Transformers & Rectifiers Ltd v Needs Ltd

This judgment follows the trial of a preliminary issue to determine the terms of the contracts made between the parties during a long course of dealing but, in particular, the terms of two contracts for the purchase of nitrile gaskets that were entered into by the Claimant in March 2012 and February 2013. It is alleged that the gaskets supplied by the Defendant were unsuitable for their purpose and not in accordance with the contract.

The Claimant says that its terms and conditions applied because they were printed on the back of the purchase orders, although there was no reference to those terms and conditions on the face of the purchase orders. The Defendant submits that its terms and conditions applied because they were referred to on its acknowledgements of order. Its case is that any liability for breach of contract on its part is limited or excluded by those terms and conditions. This has given rise to a “battle of the forms”.

Following the conclusion of the argument I considered the matter overnight and reached a clear opinion as to the answer. It was that neither side’s terms and conditions applied. Since it was important to the parties to have a prompt answer to the preliminary issue I announced my decision the following day and said that I would give my reasons later. This judgment contains the reasons for my conclusion.

The Claimant was represented by Mr. Justin Mort QC, instructed by GBH Law Ltd, and the Defendant by Mr. Ian Ridd, instructed by Nockolds.

The commercial relationship between the Claimant and the Defendant goes back to the mid-1990s, if not earlier. During that period the Claimant placed many orders with the Defendant for nitrile gaskets and other components. Orders were placed on almost a weekly basis.

The Claimant’s method of placing orders did not always follow exactly the same pattern: sometimes orders were placed by fax, sometimes as a .pdf attachment to an e-mail and, occasionally, by post. On some occasions the issue of the purchase order may have been preceded by a telephone conversation between the parties, but that was not always the case. I will assume, and the contrary has not been asserted, that over the 20 year course of dealing a significant number of purchase orders were sent by post.

The top copy of the Claimant’s purchase orders was printed on white paper. On the reverse, printed in small type and light coloured lettering, were the Claimant’s terms and conditions. I was shown an example of the top copy of a blank purchase order and it was not obvious on reading it that there was any printing on the reverse. Accordingly a person receiving the document would probably not know that there was any writing on its back unless he or she happened to turn it over or had been specifically referred to its existence.

This is relevant because there was no reference on the face of the purchase order itself to the existence of the terms and conditions on the reverse. However, in this case it was accepted on behalf of the Defendant that, by the time of the orders in question, its management was aware that there were terms and conditions on the reverse of the order forms.

However, when the Claimant placed an order by either fax or e-mail it did not transmit a copy of the conditions on the reverse of the purchase order. All that was sent was the front page of the purchase order so that the Defendant did not receive a copy of the terms and conditions on the back.

The Defendant responded to the receipt of the purchase order by sending an acknowledgement of order, which included the following wording at its foot:

“The quoted prices and deliveries are subject to our normal Terms and Conditions of Sale (copies available on request)”

When the goods were delivered they were accompanied by a delivery note. Printed on the delivery note was a standard form certificate of conformity. The Claimant contended that this was done to comply with a requirement on the face of the purchase order that “certificate of conformity required for all items”. The certificate of conformity on the delivery notes was in the following terms:

“We hereby certify that the material detailed hereon has been inspected in accordance with the requirements of the conditions and requirements of the contract/purchase order, and unless stated otherwise conforms in all respects to the drawing(s)/specification(s) relevant thereto.”

Mr. Mort submitted that this showed that the act of performance by the Defendant, namely the delivery, was not consistent with the order having been accepted on the basis of the Defendant’s terms and conditions.

In this section I consider a number of authorities on the incorporation of terms. However, I should make it clear that they were not all cited to me during argument.

In Hardwick Game Farm v SSAPA [1969] 2 AC 31 there was a series of oral contracts between SSAPA and its supplier, Grimsdale, for meal to be fed to game birds. Each contract was followed by a Contract (or Sold) Note sent by the sellers which contained on the back what were described as “Conditions of Sale”. The buyer’s agent knew that there were conditions on the back of the Contract Notes but had never read them.

