Battles of forms create intolerable uncertainty regarding the contractual basis of trading relationships. Companies concerned that their own carefully drafted standard terms may be trumped by a ‘last shot’ from a trading partner should take note of the recent Court of Appeal of England and Wales’ judgment in TRW Ltd v Panasonic Industry Europe GmbH & Another[1]. In this case, the drafting of Panasonic’s standard form customer document was determined to invalidate all subsequent attempts by TRW to contract on its standard terms.
Background
Panasonic supplied resistors to TRW for use in vehicle parts. In accordance with its standard practice, Panasonic required TRW to sign a ‘customer file’ document that included this customer acknowledgement: ‘The submission of this customer file and the handing over of the General Conditions do not automatically constitute a supply claim. We have received and acknowledged the General Conditions of Panasonic’.
Panasonic’s general conditions provided as follows: ‘Even if no reference is made to them in particular cases, the following terms and conditions shall apply exclusively to the entire business relationship with us, particularly to all agreements for deliveries and services, unless different conditions, particularly conditions of purchase of the contracting party, have expressly been confirmed by us in writing. Conditions of the buyer diverging from our terms and conditions shall not be valid even if we effected delivery or rendered services without reservation’.
The general conditions specified that Hamburg (Germany) courts had exclusive jurisdiction, and TRW signed and returned the customer file document. TRW subsequently placed orders by way of two purchase orders, both of which stated that the goods were to be delivered ‘in accordance with TRW’s conditions of purchase’, which specified that the courts of its domicile (ie England) had jurisdiction. Both orders also stated that ‘commencement of any work or delivery of any goods or service under this order or delivery schedules or releases shall constitute your confirmation [that you] are aware of and accept such terms, conditions and requirements’.
Panasonic was not required to sign the purchase orders, nor otherwise confirm its agreement to TRW’s conditions of purchase. Panasonic did, however, act on the purchase orders by delivering the resistors to TRW.
The dispute
TRW claimed that the resistors were faulty and issued proceedings in the High Court of England and Wales. Panasonic applied for a declaration that the English courts had no jurisdiction on the grounds that TRW had, by signing the customer file document, submitted to the jurisdiction of the Hamburg courts.
The question before the court was therefore whose (if either party’s) standard terms applied.
The law
The general rule is that the traditional offer and acceptance analysis is to be applied in battle of the form cases. This requires the court to look at all the documents passing between the parties and glean from them, or from the conduct of the parties, whether and when they have reached agreement on all material points.
Although it often may be the ‘last shot’ before performance that is decisive, this is not always the case. Indeed, it is possible that none of the shots fired hits its target. If both parties have sought to incorporate their standard terms – but neither are deemed to have accepted the other’s terms – this may result in a determination that neither standard terms are incorporated or even that there is no contract at all.
As to the standard to which the court must be persuaded, the judge in the case, Mr Justice Kerr, stated that ‘the question is, broadly, which side can raise a good arguable case and has the better of the argument ‘.
The High Court’s decision
The court held as follows:
- By signing the customer file document, TRW clearly acknowledged Panasonic’s general conditions.
- Although the customer file document did not create any obligation on the parties to trade, it did place the parties under an obligation, if they later chose to enter into a supply contract, to do so on Panasonic’s general conditions unless Panasonic agreed otherwise in writing.
- There is no reason why parties may not agree to binding terms of future trades that may or may not occur.
- Panasonic’s general conditions protected it from falling victim to the last shot doctrine. They specified that any conditions of the buyer diverging from Panasonic’s terms and conditions would not be valid. The meaning of the wording was ‘clear and in no way ambiguous’.
- TRW’s purchase orders, though unsigned, could in normal circumstances have acquired contractual force – but not in circumstances where the parties had already agreed to binding terms.
- TRW’s remedy, if it was unwilling to accept Panasonic’s general conditions, was not to advance invalid contrary terms, but either not to trade or to persuade Panasonic to agree to renounce or amend the terms.
- As Panasonic’s general conditions applied, the Hamburg courts had exclusive jurisdiction.
The Court of Appeal’s decision
The Court of Appeal dismissed the appeal, with Lord Justice Jackson noting that Justice Kerr ‘made an unimpeachable decision and gave impeccable reasons for it’.
One additional issue that the Court of Appeal had to consider, which was not raised before the High Court, was that the signing of the customer file had no contractual effect, as no consideration had been given. As this argument had not been raised previously, the Court of Appeal would not allow TRW to raise this point for the first time on appeal. Lord Justice Coulson stated that even if permission had been forthcoming, no consideration arguments are ‘much less successful these days than they used to be’ and that he would not be persuaded by such an argument for the following reasons:
- The signing of the customer file gave TRW something of value because the company had officially become a customer of Panasonic and would be able to purchase resistors without further screening or formalities. On the other side, Panasonic knew that TRW met the necessary regulatory threshold and was therefore a potential customer for its business. On the face of it, these things are capable of amounting to consideration.
- There is a clear analogy with procurement contracts and framework agreements, and it has never been suggested that such contracts are invalid or that no consideration has been given. On the contrary, contracts have been held to be subject to a master agreement, even though that agreement would not have been identified in the individual orders themselves.
- Actual performance can constitute consideration, even though the person who has rendered it is not legally obliged to do so. Accordingly, when Panasonic delivered the orders, that constituted consideration, even if consideration had not been provided when the customer file was signed.
Takeaways
The conventional wisdom has been that whilst it may be possible not to lose a battle of forms, it is not always possible to win one if your counterparty is careful not to accept your terms. It is of course true that you cannot strong-arm a party that is determined not to accept your terms; however, this judgment demonstrates the significant advantage to be had in any battle by taking early, decisive action. The key takeaways from Panasonic’s success in this case are:
- Act early.
- Agree on standard terms before the specifics of any order.
- Draft the ongoing obligation to trade on the agreed standard terms and the invalidity of any divergent terms introduced by the other party clearly and unambiguously.
- Get a signature.
[1] [2021] EWCA Civ 1558
Contributors
Alex Radcliffe