England and Wales Court of Appeal (Civil Division) Decisions

IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BIRMINGHAM MERCANTILE COURT
HH JUDGE SIMON BROWN QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/11/2009

Lord Justice Longmore:

Introduction

1. This appeal raises the question whether in what is sometimes called "the battle of forms", there can be circumstances in which a traditional offer and acceptance analysis can be displaced by reference to the conduct of the parties over a long-term relationship. An offer to buy containing the purchaser's terms which is followed by an acknowledgement of purchase containing the seller's terms which is followed by delivery will (other things being equal) result in a contract on the seller's terms. If, however, it is clear that the neither party ever intended the seller's terms to apply and always intended the purchaser's terms to apply, it is conceptually possible to arrive at the conclusion that the purchaser's terms are to apply. It will be a rare case where that happens. Do the facts of this appeal amount to that rare case?

The Facts

2. The parties to this dispute are part of a chain of suppliers to Rolls Royce as ultimate purchasers. Rolls Royce need engine control systems for installation in their aero engines. They bought such systems from a company called Goodrich who themselves bought cable assembly items such as cable harnesses for internal wiring from Tekdata Interconnections Ltd ("Tekdata") in Stoke-on-Trent. In order to manufacture these harnesses Tekdata acquired connectors from Amphenol Ltd ("Amphenol") who originally manufactured them at premises in Nottinghamshire but later, in about August 2005, moved to Whitstable in Kent. They in turn acquired material, such as electronic filters, for the connectors from a firm known as Oxley in Ulverston in Cumbria. The dispute has arisen between Tekdata and Amphenol (to whom I shall as relevant refer as "Buyers" and "Sellers"). Tekdata claim that certain connectors were delivered late and were not fit for the purpose or of merchantable quality. They say that the contract of purchase was on the terms of their purchase orders (or, more accurately, revisions to purchase orders already placed); Amphenol defend by saying that the contracts were on the terms of their (Amphenol's) acknowledgement of the purchase orders and that those terms exclude or limit their liability for any breaches of contract. It fell to HHJ Simon Brown QC sitting in the Birmingham Mercantile Court to decide, on a prelimary issue, whose terms (if either) applied.
3. Tekdata and Amphenol have been doing business for many years; for most (if not all of that time) the supply of connectors had been controlled by Goodrich who required Tekdata to purchase the connectors from Amphenol to a specification required by Goodrich and at a price determined by Goodrich. Goodrich had a long term supply contract with Tekdata although that contract had formally expired by August 2005 when problems started to arise. It emerged in the course of disclosure in the proceedings that Amphenol also had a long term contract with Goodrich pursuant to which they agreed to supply connectors to Tekdata for the price determined by Goodrich but Tekdata were unaware of that contract until it was disclosed in the proceedings.
4. The contractual obligations in relation to any particular equipment bought from Amphenol began with a Purchase Order generated by Tekdata. That stated that the purchase was to be on Tekdata's own terms and conditions. It contained a delivery date which was 26 weeks from the date of the order since Tekdata themselves had 28 weeks from the date of Goodrich's order to supply the harnesses to Goodrich.
5. According to Tekdata's financial manager Mr Downing, whose evidence the judge in general accepted, Tekdata then expected the purchase order to be automatically actioned and assumed that the items covered by the purchase order would be delivered by the relevant dates.
6. Mr Downing thus thought that a contract came into existence as soon as Amphenol received the purchase order and that such contract was on the terms of that purchase order. That could not, however, be the legal position unless there was some prior overarching contract whereby Amphenol were obliged to supply connectors as and when Tekdata (or perhaps Goodrich) chose to order them and there was no evidence of such a contract, despite the considerable evidence that the parties had enjoyed a business relationship that went back for over 20 years.
7. The judge found that Amphenol acknowledged the purchase orders by sending an acknowledgment to Tekdata. In law it could only be at that date at earliest that a contract for the purchase and sale of the specified connectors came into existence. The acknowledgment, however, stated that Amphenol's terms and conditions were to apply and the traditional view would be that, if no further documentation passed between the parties and if Tekdata took delivery of the connectors, the contract would be on the terms of Amphenol's acknowledgement. The judge, however, held that it was never intended that Amphenol's terms should apply because the parties had always intended that Tekdata's terms were to apply. He seems to have concluded, although he did not expressly say so, that the clause (at the bottom right hand corner of the acknowledgement) about the application of Amphenol's terms was to be ignored and that the contract came into existence when the acknowledgment was returned to Tekdata.
8. There were 13 grounds of appeal but, in the course of oral argument they boiled down to the following two questions.
9. Was it open to Judge to accept Tekdata's arguments?