There had been many previous dealings between the parties of a similar character. In each case the contract was followed by the dispatch of the Contract Note with the same standard terms on the reverse. In both the House of Lords and the Court of Appeal it was held that the conduct of SSAPA in accepting these Contract Notes without making any comment, query or objection about the Conditions of Sale was conduct which would lead Grimsdale, the seller, reasonably to believe that SSAPA intended to enter into the contracts on those terms. However, it is important to note that the transactions followed a consistent pattern with documentation in precisely the same form on each occasion.

In Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Lloyd’s Rep 427, the course of dealing consisted of eleven contracts in the previous six months. On each occasion the contract had been made orally by telephone but the invoice for the carriage charges sent at a later date stated that all business was transacted by the carrier under the current conditions of the Institute of Freight Forwarders, a copy of which was available on request. A copy was never requested. The consignor’s managing director accepted that he knew that carriers by road often dealt on standard terms which addressed questions of risk of loss or damage, but said that he had not noticed the reference to the IFF conditions in the invoices sent after each of the contracts had been concluded. The Court of Appeal held that the IFF conditions were incorporated into the contract.

At page 433, Taylor LJ noted that the consignor’s managing director knew that some terms applied and that forwarding agents might impose terms which would frequently deal with risk, but never asked for a copy of the terms. In addition, he said that the terms were not particularly onerous or unusual. Taylor LJ then said this:

“... I consider that reasonable notice of the terms was given by the plaintiffs. Putting it another way, I consider that the defendant’s conduct in continuing the course of business after at least 11 notices of the terms and omitting to request a sight of them would have led and did lead the plaintiffs reasonably to believe the defendants accepted their terms. In those circumstances it is irrelevant that in fact [the managing director] did not read the notices.”

Bingham LJ (as he then was) said, at page 435, that the only possible answer to the question “Has reasonable notice of the terms been given?” was that it had.

Again, this appears to have been a case where the course of dealing consisted of a number of transactions carried out in precisely the same way.

The facts of Balmoral Group v Borealis (UK) [2006] EWHC 1900 (Comm) were a little more complicated. Between 1994 and mid-2002 Balmoral made nearly 400 purchases of polyethylene from one or more companies in the Borealis group. By a fax dated 18 January 1995 Borealis made it plain that its prices were quoted “… subject to normal terms and to current conditions of sale”, and these terms were put on the back, or as one of the pages, of the invoices submitted by Borealis to Balmoral. These invoices was seen and initialled by Balmoral’s managing director: he realised that there were terms on the back of the invoices but he did not study them.

From December 1995 Balmoral’s purchase orders referred to Balmoral’s terms, albeit in rather poor typescript at the bottom of the purchase orders, but these were never otherwise referred to or provided to Borealis. Christopher Clarke J (as he then was) found that there were no customary terms in the polymer trade in the UK in the sense of terms which are so “… certain, notorious and reasonable …” that anyone purchasing polymer must be taken to have contracted on those terms, unless expressly excluded or otherwise agreed. But he did find that suppliers of polymer in the UK habitually seek to sell on their standard terms and conditions.

The procedure was that when an order was received someone at Borealis, after checking that the price on the order was the same as that on the price list, would check with the supplying plant that delivery could be made. If it could, someone at Borealis would confirm the order (probably by telephone) to someone at Balmoral. Delivery would then take place and, a couple of days thereafter, an invoice would be sent to Balmoral with Borealis’s terms on the back.

Having considered the Circle Freight and Hardwick Game Farm cases, together with other authorities, Christopher Clarke J said, at [348]:

“Whether or not one party’s standard terms are incorporated depends on whether that which each party says and does is such as to lead a reasonable person in their position to believe that those terms were to govern their legal relations. The Court has to determine what each party was reasonably entitled to conclude from the acts and words of the other ... The question is one of fact to which prior authority may form an uncertain guide.”

