When entering business-to-business (B2B) transactions, supplier businesses should be aware of the risks associated with the ‘battle of the forms’ in contracts. It is a common blunder to overlook the importance of incorporating your standard terms properly, assuming that having standard terms alone will suffice. Regardless of the quality of your standard terms, if they are not correctly incorporated into your contract, they may well be ineffective.
A ‘battle of the forms’ situation arises when two businesses exchange their own sets of terms during negotiations, causing uncertainty over which terms govern their contract.
Navigating the battle of the forms can be challenging and uncertain for businesses. In this guide, we share practical tips from our commercial solicitors to help ensure your standard terms prevail and reduce the risk of potential contract disputes with your business customers.
Jump to
Why is correct contract formation important?
Standard terms are pre-defined legal terms that set out the rules and obligations of parties in a commercial transaction, ensuring consistency and clarity in business transactions. Often, a supplier of products or services will roll out standard terms to protect their business from risk and streamline the contract signing process, particularly when dealing with several customers. This can be a key tool for effective contract lifecycle management for suppliers selling both goods and services.
However, it must be clear whose terms apply and are incorporated into the contract between a supplier and customer. Issues can arise when both parties claim their terms form part of the contract and apply, particularly during disputes.
To avoid risk, a business must ensure that they clearly document which standard terms are incorporated into their contract. A business should also ensure the basics of contract formation (i.e., offer, acceptance, consideration, and intention to create legal relations) are correctly implemented. For more information on contract formation, see our articles:
What is a ‘battle of the forms’?
In contract negotiations, a ‘battle of the forms’ emerges when both contractual parties try to include their own standard terms in a contract.
It usually occurs when two parties exchange conflicting sets of terms during the negotiation or execution of a contract. For instance, a customer might submit a purchase order with its own vendor terms, while the supplier will respond with an acknowledgment containing its own standard terms.
Regardless of the transaction nature, resolving the battle of forms requires careful consideration of contract formation principles and may involve legal interpretation to determine which set of terms govern the agreement. The analysis can be complex, with courts often applying the ‘last shot wins’ doctrine, where the terms sent last before contract formation typically prevail. However, this is also not always the case, and courts may find no agreement between the parties if the terms are too unclear.
Which practical steps can your business take to apply your terms?
Although there's no foolproof method, businesses can implement strategies to improve the likelihood of their standard terms being accepted. The specific approach for incorporating your standard terms into a contract may vary based on your company's size and type, your contracting partner, and the contract's nature.
To protect your business and reduce the risk of 'battle of the forms' conflicts, consider these practical measures:
- Securing signed customer agreements to establish clear terms and reduce ambiguity.
- Training staff on contract terms incorporation to prevent disputes and navigate potential pitfalls effectively.
- Making standard terms easily accessible and ensuring consistent communication of standard terms in all correspondence through attachments, website links, or physical copies.
- Implementing framework agreements to outline relationship terms, aiding clarity, and minimising ambiguity.
- Obtaining acknowledgment from customers regarding the governing terms before proceeding with any project or transaction.
- Obtaining signatures on documents confirming agreement to terms for tangible evidence and dispute prevention.
- Documenting all agreements in writing to prevent disputes arising from verbal agreements.
- Using standard order forms stating orders are based on your standard terms.
- Conducting regular audits and updates of contracting processes to minimise risk and prevent disputes. For further information see our articles: Contract lifecycle management: what you should be doing and Why you should regularly update your commercial contracts.
Implementing these measures will strengthen your business's position and enhance clarity in contractual relationships, reducing the likelihood of battle of form issues.
Note that correctly incorporating standard terms isn’t just required for B2B contacts. Consider how to correctly incorporate any standard consumer terms into your consumer contracts and be aware of specific legal requirements, such as the Consumer Rights Act 2015.
What can your business do if your terms are in dispute?
When commercial contract disputes arise over whose terms apply or whether a party’s standard terms are incorporated, it becomes a matter of contractual interpretation.
To mitigate these risks, businesses should implement robust systems to prevent contractual misunderstanding and disputes over standard terms.
Investing in early legal advice on correct contract formation and incorporating your standard terms can save you time and money in the long run and reduce litigation risks. Commercial solicitors can provide bespoke standard terms and nuanced legal advice to help you ensure your terms are effectively incorporated into your contracts.
If your terms are in dispute, seeking urgent legal advice is also crucial. Legal advice can assist in navigating various potential resolutions, such as negotiating a new customer contract to clarify which terms apply moving forward. Legal advice can also help in resolving battle of the forms disputes by exploring alternative dispute resolution methods such as mediation or arbitration, which may result in more amicable and swift resolutions with customers.
Litigation should, however, always be the last resort. Where necessary, if a contract terms dispute is litigated, the court will interpret the contract based on the documents and the conduct of the parties. Court-based resolutions can be costly, uncertain, and time-consuming. Predicting court reactions in these cases is exceptionally difficult due to the lack of clear guidelines on how courts will interpret such disputes.
Overall, battle of the form’s disputes presents significant challenges due to the various complexities of determining contract terms through interpretation and factual analysis.
As such, businesses should take proactive steps to prevent the risk of contract disputes about whose terms apply. For assistance with drafting and incorporating your standard terms, our commercial contract specialists can provide tailored legal advice and support.
