Whose terms apply?

Battle of the Forms

Paul Dickie of Prettys reviews the perennial problem of parties fighting to incorporate their own terms and conditions into a contract.

Central to many transport disputes is the question of whose terms apply. The party entrusted with the goods will invariably seek to rely on its own bespoke terms or on trade association terms (in the United Kingdom there should be BIFA, RHA, UKWA or ICS). The person entrusting the goods on the other hand may wish to avoid exclusions and limitations contained in many of those terms which are favourable to the party entrusted with the goods. This leads to attempts, at the stage where the contract is being formed, to ensure that one’s own terms apply. It may be worthwhile at this stage pointing out that in the recent Court of Appeal decision in Granville Oils v Davies Turner [2003] WL 1822907 Court of Appeal, Tuckey LJ said that from “…general business experience…the [claimants] must have known that the transaction would be on terms. It was up to them to inform themselves of what those terms were…” So, doing nothing, even where one suspects that the other party may not have made a very good attempt to incorporate their own terms is therefore not an option, if one wishes to be sure of incorporating one’s own terms. This article looks at how best to ensure this in a situation where both parties are intent on incorporating their own terms. The cardinal rule is to be clear and positive in all one’s messages as to a) insistence on one’s own terms; and b) rejection of the other side’s terms. Inevitably however if the other party is equally astute and careful, a stalemate will result. It is helpful to look at how the English courts have treated this question.

Traditionally, there was a view that the party who sent the last message purporting to incorporate its terms would win. This was known as the doctrine of “Who fired the last shot?” see e.g. B.R.S. v Arthur V Crutchley Ltd [1968] 1 All E.R. 811. The legal analysis of that position is that, where conflicting communications are exchanged, each is a counter offer so that if a contract results at all it results on the terms of the final document in the series. However, this approach is rather rough and ready when the correspondence leading up to the conclusion of a contract is likely to differ considerably in each case.

So, in the leading case of Butler Machine Tool Co Limited v Ex-Cell-O Corporation (England) Limited [1979] 1 Weekly Law Reports 401, the Court of Appeal (headed by Lord Denning MR) found, that despite the fact that the last message had been sent by the seller, the effect of the correspondence between the parties was that the seller had accepted the buyer’s counter offer and that the seller’s last message did not assist it.

Briefly, the seller had offered to supply a machine subject to certain terms and conditions, including a price escalation clause. The buyer placed an order for the machinery on a form setting out their own terms and conditions which differed from those of the sellers (among other things they contained no price escalation clause). The buyer’s message contained a tear-off slip to be signed by the seller and returned to the buyer acknowledging that the seller accepted the order in the terms and conditions stated therein. In its final message the seller signed the slip and returned it with a letter saying they were entering the order in accordance with the offer (its own original offer). Despite this the court found that the reference to the seller’s original offer was not made for the purpose of reiterating all its terms but only for the purpose of identifying the machines. The seller then had been insufficiently precise in its reply if indeed it had not wished to accept the buyer’s terms and conditions.

If then one wants to incorporate one’s own terms into a contract then it is important to do the following:

• continue to refer to the incorporation of one’s own terms and conditions
• reject the other side’s terms and conditions each time
• if necessary do not perform until an acknowledgment by the other party of acceptance of your terms has been obtained

Clearly, the last mentioned is often commercially unrealistic but, in such situations, a signed acknowledgment (as indeed there was in Butler) will be the best evidence of whose terms apply.

Provisions in order forms and the like that one’s own terms and conditions will prevail over anything in the other party’s documentation are likely to be valueless. Certainly such a provision was ignored in Butler.

If neither party has blinked but performance of the contract has nevertheless taken place and then a dispute arises, the court may, in the absence of any ability to decide which party’s terms and conditions apply, impose its own reasonable terms and conditions on the contract. A court may do so where, given a performed contract, the existence of both parties’ terms and conditions side by side, being inconsistent with each other, is clearly impossible. The court therefore has room to imply terms to make the contract work. Prior to performance however it might be argued that such a contract is void for uncertainty with the result that performance may not in fact be ordered.

Finally, in a transport situation (unlike in Butler which was a sale of goods case), it may also be possible to argue more strongly for the terms of the party entrusted with the goods rather than the party entrusting them. This is because a goods owner is likely to have standard terms dealing with sale and purchase of the goods rather than standard terms dealing with their safekeeping, carriage and delivery. In the event of a dispute, sale and purchase terms are unlikely to have as much relevance to the dispute at hand, which will usually be about loss or damage to goods.