The High Court recently found, in Rectifiers & Transformers Ltd v Needs Ltd [2015] that, despite a commercial relationship lasting twenty years, both companies’ terms and conditions were not incorporated into their contract.
Background
The Claimant buyer of nitrile gaskets sued the Defendant seller alleging that its product was unfit for purpose. However the seller sought to rely on a clause in its terms and conditions limiting liability. The buyer disputed its application, requiring the court to decide firstly whose terms and conditions were incorporated into the contract.
Having placed orders with the seller on an almost weekly basis since the mid-1990s, the buyer asserted that its Ts&Cs applied because they were printed on the back of purchase orders. However purchase orders themselves made no reference to the Ts&Cs printed on the reverse.
The method for placing orders had changed over time and had been via post, fax and email. Orders sent by fax or email did not show the reverse of the purchase order such that the Ts&Cs could not be seen. The sellers nonetheless accepted that their management was aware of them.
The seller asserted that its own Ts&Cs should prevail because it sent order acknowledgments stating that prices and deliveries were subject to them, with copies available on request.
However the seller did not print its Ts&Cs on the back of order acknowledgments and had not provided the buyer with a copy. Furthermore it accompanied deliveries with certificates of conformity; a document required by the buyer’s Ts&Cs.
On reviewing the caselaw, Edwards-Stuart J identified several key principles;
i) Where party A makes an offer to party B on its Ts&Cs but B accepts the offer on its own Ts&Cs and, without more, performance follows assuming that each party’s Ts&Cs have been reasonably drawn to the other’s attention, the contract will be on B’s Ts&Cs.
ii) Where there is reliance on a previous course of dealing it does not have to be extensive. Three or four occasions over a relatively short period may suffice.
iii) The course of dealing by the party claiming that its Ts&Cs are incorporated has to be consistent and unequivocal.
iv) Where trade or industry standard terms exist for that type of transaction, it will usually be easier for a party relying on them to persuade the court that they should be incorporated , provided that reasonable notice of the terms was given.
v) A party’s standard Ts&Cs will not be incorporated unless that party has given the other party reasonable notice of those terms and conditions.
vi) It is not always necessary for a party’s Ts&Cs to be included or referred to in the documents forming the contract; it may be sufficient if they are clearly contained in or referred to in invoices sent subsequently.
vii) By contrast, an invoice following a concluded contract effected by a clear offer on standard terms which are accepted, even if only by delivery, will or may be too late.
The Judgement
Edwards-Stuart J noted that the buyer sent the great majority of purchase orders by fax or email, both methods which failed to include the Ts&Cs. Combined with the fact purchase orders made no reference to the Ts&Cs meant it failed to consistently draw the seller’s attention to them. In those circumstances the seller could assume that the buyer did not intend to rely on them. On that basis he ruled that they were not thereby incorporated into the contract.
Addressing the merits of the seller’s case, Edwards-Stuart J noted that it had neither printed its Ts&Cs on the reverse of acknowledgments, nor provided the buyer with a copy. In those circumstances he concluded that it had similarly failed to bring them to the buyer’s attention. On that basis he ruled that they were also not thereby incorporated into the contract.
Comment
The consequence of this ruling is that the seller cannot rely on a limitation of liability it believed was incorporated into the contract. It now risks being found liable to pay an amount of damages greater than that for which it had prepared.
This case demonstrates that companies should not automatically assume that firing the last shot will be sufficient to ensure their Ts&Cs prevail. Careful note should be taken of the key principles above especially how to respond where one party seeks to impose their terms and conditions. As shown above, the consequences of failure to correctly consider and apply the rules in this area can be very serious indeed.