When I gave permission to appeal, I was troubled by this question because there was no sign in the pleadings that Tekdata wished to rely not on the traditional offer and acceptance analysis but rather on the conduct of the parties not only over their long-term relationship over 20 years but also after the conclusion of the relevant contracts. But I am now satisfied that Tekdata's skeleton argument made it sufficiently clear that (right or wrong) Tekdata wished to rely on the parties' overall relationship and that they would say that it was always their intention that Tekdata's terms were to apply. Any objection to this approach could and should have been taken at the time but was not and the Judge was therefore right to have proceeded to determine the second question.

10. Was it right to analyse the overall relationship and come to the conclusion which the Judge did?

Mr Tomson for Amphenol said the Judge was not so entitled and the traditional offer and acceptance analysis should be applied. The Judge relied on Butler Machine Tool Company v Excell-O Corporation [1979] 1WLR 401 in which Thesiger J had not applied that traditional analysis and said that the seller's quotation terms should prevail over the terms incorporated by the buyer's order because the seller's terms expressly said that they should prevail over any other terms. Lord Denning MR said (404 F-G):

"I have much sympathy with the judge's approach to this case. In many of these cases our traditional analysis of offer, counter-offer, rejection, acceptance and so forth is out of date. This was observed by Lord Wilberforce in New Zealand Shipping Co. Ltd. V A. M. Satterthwaite & Co Ltd [1975] AC 154, 167. The better way is to look at all the documents passing between the parties – and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points – even though there may be differences between the forms and conditions printed on the back of them."

Applying that guidance he concluded that the contract was made when the seller returned a slip attached to the buyer's purchase order accepting the order on the buyer's terms. Mr Tomson pointed out that:

(1) in the end the traditional offer of acceptance analysis was applied even by Lord Denning.

(2) the other members of the court applied the traditional analysis, Lawton LJ saying expressly (405G) that the battle of forms had to be conducted in accordance with set rules;

(3) Butler's case was, therefore, no precedent for abandoning the traditional analysis.

11. I agree with Mr Tomson's submissions on the aspect of the case, while accepting that, as Lord Denning said, there will be cases when one must glean from documents passing between the parties and from their conduct whether agreement has been reached. The way in which I would put it is to say that the traditional offer and acceptance analysis must be adopted unless the documents passing between the parties and their conduct show that their common intention was that some other terms were intended to prevail.
12. I have already indicated that a traditional analysis would conclude that the terms on Amphenol's acknowledgment would be the terms, on which the parties contracted.
13. In this case the Judge gave weight to the following countervailing factors

i) The fact that the connectors were items of considerable sophistication which were to be fitted into engine control systems destined for use in Rolls-Royce aero engines. Any departure from agreed times of delivery or, even more importantly, the quality of degree of materials and workmanship as specified in the purchase order could have catastrophic consequences not only for Rolls-Royce business arrangements, but also for the general travelling public. (Para 23 of the Judgment);

ii) The connected fact that there had, a short time before the purchase orders were concluded, been in existence contractual commitments by Amphenol to the party beyond Tekdata in the chain of purchases (Goodrich in their previous incarnation of TRW Limited). They were the instigators not only of the specification for the connectors but also of the requirement that Tekdata had to obtain the connectors from Amphenol. The contractual commitment assumed by Amphenol to TRW/Goodrich was contained in what was called a Long Term Purchase Agreement dated 8^th August 2001 which had expired on 30 June 2004, two months before the first relevant revisions to the relevant purchase orders had been made. That agreement committed Amphenol to make their supplies on terms which largely corresponded to those of Tekdata even if they were not identical. (paras 24-27 of Judgment);

iii) The fact that at no time before Amphenol served their Defence did they mention their own terms. (paras 36-48 of the judgment).