Christopher Clarke J concluded that, since Balmoral had purchased material at the quoted prices and had paid the invoices submitted by Borealis with the knowledge of Borealis’s conditions and without ever suggesting that they were not applicable, Borealis was reasonably entitled to assume that Balmoral accepted that its conditions applied.

In Sterling Hydraulics Ltd v Dichtomatik Ltd [2007] 1 Lloyd’s Rep 8 His Honour Judge Havelock-Allan QC had to consider a “battle of the forms” case. The claimant, SHL, always placed its orders with the defendant, DL, using its standard form of purchase order. This said:

“Please supply the following subject to the terms and conditions as set out below and overleaf.”

The purchase order was sent by fax, so that there were no terms and conditions “overleaf”, but instead the order was sent as two separate pages, expressly identified as “Page 1 of 2” and “Page 2 of 2”. Page 2 consisted of the terms and conditions.

DL sent an acknowledgement of order by fax back to SHL. It was printed by the computer onto two sheets of paper bearing DL’s printed letterhead. At the foot of the second page of the acknowledgement appeared the following sentence: “Delivery based on our General Terms of Sale”. DL’s Sales and Delivery Conditions were printed on the reverse of the acknowledgement of order, but the practice of DL was to send acknowledgements of orders by fax without faxing the reverse. The parties had been dealing with each other on this basis for about five years.

DL’s argument was that its acknowledgement of order was a counter offer, rather than an acceptance of SHL’s order. It submitted that its counter offer was accepted by SHL taking delivery of the goods. HHJ Havelock-Allan concluded that the words “Delivery based on our General Terms” at the foot of the acknowledgement of order was not sufficient to convert the acknowledgement of order into a counter offer. He said that the failure to send the terms on the reverse of the acknowledgement of order was not fatal to the incorporation of those terms because the words at the foot of the page did not refer to terms “on the reverse” or “overleaf”, but stated simply “Delivery based on General Terms of Sale”.

Nevertheless, the judge concluded that the words of incorporation used by DL, without an accompanying copy of the terms in question, did not provide adequate notice that the acknowledgement of order was not acceptance of the order but a counter offer.

In Tekdata Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209, Longmore LJ summarised the issue before the court in the following terms, at [1]:

“This appeal raises the question whether in what is sometimes called ‘the battle of forms’, there can be circumstances in which a traditional offer and acceptance analysis can be displaced by reference to the conduct of the parties over a long-term relationship. An offer to buy containing the purchaser’s terms which is followed by an acknowledgement of purchase containing the seller’s terms which is followed by delivery will (other things being equal) result in a contract on the seller’s terms. If, however, it is clear that the neither party ever intended the seller’s terms to apply and always intended the purchaser’s terms to apply, it is conceptually possible to arrive at the conclusion that the purchaser’s terms are to apply. It will be a rare case where that happens. Do the facts of this appeal amount to that rare case?”

He went on to describe the course of dealing in the following terms, at [7]:

“The judge found that Amphenol acknowledged the purchase orders by sending an acknowledgment to Tekdata. In law it could only be at that date at earliest that a contract for the purchase and sale of the specified connectors came into existence. The acknowledgment, however, stated that Amphenol’s terms and conditions were to apply and the traditional view would be that, if no further documentation passed between the parties and if Tekdata took delivery of the connectors, the contract would be on the terms of Amphenol’s acknowledgement. The judge, however, held that it was never intended that Amphenol’s terms should apply because the parties had always intended that Tekdata’s terms were to apply. He seems to have concluded, although he did not expressly say so, that the clause (at the bottom right hand corner of the acknowledgement) about the application of Amphenol’s terms was to be ignored and that the contract came into existence when the acknowledgment was returned to Tekdata.”

Dyson LJ said this, at [25]:

“... it is not possible to lay down a general rule that will apply in all cases where there is a battle of the forms. It always depends on an assessment of what the parties must objectively be taken to have intended. But where the facts are no more complicated than that A makes an offer on its conditions and B accepts that offer on its conditions and, without more, performance follows, it seems to me that the correct analysis is what Longmore LJ has described as the ‘traditional offer and acceptance analysis’, ie that there is a contract on B’s conditions.”

