve this is by sending the terms and conditions as a separate document together with the purchase order.  If the purchase order is being sent by e-mail, the buyer should ensure that the attachment includes both the face of the purchase order and the terms and conditions on its back.
  2. Where there is reliance on a previous course of dealing to demonstrate that a party's terms and conditions have been incorporated, such course of dealing must be consistent and unequivocal.  Whilst the relationship between the parties extended over 20 years, because the Purchaser had not adopted a consistent practice throughout that period when enclosing its terms and conditions, it could not rely on them. 
  3. If a purchaser makes an offer on its conditions and the seller accepts that offer on its own conditions, then (subject to each party's conditions having been reasonably drawn to the attention of the other), there will be a contract on the seller's conditions. 
  4. If a seller wishes to incorporate its terms and conditions by referring to them in its acknowledgement of order, the seller must refer to those conditions on the face of the acknowledgement of order in terms that make it plain that they are to govern the contract.  Having done that, the seller must give the buyer reasonable notice of the conditions.  One way of achieving this is by printing them on the reverse of the acknowledgement of order accompanied by a statement on the face of the acknowledgement of order that it is subject to the conditions on the back.  Alternatively, the seller could send the purchaser a copy of its terms and conditions, making clear that they are the only terms and conditions upon which the seller is prepared to do business.

Where parties carry out a contract before a battle of the forms is resolved, the Court of Appeal has, in a number of recent cases, held that there has been no contract between the parties.  This approach can be criticised as often it will be apparent that the parties intended to create legal relations.  Imposing contract terms on a party is equally not ideal.  Therefore, in order to rely on its terms and conditions a party should ensure that it gives the other party reasonable notice of its terms and conditions by bringing them to the other party's full attention.

Posted on: 16/07/2015

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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