14. The Judge appears to have relied on all these matters in coming to the conclusion that the parties must have intended Tekdata's conditions to apply rather than Amphenol's conditions as set out in the last document passing between the parties before the individual contracts were made. The crucial paragraphs are para 31 and part of para 53 as follows:-

"31. I am satisfied that there was never any suggestion put forward to either of [the parties] that the terms and conditions of Amphenol were extant between the parties. Indeed, it would defy common sense in this particular commercial arrangement for the Amphenol terms and conditions to be part of any of these supplies. It would not be acceptable with everybody depending upon each other for time not to be of the essence, you can deliver the goods more or less when you like, or when it was imposed upon you by your own supplier, and also it would defy common sense for there to be no requirements for conformity to certain standards. Indeed, in one of the documents there is quite clearly identified that the Defendants signed up to and signed off something as conforming with one of the appropriate standards.

53……and it was well known between the parties, and certainly well known to those in the Defendant's office, Mrs Hagan and Mr Dolton, that those particular [Tekdata] conditions would be applied. Any attempt to say otherwise, in my judgment is wrong. I do not accept their evidence on that. "

15. This reasoning is, in my judgment, not satisfactory. In the first place the use of the word "would" no less than 4 times shows that the Judge is concentrating more on what he thinks ought to have happened between the parties rather than (as he ought to have done) on what did happen. It is only by ascertaining what did happen between the parties, that it is possible to ascertain their objective intention. Secondly, the purported finding of fact that it was well known to Mrs Hagan and Mr Dolton that Tekdata's conditions would be applied is unexplained and has no basis in the evidence. It was never put to either witness that they knew Tekdata's conditions would be applied whatever that may mean. They did not give evidence that they "knew" otherwise so there was no such evidence to reject. The most that their evidence amounted to (in fact Mrs Hagan only, since Mr Dolton did not give any relevant evidence on this topic) was that she considered Amphenol's conditions applied and told her manager that that was her view. The Judge was perfectly entitled to reject her evidence as to that but it does not remotely follow that she "well knew" Tekdata's conditions "would be applied".
16. The fact that the judge's reasoning is open to criticism, does not, of course, mean that his ultimate conclusion is wrong and the question remains whether the factors on which he relied were individually or cumulatively able to displace the traditional offer and acceptance analysis. I certainly agree with the Judge that the context of the parties' relationship was very important but, having given the matter the best consideration I can, I do not consider that the factors on which he relied justified his conclusion.
17. The fact that delivery times and quality control are essential and, indeed, fundamental to the good relationship of the parties is no doubt true but it must be true in many commercial relationships. This is a matter that can not be more than a background factor. It is much strengthened by the fact that Amphenol had a long term purchase agreement with Goodrich who were in a position to require Tekdata to obtain the connectors from Amphenol and even to name the price at which they were to be supplied. But Goodrich did not purport to require Tekdata to contract with Amphenol on any particular terms. What gives one pause is that Amphenol did in fact contract with Goodrich on terms that were similar to the terms on the reverse of Tekdata's purchase order forms. But they were not identical and Tekdata never (as far as the evidence went) knew that Amphenol had had a long term purchase agreement with Goodrich let alone what the terms of that agreement were. (The document only became known to Tekdata after Amphenol had disclosed it in the course of these proceedings.) The fact that there is no precise matching between the terms of the long term purchase agreement and Tekdata's own terms is shown by the detailed provision for liquidated damages in the event of delay in the Goodrich/Amphenol agreement which have no counterpart in Tekdata's own terms. It thus appears that the parties had an opportunity to agree a single set of terms, if they wanted to, but that was something which they conspicuously did not do; this detracts from the importance that it might otherwise have been appropriate to accord to the long term purchase agreement.
18. The Judge was also influenced by the fact that Amphenol were prepared to and did sign a certificate of conformance in respect to the connectors as Tekdata's conditions required them to do. Why should they do this unless they agreed that the contract was to be on Tekdata's terms? Again this has some force but not conclusive force since parties to contracts often do things in the course of a performance which is working well, which they might not strictly be obliged to do.
19. Much the greater part of the judgment is taken up by setting out the terms of the correspondence which took place after dispute had arisen and by pointing out that Amphenol made no reference to their terms and conditions, but only relied on them once the defence was served. It seems that this may have had the greatest impact for the judge. It is, of course, possible to rely on post –contract correspondence when one has to determine what the terms of a contract are (rather than what those terms mean) see Great Northern Railways v Avon Insurance [2001] 2 Lloyd's Rep 649 at paragraph 29. But again, one has to be careful about reading too much into such correspondence. At the stage of trying to sort a dispute out, it may well be counter-productive to refer to one's terms and conditions. Reasonable business men do not necessarily start resolving their problems by making legal assertions and counter assertions. That is left for the lawyers later. The terms of the post-dispute correspondence do not, to my mind, carry the matter very far.
20. In paras 2-110 and 111 of Chitty on Contracts (30^th ed) Professor Sir Guenther Treitel points out that the traditional offer and acceptance analysis is not always without its difficulties. Having referred to three specific cases of (1) multilateral contracts, (2) references to third parties and (3) sale of land, he cites the words of Lord Denning MR in Butler and his similar words in the earlier case of Gibson v Manchester City Council [1978] 1 WLR 520, 523. He then says of these comments:

