Every business, from start-ups to market leaders, should have their own standard terms of business. When emails are flying about detailing the intricacies of product specifications or delivery deadlines, it is easy to forget whether or not you specified that your standard terms trump the terms sent to you by the other party. Often know as a ‘battle of the forms’, it’s important to know whose terms and conditions prevail to help you avoid a dispute later down the line.
Here, our commercial solicitors share their practical tips to help ensure your standard terms apply and reduce the risk of potential contract disputes.
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Contract formation and standard terms
Terms of business are designed to provide consistency and clarity in commercial dealings, but to achieve this, it needs to be clear whose standard terms apply and are incorporated into the contract.
From a business perspective, the issue between competing standard terms normally occurs when there is a contract dispute. Both parties may then produce their standard terms, alleging they are incorporated into the contract, and trying to rely on their terms to resolve the business dispute.
The use of standard terms comes back to contract formation and the importance of getting contract basics right. If a contract is carefully drafted, when a problem does arise, there is a clearly documented agreement between the parties and there is no dispute over whose standard terms have been incorporated into the contract. For more information on contract formation and commercial contracts read our articles on:
Contract interpretation
If there is a dispute over:
- Whose standard terms apply to a contract, or
- Whether one party’s standard terms are incorporated into the contract
Then it is a matter of contract interpretation. Ultimately, if parties can't resolve their dispute using alternative dispute resolution (ADR) then the court can interpret the contract and determine the dispute, with the consequent litigation risk for both parties.
Battle of the forms: Example scenarios
There are many standard term scenarios, including:
- A start-up is contracting with a provider of digital services and technology. Even if the start-up tries to impose its terms for the purchase of services, they have little negotiating power and it’s likely the tech company standard terms will prevail.
- A salesperson for party A emails a buyer with a quote for a product. The quotation is expressed as made subject to the firm’s standard terms of business for a supply of goods contract. The procurement assistant for party B responds by email saying the quotation is accepted subject to standard terms and attaches the company standard terms. Party B has not accepted party A’s offer but instead has made a counter-offer to party A. The standard terms say delivery of party A is three days with payment required on delivery. Party B’s standard terms says delivery must be made within 24 hours of order and payment will be made within 28 days of receipt of satisfactory goods.
In the later scenario, if the court is asked to interpret the supply of goods contract between parties A and B, it will apply contract offer and acceptance rules. The court will assess whether, through the parties' behaviour and communications, an offer was unequivocally accepted. This could be inferred by performance of the contract or through analysis of which party has accepted the other party's standard terms.
Battle of the forms: Example resolutions
If it is left to the court to determine and interpret the contract and the inclusion of standard terms, the court can make decisions such as:
- There is no contract, or
- The last standard terms sent apply to the contract, or
- None of the parties standard terms apply but the court can decide to impose implied terms into the contract, or
- Express terms, other than a party's standard terms, are incorporated into the contract.
All of these court-based resolution options generate costs and uncertainty as well as delay.
Whether you are a founder or a listed company, it is vital to have systems in place to avoid contract confusion and disputes over whose standard terms prevail. That can mean front loading costs on contract formation and staff training and procedures. Commercial solicitors say the costs justifies the means if they save your business time and money in the long term, and maximises the chances of keeping your business and your contracts away from court litigation.
Commercial solicitors don’t just provide bespoke standard terms for businesses, they can also help with ensuring your terms form part of your contracts through ongoing legal advice and support.
Incorporating your terms of business into a contract
The practical steps your business can take to incorporate your standard terms of business into a contract will depend on the size and nature of your business and well as the party you are contracting with and the nature of the contract. Founders may have particular invoicing or delivery issues that need addressing in their standard terms to ease cash flow concerns, whilst for a luxury brand retailer or sports related business client confidentiality may be a key consideration to be addressed in the terms.
Practical steps to win the ‘battle of the forms’
Whilst there are never any guarantees, there are some practical steps your business can take to try to ensure that your standard terms ‘win’ and form the backbone of your contractual relationships.
- Don’t hide standard terms – if you are asking the other party to agree to contract with you on the basis of your standard terms don’t be shy about the terms. Make them easy to read by attaching a full copy to emails or a link to a live website page. If the terms are updated ensure the website contains the up-to-date terms. If your business is up front about your terms, it is more likely that the other party won't simply send your salesperson their own terms, which the salesperson may then ignore because their total focus is on achieving a sale. If a court must decide if your terms are incorporated in a contract, and take precedence over the other party’s terms, the court will consider if reasonable notice of the terms was given and if it was made clear to the other party that you intended to rely on your terms.
