By Andy Atkinson

In a dynamic environment such as the offshore oil and gas industry it is entirely understandable, although not desirable, that some details may not be addressed in the tendering for and securing of contracts. The temptation may be to move on to the next bid or award and hope that the paperwork is sufficient. Lack of attention to detail in the final contract is rarely an issue with large projects but contracts with a smaller value may slip under the radar as smaller contracts are often bid with the contractor’s standard terms forming part of the offer. However, they may be awarded by a purchase order which includes the buyer’s standard terms. The key question is: “In the event of a dispute, whose contract terms apply?” This dilemma is referred to as ‘The Battle of the Forms’.

The Last Shot Doctrine & Case Law

In English law, the answer to the question posed above is: “the terms of the party, who presented their terms last, before the contract was formed, will apply.” This is also known as ‘the last shot doctrine’[1] and is decided by analysing the initial offer, counter offers, rejections and final acceptance to determine who made the final offer before the contract was formed. The conflict is then resolved using the standard terms of the party to make this final offer.

This is however a gross oversimplification and, as is often the case in law, the answer will be subject to a number of conflicting issues. Three cases in English law serve to demonstrate both the principles and complexities of the battle of the forms and the last shot doctrine. These are BRS v Arthur V Crutchley Ltd [1968].[2], Butler Machine Tools v Ex-Cell-O Corporation [1979] [3] and Transformers & Rectifiers Ltd v Needs Ltd [2015] [4].

BRS v Arthur Crutchley

In BRS v Arthur Crutchley, BRS (the contractor) delivered several cases of whiskey to Crutchley (the client) for storage, and the driver handed a delivery note that included BRS’s terms to Crutchley. However, Crutchley then stamped the note as being accepted under Crutchley’s terms. The court held that Crutchley’s acceptance note counted as a counter offer, and that BRS accepted this counter offer when they handed over the goods. Here, then, handing over the goods counted as implied acceptance of the terms set out in Crutchley’s acceptance note (the ‘last shot’ in this case).

Butler Machine Tools v Ex-Cell-O Corporation

More than ten years later, our understanding of the ‘last shot doctrine’ changed in response to Butler Machine Tools v Ex-Cell-O Corporation, a case in which the court of appeal overturned the decision of the court of first instance after considering the communications between the parties as a whole rather than just their last exchange. The events of the case began on 23 May 1969, when Butler Machine Tools sent a letter to Ex-Cell-O offering one ‘Butler’ double column plane-miller for a fixed price. Delivery was to be in 10 months. Butler included their standard terms in this offer, which featured a price variation clause providing that any price increase would be passed on to Ex-Cell-O. Ex-Cell-O’s reply on 27 May said that they would order the machinery on the basis of Ex-Cell-O’s own standard terms, which did not include a price variation provision. Butler then replied on 5 June using the tear-off slip from Ex-Cell-O’s terms. The bottom of this slip said, ‘We accept your order on the terms and conditions stated therein’. But Butler also added a letter stating that the contract was to be performed under Butler’s terms.

This series of offers and counteroffers meant that the parties were not operating under a shared set of clearly defined terms and conditions. Thus, when Butler delivered the machinery in November 1970, they requested the original price plus an additional amount pursuant to their price variation clause. However, Ex-Cell-O refused to pay the increased costs. Butler raised an action, against Ex-Cell-O to recover the cost of the variation. The court of first instance held that Butler’s price variation clause continued throughout the dealings and, consequently, they were entitled to rely on it.

Ex-Cell-O appealed. On appeal, the court held that the documents involved in the transaction between Butler and Ex-Cell-O should have been considered in their entirety, and that the decisive document was the acknowledgment slip. Consequently, although Butler ‘got their blow in first’ and included a provision that their terms and conditions would prevail over any in Ex-Cell-o-Corp’s order, the court found that the correspondence from Ex-Cell-O on 27 May negated Butler’s original offer. Thus, by signing the acknowledgement slip, Butler had accepted Ex-Cell-O’s offer and the contract was formed at this point on Ex-Cell-O’s terms. Butler’s final letter of 5 June, attached to the acknowledgement slip, was therefore introduced after the contract was formed and never accepted by Ex-Cell-O.

In the case above, then, we can see how it is not simply the timing of a communication that determines its relevance for resolving a battle of the forms, but also its place within an ongoing exchange of correspondence. Ex-Cell-O’s reply on 27 May was decisive here, which meant that Butler’s terms and conditions no longer applied.

Transformers & Rectifiers Ltd v Needs Ltd

In the more recent case of Transformers & Rectifiers Ltd v Needs Ltd [2015], the court held that neither party had successfully incorporated their terms, despite the fact that they had exchanged their respective terms and conditions. Needs, the contractor, made an offer to Transformers and Rectifiers (T&R), the client. T&R sent a PO to Needs with T&R’s standard terms and conditions printed on the reverse. Needs acknowledged the PO with a reference to their own terms and conditions. A dispute then arose when T&R claimed that the goods delivered did not meet the contractual requirements agreed and sued Needs for damages. Needs, meanwhile, maintained that the contract was based on their terms and conditions, which included a provision limiting their liability to the contract price. Moreover, the parties had a long-standing commercial relationship and Needs argued that they had contracted on Needs’ terms and conditions in the past. Consequently, Needs claimed that since they had included their terms and conditions in this offer, as they had done during previous dealings with T&R, the contract for supply of goods was based on Need’s terms once more.

