Standard Terms: When the last word is not the final word…

A recent High Court case has highlighted the need for contracting parties to take care in their commercial negotiations to ensure that the right set of terms applies. Dispute Resolution partner James Lewis investigates the points to note.

Standard terms: advantages and limitations

Where a business is agreeing multiple contracts on a regular basis, it makes good commercial sense to have standard terms to make the process efficient.  However, where two businesses want to strike a deal, and each wants to include their own standard terms, there is the potential for tension.  Under English law, this can lead to a so-called "battle of the forms", as there cannot be two sets of terms for one contract. 

There can be a significant practical impact if one party needs to protect their rights and it turns out that the other party's terms apply.  Take the example of a trading relationship between a seller and buyer for the supply of goods.  While the quantity of goods and the price may be clear, the terms of payment, limitation of liability and other contractual terms may be markedly (and intentionally) different in the standard terms of the seller than the buyer. 

In addition, if the parties are based in different countries, there may be different provisions regarding the applicable law and jurisdiction, which in a post-Brexit world may take on an added significance. 

This was the situation in the recent High Court case of TRW v. Panasonic.  There was disagreement about which set of standard terms had been incorporated, and the impact of the court's decision on this question was that the buyer's claim would be heard in the Hamburg court in Germany (the seller's choice) rather than the English court (the buyer's choice).

English law

In a "battle of the forms", the classic situation is where one party makes a contractual offer which includes its standard terms, and the other party appears to accept the offer but with a document including its own, different standard terms. 

Which set of terms will apply to the contract?  Under English law, this starts with the key principle that a contract can only be formed where an offer from one party is unequivocally accepted by the other party, whether in writing, words or conduct. 

A common situation is that the second, or last, set of terms exchanged between the parties is deemed to have been accepted, either by some form of communication or simply by performance of the contract.  This concept has given risen to a general assumption (which applies in many situations) that the last set of terms exchanged is the "last shot" in the battle, and therefore the "last word" on which terms apply. 

However, there are situations in which an English Court will reach a different conclusion.  If the evidence shows that the parties intended some other set of terms to apply (however limited), then this agreement may override the exchanged sets of standard terms.  A further variation on this is where the parties omit to include or refer to any standard terms, and the Court will have to decide whether to imply any terms (including from the Sale of Goods Act 1979), or to determine in extreme cases that no contract has been formed at all.

The TRW v. Panasonic case

This case is an example of a situation where a Court may decide that the parties intended some other set of terms to apply. 

An English buyer (TRW) sought damages from a German seller (Panasonic) in relation to the supply of defective resistors.   Although the relevant sale contracts were concluded in 2015 and 2016, back in 2011 the buyer had signed the seller's "customer file" which stated that the buyer had received and acknowledged the seller's standard terms.  These terms provided for German law and the jurisdiction of the Hamburg courts, and that no other terms would apply unless confirmed by the seller in writing. 

Although no goods were supplied in 2011, the buyer was bound by the seller's terms for all future trades that might occur, unless the buyer could persuade the seller to renounce its standard terms.  Even though the English buyer had attached sets of its standard terms to communications while placing orders in 2015 and 2016, they were not confirmed by the seller in writing and therefore did not override the 2011 terms. 

Practical points

Many supply relationships are set up on the basis that there will be multiple orders for a regular flow of goods.  This may be implemented by using a set of standard terms to accompany each order, although it is also common for there to be an umbrella agreement (often provided by the seller) which is signed when the relationship is established.  Such umbrella agreements, like the Panasonic's "customer file", may be signed by the parties well before the first sales order, but may set down binding terms for the future. 

Parties should be alive to this as they negotiate new or revised trading relationships, even if orders are not envisaged for some time.  If the umbrella terms of a seller can only be amended by written agreement (as with those in the Panasonic "customer file"), then any exchange of subsequent standard terms may be irrelevant, even if the buyer has the "last word".  In essence, the battle of the forms may be over before a shot is fired. 
 
Case Details: 
TRW Ltd v. Panasonic Industry Europe GmbH & Another [2021] EWHC 19 (TCC)
Judge: Mr Justice Kerr           
Date of Judgment: 8 January 2021