Firing the last shot

It is a basic principle of English contract law that an agreement will be concluded if A's offer to B is accepted by B. Further, if B makes a counter offer to A then this will have the effect of cancelling A's original offer '“ if B later wishes to accept A's original offer then A must make a fresh offer for B to then accept. This traditional analysis of the formation of an agreement is sometimes complicated, especially in commercial transactions, by what is known as the 'battle of the forms'. Thus, it is not uncommon for a commercial party '“ A (the seller of goods) '“ to make an offer on his standard terms and for B (the buyer of the goods) to then accept A's offer on B's terms. If one were to apply the traditional analysis as to the formation of an agreement one would conclude that an agreement had not in fact formed since B's offer would amount to a counter offer. However, if A accepts B's counter offer by, for example, delivering the goods after B had accepted A's offer on his own terms then B's terms will apply. The law will conclude that B fired the 'last shot' in the formation of the contract (see Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 All ER 965).

Moving away from the traditional approach?

What is the position where A and B intended from their trading history that A's terms would apply even though on the facts the last act in the formation of the contract was that of B delivering the goods with its terms? This question was considered by the Court of Appeal in the recent case of Tekdata Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209.

Tekdata purchased certain connectors from Amphenol. Tekdata claimed that the connectors were defective. Tekdata argued that the contract for the purchase of the connectors had been concluded on its terms, while Amphenol contended that its terms prevailed. The courts found from the trading history between the two parties that any purchase from Amphenol initiated with a purchase order which was generated by Tekdata which clearly stated that the purchase order would be on Tekdata's terms and conditions. It was also found that Amphenol acknowledged the purchase order by sending an acknowledgment to Tekdata which stated that Amphenol's terms and conditions would apply.

The judge at first instance, taking into account the trading history between the parties, held that Tekdata's terms applied as this was intended by the parties despite the fact that Amphenol's acknowledgment was the last act before the goods were delivered to Tekdata.

On appeal, Lord Justice Longmore held that Amphenol's terms and conditions prevailed and thereby reinstated the traditional principles of contract formation. Longmore LJ argued that the judge had concentrated more on what would have happened rather than considering what actually happened between the parties in ascertaining whose terms and conditions applied. He contended that the traditional offer and acceptance approach must be adopted unless the documents passing between the parties and their conduct showed that their common intention was that some other terms were intended to apply.

Longmore LJ also held that it was clear from the judgment at first instance that great emphasis had been placed on the correspondence which passed between the parties after the dispute had arisen. Although it was perfectly possible to rely on post-contract correspondence when determining what the terms of a contract are (Great Northern Railways v Avon Insurance [2001] 2 Lloyd's Rep 649), one had to exercise caution when considering such correspondence after a dispute has arisen as to whose terms applied.

Revisiting contract drafting

Unless there are documents which may indicate a common intention that certain terms may prevail, the courts will be extremely reluctant to displace the traditional approach to contract formation and commercial clients (with little or no knowledge of the law) should be advised accordingly. Commercial parties, especially those which maintain a long trading history, and their lawyers should clearly and carefully negotiate whose terms are to apply to a given commercial transaction.

Lawyers should, when drafting terms and conditions for commercial clients, carry out an assessment of the manner in which orders are placed between trading parties. Carrying out such an assessment will have the benefit of revealing some of the risks of a potential 'battle of the forms' dispute arising and to assist lawyers in devising methods of trying to limit such disputes arising in the future.

It will not suffice for one party to simply include a term in its contract which states that its terms and conditions will prevail (Butler).

If, which is common, a buyer purports to accept an offer for the sale of goods on his order confirmation (which will inevitably contain his own terms and conditions) then a seller should be advised to send the buyer an order acknowledgement confirming the buyer's order and clearly stating in this document that the seller's terms and conditions apply. This will mean that the acknowledgement confirmation is the last 'shot' which is fired in the formation of the contract (the opposite approach can be taken if the buyer wishes his terms to apply).

If a dispute does arise then a court will take into account the intentions of the parties when the contract was formed. Any documents created after the dispute arises will not assist a party in arguing that its terms and conditions apply.