Which terms apply in the ‘Battle of the Forms’?
One of the questions we are often asked at the Kenzie Group by clients regarding contractual disputes is about whose terms apply in contract, as typically each party will have attempted pre-contract to impose their own standard terms and conditions on the other party through the period of negotiation, this can result in a stalemate situation where neither party is actually sure what the terms of their contract actually are.
This situation was considered in detail by the Courts in the recent case of Trebor Bassett v ADT Fire & Security that demonstrated how the aptly named ‘battle of the forms’ should be navigated.
In 2003, Trebor decided to move their popcorn production facility to a new factory and in doing so contracted with ADT, who had supplied fire protection systems to Trebor in the past, to install the factory’s new CO2 fire suppression system. Unfortunately, a fire broke out in the popcorn factory and the building was quickly destroyed. In the ensuing argument Trebor alleged that ADT’s failure to design an adequate CO2 suppression system had caused losses of £110M.
Battle of the Forms
One of the key issues in dispute which was to have huge financial implications was whether the parties had entered into a contract on Trebor’s or ADT’s standard terms and conditions. This was a very significant issue for both parties because although Trebor was claiming to have suffered losses of £110M, ADT’s standard terms and conditions had a limitation clause that effectively limited ADT’s liability for breach of contract to an amount of circa £13,000 in total. By contrast, if Trebor’s standard terms were found to apply, ADT would be required to indemnify Trebor against all losses Trebor had suffered IE £110M.
The Courts Analysis…
ADT had provided a quotation to Trebor in August 2003, offering to supply the suppression system for £9,000. ADT’s quotation stated that it was subject to ADT’s standard terms and conditions, although a copy of these was not supplied. In September 2003, Trebor issued a Purchase Order accepting ADT’s quotation. The Purchase Order stated that the contract was subject to Trebor’s standard terms and conditions which were “already supplied” and that additional copies were available “on request”. These terms and conditions were not included with the Purchase Order because Trebor assumed they had already been supplied to ADT in the past. However, the Court found no evidence that ADT had previously seen or agreed to Trebor’s terms and conditions.
The Court confirmed that the traditional offer and acceptance analysis must always be used to identify the winner of the battle of the forms, unless there is very clear evidence to show that the parties had agreed that other terms would prevail. The formation of a contract is grounded in the concepts of offer and acceptance, so applying this analysis to all battle of the forms cases provides clarity and certainty.
Using the offer and acceptance analysis, it was clear that:
- ADT’s quotation was an offer based on their standard terms and conditions;
- Trebor’s Purchase Order was a counter-offer based on Trebor’s standard terms and conditions; and
- By commencing work on the suppression system, ADT had accepted Trebor’s counter-offer.
A contract had therefore been formed on Trebor’s standard terms and conditions.
Is it always so straightforward?
ADT didn’t think so, and mounted a robust challenge putting forward a number of arguments as to why they considered Trebor had not won the battle of the forms.
ADT’s first argument was that Trebor’s Purchase Order was an acceptance, not a counter-offer. Trebor had issued the Purchase Order “as per the quotation” and in ADT’s view this meant Trebor had accepted ADT’s entire quotation, including ADT’s standard terms and conditions. The Court disagreed, noting that although the Purchase Order accepted the quotation, there was nothing within it which could be construed as an express acceptance of ADT’s terms and conditions, particularly since Trebor had not been given a copy of ADT’s standard terms and conditions.
ADT also argued that Trebor’s terms and conditions were not incorporated into the contract because they had never been supplied to ADT. The Court found that although Trebor had failed to supply a copy of their standard terms and conditions, this did not prevent them from being incorporated into the contract because:
- In the circumstances, the fact that the Purchase Order identified and referred to Trebor’s standard terms and conditions was sufficient to ensure they were incorporated into the contract.
- The reference in the Purchase Order to Trebor’s standard terms and conditions would have alerted ADT to the fact that they existed and that ADT may already have had a copy in their possession. It was then ADT’s responsibility to obtain a copy of Trebor’s standard terms and conditions.
- None of Trebor’s standard terms and conditions were so unfair or onerous that they should have been expressly drawn to ADT’s attention.
What is the conclusion?
This case confirms the harsh reality that the winner of the battle of the forms will generally be the last party who makes an offer before work is commenced – this is known as “the last shot principle” – However, whilst this sounds like a simple principle, as both of these parties found out the battle of the forms is rarely straightforward in practice.
At the Kenzie Group we advise contracting parties that they should seek to avoid becoming involved in a battle of the forms, as it creates unnecessary risk and uncertainty. This is particularly true for high value contracts or contracts where the financial consequences of a breach could be significant.
Visit www.kenziegroup.co.uk/training to view the Kenzie Group’s latest animations on the formation of contracts.