In Capes (Hatherden)Ltd v Western Arable Services Ltd [2010] 1 Lloyd’s Rep 477 His Honour Judge Havelock-Allan QC considered a course of dealing that consisted of four contracts in one year, with an interval of five months between the last of them and the two contracts that were the subject of the dispute. On each of the initial four contracts, which were made orally, the buyer received the contract note from the seller. It was in a standard printed form headed with the seller’s address and logo. It set out in boxes the details of the order: for example, the purchaser, the account number, description of the goods, quantity, price, quality and so on. Underneath the boxes was printed wording which included the following: “Terms: AIC Contract No 1/04 for grain and pulses”. This was a reference to standard terms produced by the Agricultural Industries Confederation (“AIC”).

The buyer was not required to respond positively to the contract note (eg. by signing and returning a copy) and he did not notice the reference to Contract 1/04. HHJ Havelock-Allan said this, at paragraph 42:

“In my judgment these facts are right on the borderline. If there had been any persuasive evidence, either that the terms of Contract 1/04 were the usual terms on which grain merchants purchase grain from UK producers, or that Mr. Capes knew that grain merchants commonly employed standard terms which provided for disputes to be settled by arbitration, I would have been likely to hold that Contract 1/04 was incorporated. In the absence of such evidence, I do not think that the previous contracts justify the conclusion that the AIC terms were incorporated. To put it another way, the limited course of dealing between the parties is not in my view such that an impartial observer would conclude that the parties had reached a common understanding that Contract 1/04 applied.”

Mr. Mort submitted that, since the Defendant was aware of the Claimant’s terms and conditions, it must be taken to have accepted an offer which included those terms when it returned its acknowledgement of order.

He relied also on clause 1.1 of the Claimant’s terms and conditions, which provided that its terms could only be varied by:

“… a document signed by a Director or other duly authorised officer of the Company ... and no other servant or agent has any authority to alter or qualified these conditions in any way.”

Mr. Ridd submitted that the Claimant had failed to take sufficient steps to give reasonable notice of its terms and conditions to the Defendant, with the result that they were not incorporated into the contract. By contrast, he submitted, the Defendant had given sufficient notice of its terms in its acknowledgement of order, which was therefore a counter offer that was subsequently accepted by the Claimant when it took delivery of the goods.

The Defendant’s case was that the purchase orders, being the offers made by the Claimant, were in each case responded to by the Defendant sending to the Claimant its written Order Acknowledgement. This stated the price at which the Defendant had agreed to supply the goods and stated the terms upon which the goods were to be sold, namely upon the Defendant’s written Terms and Conditions of sale. It was therefore, submitted Mr. Ridd, a counter offer which the Claimant accepted by taking delivery of the goods.

Understandably, Mr. Ridd relied strongly on the decision in Tekdata. He submitted that this was a clear case of traditional offer and acceptance to which the analysis by the Court of Appeal applied.

The Claimant’s response to this was that, even if the Defendant’s acknowledgement of order was a counter offer, the Defendant had not pleaded how that counter offer had been accepted by the Claimant.

It was not in dispute that the Defendant had never provided its terms to the Claimant and it was not suggested that the Claimant had ever seen them.

As to the certificate of conformity, Mr. Mort submitted that this certificate was directly inconsistent with the Defendant’s case as to the terms of the contract. He submitted that the Claimant reading the certificate would be entitled to assume that its order had been accepted by the Defendant on the basis that the purchase order was the governing document.

From my rather brief review of some of the relevant authorities, I consider that in cases of this sort the following principles apply:

It seems to me that one problem facing the Claimant is the fact that it did not place its orders in the same way each time. Whilst I accept that from time to time purchase orders were sent by post, with the result that the Defendant became aware of the existence of the terms and conditions on the back of them, I find that the great majority of purchase orders were sent by fax or e-mail (as was the case with the two orders in question) when the terms and conditions were not sent.

