There is often a battle between parties during contract formation as to which party's standard terms and conditions apply.
A battle of the forms predominantly arises when parties are in the process of exchanging an offer and counteroffers to form a contract. A supplier and purchaser, for example, often both include their standard terms of contracting in the fine print of their purchase or order forms. Sometimes, parties will rush to perform the contract before the legal terms have been clearly agreed, and without paying adequate attention to counteroffers and the acceptance of terms. In some cases, parties may even miss a 'trump' provision within the terms of the agreement that overrides any conflicting terms.
Conflicting expectations of the parties, therefore, may not come to light until the business of the contract is complete and something happens that prompts the parties to refer to the legal terms. Both parties may then try to claim that their own standard terms apply, even though the other party neither expressly accepted nor rejected them.
How a battle of the forms is resolved at law remains uncertain
The question of how to resolve a battle of the forms has never been directly before the New Zealand courts. While the approach followed in England and court rulings on similar aspects of contract law offer some guidance, the exact outcome will be largely fact dependent.
Case law suggests three main approaches:
1. Strict approach
The strict approach holds that no contract is formed in a battle of the forms situation as there is no certainty in the terms of the contract (certainty being one of the fundamental aspects of a binding contract).
The problem with this approach is that it may not make sense for a court to rule that a contract does not exist where a dispute arises at a point in time when all or a large part of a contractual arrangement has already been performed.
This strict approach would also go against the parties' intentions and desired outcomes as parties are usually arguing that a binding contract exists between them, in which their standard terms prevail.
2. Holistic approach
The holistic approach is to determine if a reasonable person looking at an accumulation of all interactions and documents that have passed between parties would conclude that there is a binding contract between them and if so, under what terms.
The issue with this approach, however, is that courts do not have the ability to remove parties' conflicting terms and replace them with a combination of other terms to which the parties have not explicitly consented. The courts may therefore be restricted in their use of the holistic approach.
3. 'First or last shot' approach
The court may use the interactions and documents that have passed between the parties to determine the point at which a contract has been formed. Historically in England, the courts followed a 'last shot' approach, using the latest set of terms that were not objected by the other party as the binding terms of a contract. More recently, however, the English courts have taken into account the parties' objective intentions. In certain cases, the courts have even held that the first shot made by a party will prevail if the conduct indicates that a contract was formed at that stage.
The New Zealand courts may therefore use the documents and interactions between parties to determine if a contract was formed after the first shot, last shot or somewhere in between, and to identify which party's standard terms apply at that point of formation.
Tips for avoiding a battle of the forms
Although the New Zealand courts' approach remains uncertain, to minimise the risk of a battle of the forms, or to ensure that, if a battle does arise, your terms are best positioned to prevail:
- Ensure your standard terms are included with pre-contractual documents and are brought to the attention of the other party – preferably with a clear upfront written message that if the other party is engaged, the services must be provided subject to your terms and conditions
- Ensure all exchanges relating to the contract terms are in writing, clear and unambiguous
- Put vetting procedures in place to pick up any terms raised by the other party that may indicate that the other party is attempting to counteroffer with a proposal that it contracts on its own standard terms
- Carefully read any correspondence you receive from the counterparty. If in doubt, seek legal advice on how best to counter suggestions that alternative terms apply
- Review all attachments/enclosures received from the counterparty as part of any early stage negotiations
- Include a requirement in the agreement that your standard terms of contracting are signed or initialled by both parties to confirm they are consented to (and ensure this is complied with).
This article was co-written by Sarah Averill (law clerk) and David Thomson (partner).