What are the key considerations when entering into contracts on standard terms?
Unfortunately, when advising clients in respect of a contractual dispute they have become involved in, all too frequently the client automatically thinks that they can rely on their own standard Terms & Conditions and that their standard terms apply. However, invariably issues arise as to which party’s terms actually apply because both parties are seeking to incorporate their own terms into the contract and effectively trying to force their own terms onto the other party.
This is commonly described as the “Battle of the Forms” scenario where businesses exchange communications (often via email) when discussing or negotiating a contract and each party tries to incorporate their own standard terms by making reference to them on various pre-contractual documents such as specifications, purchase orders, acknowledgments, delivery notes, invoices etc.
A key consideration is – which party fired the ‘last shot’ without challenge before the goods or services were provided thus incorporating their own standard terms into the contract to the exclusion of the other party’s.
The effect of winning the battle of the forms is obvious but cannot be overstated – the winning party is able to rely on their own standard terms which, no doubt, will be heavily weighted in their favour to the detriment of the other party and such terms will deal with important issues such as limitation of liability, payment terms and termination to name but a few.
So what should a business do to try and ensure that its standard terms are incorporated or at least mitigate the risk that the other party to the contract will be able to categorically rely on their own?
- Staff training on this issue is key. Make sure that all staff within the business who order or sell products (and therefore make contracts) are aware of the battle of the forms scenario and are alive to the issues involved.
- If you have standard terms and you wish to form contracts based on them, ensure that reference is clearly made to your standard terms on all documents sent to the other party. This can be done by reference to a website link on which the standard terms can be accessed (but ensure that this link is kept up to date and has not lapsed or been changed) or, even better, provide your standard terms with each document so there can be no room for confusion.
- Before accepting the goods (as a customer) or delivering the goods (as a supplier), take some time to review the chain of correspondence to check which party last sent their terms. If there is any doubt or scope for argument, re-engage with the other party and refer once again to the fact that it is your standard terms which are to apply to the contract.
Understandably, at the time of contracting, businesses are focused on closing the deal itself either because they want to provide the goods or services or they need the good and services being offered and rarely do they think about what might happen in the future if things don’t go to plan. However, taking a step back at this early, pre-contract stage and taking stock could significantly improve a business’ position in the unfortunate (but all too common) event of a dispute later down the line.
As to the ‘best practice’ a business should adopt, much will depend on whether the business in question is the supplier or the customer in the relationship and the approach will differ accordingly.
Should you require any further information about this ‘best practice’ or would like to discuss any of the issues raised above, please do not hesitate to contact me and I’ll be happy to help.