Terms and Conditions - "the Battle of the Forms"

Published: 16th December 2009

The Court of Appeal has recently reviewed again the question of whose terms prevail in a contract. In Tekdata Interconnections Ltd v Amphenol Ltd (2009) the Appeal Court held that the judge had been mistaken in not applying the traditional 'offer and acceptance' analysis when determining the issue.

Rolls Royce, ("RR"), was the ultimate purchaser of the goods in question, and the Seller and the Buyer were part of a chain of suppliers to RR. RR bought engine control systems for its aero engines from Goodrich, ("GR"). GR in turn bought cable harnesses for the control systems from the Buyer, and the Buyer in turn bought connectors for the cable harnesses from the Seller. The parties had been doing business for over 20 years and for most of that time the supply of the connectors had been controlled by GR, which required the Buyer to purchase them from the Seller to GR's specification and at a price dictated by GR. The Seller also had a long term contract direct with GR pursuant to which the Seller agreed to supply the connectors to the Buyer at the price dictated by GR.

The Buyer would send Purchase Orders for the connectors to the Seller which contained the Buyer's 'terms and conditions'. The Seller would respond by sending the Buyer an Acknowledgment of Order stating that the Seller's 'terms and conditions' would apply. Ordinarily, an offer to buy on the purchaser's terms followed by an acknowledgement of order on the seller's terms, followed by the supply of the goods, would result in a contract on the seller's terms. However, here the judge held that the Buyer's terms applied because it was never intended by the parties that the Seller's terms would apply. The parties had always intended that the Buyer's terms would apply because of the overall relationship with RR and GR.

The Seller appealed the judge's decision. The Seller said that the judge should not have analysed the overall relationship between the parties but instead should have applied the traditional 'offer and acceptance' analysis which would have resulted in a contract on the Seller's terms.

The Court of Appeal held that the traditional 'offer and acceptance' analysis had to be adopted unless the documents and the parties' conduct showed that their common intention was that some other terms were intended to prevail. The traditional analysis was that the terms on the Seller's Acknowledgment of Order would be the terms of the contract. Here, the judge had given weight to (1) the fact that the connectors were sophisticated items to be fitted to aero engine control systems so that delivery times and quality control were important; (2) the pre-existing agreement between the Seller and GR which committed the Seller to supply on terms which largely mirrored the Buyer's terms; and (3) the fact that the Seller did not seek to rely on its own terms until it served its defence in the litigation.

The Court of Appeal said that whilst the parties' overall relationship was important, the factors on which the judge had relied did not justify the conclusion that he had reached. The fact that delivery times and quality control were essential was true of many commercial contracts and was no more than a background factor. There was no precise matching of the terms of the contract between the Seller and GR and the Buyer's terms. The parties had had an opportunity to agree a single set of terms but did not do so. Also, the post-dispute correspondence was not as significant as the judge thought. It did not infer that the Seller never intended that its terms and conditions would apply.

Thus, whilst it was possible that a long term relationship and the conduct of the parties might be sufficient to displace the traditional 'offer and acceptance' analysis, in this case the circumstances were not strong enough and the judge should have held that the Seller's 'terms and conditions' applied.

If this raises any questions for your organisation please contact Craig Blakemore in Liverpool: 0151 236 8989 or Graeme Jump or Josh Conroy in Manchester: 0161 214 0500.