Shots, warning shots, and last shots

Andy McNish

Andy McNish – partner in the corporate and commercial team at Davis Blank Furniss – on how to avoid a battle of the forms scenario and how to ensure that your terms and conditions take precedence

A key commercial consideration when negotiating a new contract, and one which can prove quite costly if missed, is to ensure that your organisation’s terms and conditions take precedence and are incorporated over those of the other party you are contracting with.

A so called battle of the forms usually ensues where both parties leave negotiations thinking that their terms and conditions apply e.g. you offer to buy goods from another party on your standard terms and the other party purports to accept the offer on the basis of its own standard terms.

It can be highly problematic when a dispute arises and you realise, for example, that your limitation of liability clause and choice of law and jurisdiction clause which restricts legal proceedings to England and Wales do not apply and a dispute where your liability is potentially uncapped will, in fact, be decided by the courts of, say, America, Germany or China.

So what are the key points to look out for to ensure that your terms and conditions rule the roost and to avoid the uncertainty and escalating costs of a battle of the forms scenario (or at least avoid losing one if the other side claim their terms apply)?

  1. One sure fire way to avoid the uncertainty of a battle of the forms scenario is to have lawyers prepare a bespoke commercial agreement. In theory (and hopefully to a large extent in practice) this will ensure that the terms in the agreement fully represent what has been discussed and, ultimately, agreed between the parties, and each party will have certainty as to the scope of the goods or services to be provided, payment terms, retention of title, limitation of liability, termination provisions and other such key contractual provisions. Of course, it’s preferable to have your lawyer be the one to prepare the first draft;
  2. Vitally important, in the absence of a bespoke commercial agreement, is to ensure that you have up-to-date and well drafted terms and conditions in place, including provision that your terms and conditions will prevail over any other terms – whilst this may have a limited legal effect, it will serve as a warning shot to other parties seeking to impose their own terms and conditions;
  3. Also important is to ensure that you bring your terms and conditions to the attention of the other party during the course of negotiations, supply a full copy of your terms and conditions to the other party so that it is clear that it is intended that they are to govern the commercial arrangement, be consistent and expressly reference your terms and conditions (as part of its analysis should a dispute arise and proceedings be commenced, the court will usually consider whether a party did enough to bring its terms to the attention of the other party);
  4. Upon conclusion of negotiations, make sure that you are the party who fires the last shot before/at the time the contract is agreed (terms and conditions included on delivery or with an invoice, post-contract, are too late to have an effect). This is very important, the last party to put forward their terms and conditions usually trumps the other party, provided that the other party does not explicitly reject the terms and conditions. To decide which party’s terms apply, if any, the court will usually analyse the point at which the contract was concluded and whose terms were incorporated at that stage;
  5. Keep a record of all pre-contract negotiations and correspondence;
  6. In the absence of a bespoke commercial agreement and the ability to fire the last shot, where for example you are keen to develop a new relationship with a new contact who will not accept your terms and conditions, make sure at the very least that you have properly reviewed and understood the other party’s terms and conditions, and ideally have received legal advice on the implications of accepting them; and
  7. Seek legal advice if you are in any doubt as to your position.

www.dbf-law.co.uk

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