- Signing standard terms – it may be your practice to ask the contracting party to sign your standard terms of business document as evidence that the terms are agreed. This is fine provided the requirement for signature is carried out. If it isn’t, you are vulnerable to a finding that the terms are not incorporated into the contract because your employee did not get the terms signed before the contract was proceeded with; either because they did not realise the importance of getting the terms signed off or because the point was missed in a flurry of emails over product specifications or pricing. That error, when you end up committed to the other party’s terms on delivery or invoicing, can make the sale and associated contract unprofitable.
- Verbal contracts should be avoided – commercial solicitors generally dislike verbal agreements. Lawyers know that if there is a verbal contract dispute it is hard to predict the outcome of the litigation as the decision will be down to the court’s interpretation rather than hard evidence. Any face-to-face contract discussions should be made ‘subject to contract’ so the agreement can then be clarified with confirmation that any deal is subject to your standard terms. This advice can be particularly relevant to start-ups and founders where verbal contracts may initially be the norm. Making discussions ‘subject to contract’ gives you a greater chance to incorporate your standard terms in the contract and gives you the opportunity to reflect on the offer or counter-offer before committing to anything.
- Framework agreements - for supply of goods the use of a framework agreement for future supplies should be considered. The agreement should make it clear that if the buyer tries to impose their own terms, then that is not acceptable, even if services have been provided or goods delivered.
- Draft pre-contract documents with care – all your pre-contract documents should make it clear that they are subject to your standard terms. Ensure that sales personnel don’t make open offers without reference to the standard terms, because if a salesperson makes an open offer, that is then accepted, they cannot then introduce your standard terms as a condition of the contract.
- Use of standard order forms – if you require your customers to complete a standard order form, with the order form stating that the order is made on the basis of your standard terms, your salesperson can accept the order without being concerned about whether the customer email was an offer, acceptance or counter offer.
- Review and systemise your contracting process - if you are a founder, you may think this tip is out of your league as you are just starting up. However, from a commercial solicitor’s perspective, it is the ideal time to get your contracts, standard terms and procedures right as that minimises the risk of contract disputes and enables you to focus on scaling. If you already have an established business with a large sales team, you may have been fortunate and not experienced a standard terms dispute – yet. It is prudent practice to audit your contracting practices on a regular basis so you avoid problems in the contracting process, or at least spot them quickly, to minimise the damage and cost to your business of a dispute. For more information about contract life cycles take a look at our articles on Contract lifecycle management: what you should be doing and Why you should regularly update your commercial contracts.
- Training – repeatedly employees will say they didn’t realise that what they were doing was outside the scope of their authority or they did not appreciate the impact of not following procedure on the company. Both commercial and employment lawyers would recommend sector and industry specific training for staff who play any part in the contracting process and the provision of staff handbooks on contracting procedures so policies are implemented and, if not, an employer has a clear basis for disciplinary action.
What to do if your terms are in dispute?
If your terms are in dispute, you need urgent legal advice from business dispute solicitors as you don’t want to take any steps that will prejudice your position. If you are in a position of strength, with your terms likely to be upheld, you don’t want to take precipitous action that could have the effect of rescinding or terminating the contract.
If there is a dispute over which terms apply, the court could even find that there is no contract. Most companies, large or small, are not fascinated by the complexities of contract law and instead want to achieve a resolution, whether that is:
- A new contract.
- An agreement over which standard terms are incorporated into the contract and written clarification of the contractual terms.
- Continuation of the arrangement between the parties with a view to arguing that the standard terms were incorporated in the contract but, if that argument fails, that through a course of dealing the standard terms are incorporated. To establish a ‘course of dealing’ you need to be able to show regular and consistent trading based on your terms. There is no guarantee that you would win this argument in court proceedings.
- An agreement to vary the terms of the contract to terms that are acceptable to both parties.
- Termination of the contract – provided the agreed terms of the contract provide for termination on notice or you have the grounds to terminate the contract. For more information on terminating contracts read our article Terminate a commercial contract.
To achieve a resolution, you can:
- Negotiate direct to resolve the point, but this may not be the best solution if there is a risk that you will end up committing to a deal that isn’t properly drawn up as there is then a risk of further contract disputes over the wording of the contract.
- Use professional ADR or to resolve the dispute. There are various methods available, such as commercial mediation or arbitration.
- Start or respond to court proceedings to resolve the dispute, but with court litigation it will come down to the court’s interpretation of the contract after considering the documents and conduct of the parties.
- Agree that there is no contract or agree that one or both of you have the grounds to terminate the contract. This may be a pragmatic solution but potentially only a reasonable one for you if you can sell or purchase the products or services with another third party on similar terms, so your business is not financially prejudiced by the unravelling of the contract because of the dispute over whose standard terms apply.
If the worst does happen, our team of business dispute solicitors can help you work out the best and most cost-effective means to achieve a resolution of a standard terms of business dispute.
