Corporate Focus - June 2010

Tekdata Interconnections v. Amphenol Limited

In the event of a contractual dispute the parties to a contract often find themselves in the position where they have to ascertain what are the agreed terms and conditions. Each party will seek to argue that its own terms and conditions are incorporated into the contract.  Where there have been negotiations back and forth this argument is usually resolved by what is commonly called the ‘battle of the forms’. For example, Party A may send a purchase order subject to its terms and conditions. Party B then appears to accept that Order but in doing so sends its terms and conditions. In those circumstances Party B has not accepted the offer. It has made a counter offer for the parties to contract on Party B’s terms and conditions. If there is no further communication and the goods are delivered then the usual analysis is that Party B’s terms and conditions will apply as it has fired the ‘last shot’.

If there have been numerous negotiations then determining the above is in itself often a difficult exercise. A recent decision of the Court of Appeal has reiterated that this analysis should be adopted but it has also shown that it may be possible to depart from that analysis. The Court had to consider an argument by one of the parties that it was irrelevant who had ‘fired the last shot’, if by a course of conduct, the parties had clearly intended that a particular party’s terms and conditions should apply.

The parties were a part of a chain of suppliers to Rolls Royce. The parties had been doing business down that supply chain for over 20 years. In effect the business between the two parties was controlled by a party further up the supply chain, G, which required the Buyer to purchase connectors from the Seller to a specification and price determined by G.  In the event the Buyer sent a purchase order to the Seller along with the Buyer’s own terms and conditions. The Seller then acknowledged this order but at the same time sent its own terms and conditions. On the ‘battle of the forms’ argument the ‘last shot’ was fired by the Seller and its terms and conditions should apply.

However, the Judge at first instance held that the Buyer’s terms and conditions were incorporated. He considered that the evidence showed that the intention of the parties was to rely on the Buyer’s terms and conditions notwithstanding the ‘Battle of the Forms’ analysis. He found this was the case because the items purchased for use in aircraft were so sophisticated that delivery times and quality control was important and therefore on the facts the Buyer’s terms must apply. He also had reference to a pre-existing arrangement between the Seller and G which committed the Seller to contract on terms similar to those proposed by the Buyer. Finally, he noted that the Seller did not seek to refer to its own terms and conditions before service of its Defence in the proceedings.

The Seller appealed the decision and the Court of Appeal overturned the decision. Its view was that the traditional analysis of offer and acceptance should stand unless there was clear evidence of a common intention by the parties that some other terms should apply. It found that the arguments on the sophistication of the product applied to most commercial relationships; that the pre-existing arrangement referred to with G did not precisely match the Buyer’s terms; and that the Judge had read too much into the Seller not setting out its position in pre-action correspondence. On that last point post-contractual correspondence cannot be taken as evidence as to what the parties intended at the time of contracting.

Therefore the Court of Appeal upheld the traditional analysis. It noted that the Judge had concentrated more on what would have happened as opposed to what had happened. Instead the Court should consider what was the objective intention of the parties at the time of contracting. In this instance there was no further evidence to displace the traditional analysis. However, in making its decision, the Court of Appeal noted that the finding was not to say that there could never be occasions when the usual analysis was displaced. Longmore LJ commented that whilst he did not think there was sufficient evidence to do so in the present case, it may be that in the context of a long term relationship and the conduct of the parties, where there was clear evidence of an intention do so, then the Court could have reference to this intention rather than apply the ‘Battle of the Forms’.

Therefore whilst the traditional analysis has been upheld, and the Court will be reluctant to move away from this, if there is clear evidence of an intention to rely on another party’s terms and conditions, perhaps based on a course of dealing and contrary to the ‘battle of the forms’ analysis, the Court may be prepared to uphold that intention.