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Contract Formation: Battle of the Forms

October 26, 2011 | Construction Contracts

If terms and conditions are not attached to a purchase order, can they still be incorporated into the contract?

The issue of the ‘battle of the forms’ arises frequently in construction disputes. Typically, each party will have attempted to impose their own standard terms and conditions on the other party, with the end result that neither party can be sure what the terms of their contract are. When a dispute arises, the Courts have to analyse the situation to determine which set of standard terms and conditions applies. The recent case of Trebor Bassett v ADT Fire & Security demonstrates the Courts’ approach to deciding who has won the battle of the forms.

Background

In 2003, Trebor decided to move their popcorn production facility from Leeds to Pontefract. ADT, who had supplied fire protection systems to Trebor in the past, supplied and installed the factory’s CO2 fire suppression system.

One evening in June 2005, a fire broke out in the popcorn factory. The Fire Brigade were called, but believed that Trebor staff had already extinguished the fire and did not immediately enter the building. However, the fire continued to burn and the building was quickly destroyed. Trebor alleged that ADT’s failure to design an adequate CO2 suppression system had caused losses of £110 million.

The Court ultimately decided that insufficient thought had gone into the design of the suppression system, with the effect that the fire was able to burn for too long before the system was triggered. ADT had fallen below the standard to be expected of an ordinarily competent fire prevention sub-contractor by failing to design the suppression system with reasonable skill and care.

Battle of the Forms

One of the key issues in dispute 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 £110 million, ADT’s standard terms and conditions limited ADT’s liability for breach of contract to twenty times the yearly service charge fee payable by Trebor – this amounted to just £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.

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.

Offer and Acceptance

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 put 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.

Analysis

This case confirms that the winner of the battle of the forms will generally be the last party who makes an offer before work is commenced. However, whilst this sounds like a simple principle, the battle of the forms is rarely straightforward in practice.

Contracting parties 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. A better (although possibly more expensive and time consuming) solution is to negotiate the individual terms that are in dispute.

As this case demonstrates, in some circumstances it is possible to win the battle of the forms by stating that the contract incorporates your standard terms and conditions, which are available on request.

However, companies who do become involved in battles of the forms should be aware that it may be risky not to include a copy of your standard terms and conditions when making an offer. This is particularly true if your standard terms and conditions contain onerous and/or unusual provisions such as exclusion clauses or clauses which purport to impose a liability on the other party which it would not otherwise have. If onerous terms are not drawn to the attention of the other party, a Court may consider that they have not been validly incorporated into the contract.

It is best practice for any company seeking to impose their own standard terms and conditions on a third party to attach a copy of those terms and conditions to all pre-contract documents, such as enquiry documents, purchase orders and letters of acceptance.  This creates certainty and prevents the other party from arguing that particular terms should have been drawn to their attention.

This article contains information of general interest about current legal issues, but does not provide legal advice. It is prepared for the general information of our clients and other interested parties. This article should not be relied upon in any specific situation without appropriate legal advice. If you require legal advice on any of the issues raised in this article, please do not hesitate to contact one of our specialist construction lawyers.

 

Wakefield Office

17 Navigation Court
Calder Park
Wakefield
West Yorkshire
WF2 7BJ
Tel: 01924 258719
Fax: 01924 257666
enquiries@hklegal.co.uk

London Office

28 Queen Street
London
EC4R 1BB
enquiries@hklegal.co.uk