In my judgment a buyer who wishes to incorporate his own standard terms and conditions when orders are sent by fax or e-mail must give the seller reasonable notice of the terms and conditions and must do so in circumstances that make it clear to the other party that he intends to rely on them.

In the context of this case I consider that this involves doing what the buyers did in Sterling Hydraulics, that is to say to fax the terms and conditions on the back of the purchase order as a separate document together with the purchase order or, if being sent by e-mail, to ensure that the pdf attachment includes both the face of the purchase order and the terms and conditions on its back. In my view this is essential if the purchase order does not on its face refer to the terms and conditions on the back.

Viewed objectively, therefore, I consider that by not sending its terms and conditions when placing the purchase orders by fax or e-mail, even though they were printed on the reverse of purchase orders which from time to time were sent by post, the Claimant did not make it clear to a reasonable person in the position of the Defendant that it was seeking to rely on them. In my judgment if the Claimant did not follow a consistent practice of enclosing its terms and conditions with every purchase order, particularly in circumstances where the purchase order that was sent did not on its face refer to any terms and conditions, the Defendant was entitled to assume that the Claimant was not intending to rely on them.

I therefore agree with the Defendant’s submission that the Claimant did not do what was necessary to incorporate its terms and conditions into the contract.

I now turn to the Defendant’s terms and conditions. As I have already mentioned, the Defendant took no steps to provide the Claimant with a copy of these terms and conditions and at the time the Claimant did not ask for them. They were not standard terms and conditions of some trade association, but were the terms and conditions of the Defendant.

In the light of the authorities that I have discussed, it seems to me that a seller who wishes to incorporate his terms and conditions by referring to them in his acknowledgement of order - thus making it a counter offer - must, at the very least, refer to those conditions on the face of the acknowledgement of order in terms that make it plain that they are to govern the contract. Having done that, if the conditions are not in a form that is in common use in the relevant industry, the seller must give the buyer reasonable notice of the conditions by printing them on the reverse of the acknowledgement of order accompanied by a statement on the face of the acknowledgement of order that it is subject to the conditions on the back.

An alternative way in which the same end may be achieved (if the terms and conditions are not printed on the back of the order) is for the seller to send the buyer a copy of his terms and conditions, making it clear that they are the only terms and conditions upon which the seller is prepared to do business.

So far as the Defendant’s order acknowledgement is concerned, this case differs from the facts of Tekdata in that its terms and conditions were not printed on the reverse of its acknowledgements of order. It seems clear from the judgments of the Court of Appeal in Tekdata that each side’s terms and conditions were printed on the reverse of the purchase order and the acknowledgement of order, respectively (see paragraphs 17 and 26 of the judgments). There was no discussion in the judgments about whether each party had done sufficient to bring its terms and conditions to the notice of the other: this was because, I assume, that by printing the relevant conditions on the reverse of the document and drawing attention to the conditions on the face of the document, the Court must have taken the view that each side had given reasonable notice of its conditions to the other.

There is, in my view, nothing in the judgments of the Court of Appeal in Tekdata to suggest that the requirement for a party to give the other reasonable notice of the terms and conditions upon which it seeks to rely was relaxed or abrogated. In my judgment, that remains an important factor.

I accept that the position may be different if the terms and conditions which the seller seeks to impose are those which are routinely applied to contracts of the type in question, because, for example, they are the terms and conditions of a particular trade association, as in the Circle Freight case. In those circumstances it may be sufficient for the seller simply to refer to those conditions on the face of the acknowledgement of order stating that copies are available on request - but that is not this case.

Since the Defendant neither printed its terms and conditions on the reverse of the acknowledgement of order nor provided the Claimant with a copy of those terms and conditions, I consider that it did not do enough to bring those terms and conditions to the attention of the Claimant and thereby turn the acknowledgement of order into a counter offer.

For the reasons that I have now given I consider that neither party’s terms and conditions were incorporated into the two relevant purchase orders.

I will hear counsel on any questions relating to the form of relief or costs that cannot be agreed.