The court, however, held that neither party’s terms could be used because neither had explicitly stated that they intended their terms and conditions to be the basis of the contract: T&R had only printed their terms in pale writing on the reverse of the PO, and Needs had only referred to theirs as opposed to including them. The court pointed out that for any set of terms and conditions to be used as the basis of a contract, there must be no possibility of misunderstanding. Thus, if one party wants to rely on its own terms and conditions, they must make this explicit for the other party to the contract. And this had not happened in the contract between Needs and T&R. With regard to the previous dealings between the parties, the court said that while the terms and conditions had been similar from one contract to the next, they had not been consistent. And in the absence of such consistency, the court held that the terms and conditions from previous dealings did not hold in this case. Here, then, we see how important it is to make the terms and conditions one wishes to use explicit for the other party.

Concluding Remarks

When looking at the Battle of the Forms in the context of oil and gas contracting, the following points should prudently be taken into consideration.

Firstly, it is worth stressing that even if the value of a purchase order is relatively small, the question of whose terms and conditions apply can be of critical importance to both parties. As an example, a contractor may only be offering to supply a relatively low-dollar product such as a clamp, but if this clamp is found to be defective then the cost of repairing or replacing it in situ offshore will be exponentially higher than the value of the clamp itself. Whether this cost is to the account of the buyer or the contractor may depend on whose terms and conditions are deemed to apply.

Secondly, and as illustrated by the above examples from case law, it is not always easy to predict with any confidence how a court will find in the event of a ‘battle of the forms’. BRS v Arthur Crutchley demonstrates the fine margins which may be involved in deciding “who fired the last shot”, Butler Machine Tools shows the complexities associated with exchanging communications, and Transformers & Rectifiers highlights the possible significance of previous dealings. Taken together these cases show that the outcome depends on various factors, including the timing of correspondence and previous dealings between the parties to a contract, but that none of these can be relied upon by itself to determine the result of a dispute. Given the uncertainty involved, and the severity of the potential consequences, it should be apparent that that a contracting strategy that relies on “winning” the battle of the forms is inherently risky.

Thirdly, and despite the number of articles offering advice on how to win the battle of the forms, the notion of “winning” here is of course a relative one. For a company who is in the middle of a “battle of the forms” dispute for a large claim, winning is of course going to be preferable to losing – however, avoiding the dispute entirely would surely have been a far better outcome all round. Case law does not relate whether, for example, BRS did any more work with Arthur Crutchley after the dispute and/or what (if any) detrimental consequences the dispute had for either party in the longer-term. These wider implications will vary case-by-case but as a general comment, it is worth noting that the offshore market is often referred to as a “village”, and that reputation and repeat business will typically be very important for both buyers and contractors. In this context, a company may “win the battle” but still end up losing the war.

With this in mind, and if the objective is to build relationships, avoid conflicts and minimise risk, then it follows that both parties should aim to agree expressly and knowingly to one set of terms and conditions. As is often the case in contracting, clarity is the key. This, in practical terms, means not simply including a set of standard terms and conditions in an offer or on a PO and hoping that the other party accepts them by default. Rather, it is best to have unambiguous written confirmation that both parties have agreed to the final terms and conditions of the contract before the work in the contract commences - even though this may involve more protracted contractual and commercial negotiations at the front end.[5]

NB: if in doubt we would always recommend that a party seeks qualified legal advice.

 

[1] Treitel, The Law of Contract, Fourteenth edition, p. 23.

[2] British Road Services v Arthur V Crutchley (No.1) [1968] 1 All ER 811.

[3] Butler Machine Tool Co v Ex-Cell-o-Corp (England) [1979] 1 W.L.R. 401; [1979] 1 All E.R. 965.

[4] Transformers & Rectifiers Ltd v Needs Ltd [2015] EWHC 269.

[5] The term ‘work’ in a contracting context refers to delivery of the goods or services specified under the contract. This is based on its use in the Supply of Goods and Services Act 1982.

[1] Treitel, The Law of Contract, Fourteenth edition, p. 23.

[2] British Road Services v Arthur V Crutchley (No.1) [1968] 1 All ER 811.

[3] Butler Machine Tool Co v Ex-Cell-o-Corp (England) [1979] 1 W.L.R. 401; [1979] 1 All E.R. 965.

[4] Transformers & Rectifiers Ltd v Needs Ltd [2015] EWHC 269.

[5] The term ‘work’ in a contracting context refers to delivery of the goods or services specified under the contract. This is based on its use in the Supply of Goods and Services Act 1982.

This article is made available for general information purposes, as always if there if there is any doubt legal advice should be sought.