"But such an outright rejection of the traditional analysis is open to the objection that it provides too little guidance for the courts (or their parties or their legal advisers) in determining whether an agreement has been reached"

and I might add 'on what terms'. The fact that Gibson was reversed by the House of Lords [1979] 1 WLR 294 adds considerable force to this comment of that very distinguished author.

21. So, although I am not saying that the context of a long term relationship and the conduct of the parties can never be so strong as to displace the result which a traditional offer and acceptance analysis would dictate, I do not consider the circumstances are sufficiently strong to do so in this present case. Indeed I think it will always be difficult to displace the traditional analysis, in a battle of forms case, unless it can be said there was a clear course of dealing between the parties. That was never proved. For my part, I would allow this appeal and order that it is the terms and conditions of the Appellants that apply to the contracts contained in or evidenced by the purchase orders referred to in the Particulars of Claim.

Lord Justice Dyson:

22. I agree with the judgment of Longmore LJ.
23. The so-called "last shot" doctrine has been explained in Chitty on Contracts (30^th edition) at para 2-037 as meaning that where conflicting communications are exchanged, each is a counter-offer, so that if a contract results at all (eg from an acceptance by conduct) it must be on the terms of the final document in the series leading to the conclusion of the contract. This doctrine has been criticised in Anson's Law of Contract (28^th edition) at p 39 as depending on chance and being potentially arbitrary as well as on the ground that, unless and until the counter-offer is accepted, there is no contract even though both buyer and seller may firmly believe that a contract has been made.
24. The paradigm battle of the forms occurs where A offers to buy goods from B on its (A's) conditions and B accepts the offer but only on its own conditions. As is pointed out in Cheshire, Fifoot & Furmston's Law of Contract (15^th ed.) at p 210, it may be possible to analyse the legal situation that results as being that there is (i) a contract on A's conditions; (ii) a contract on B's conditions; (iii) a contract on the terms that would be implied by law, but incorporating neither A's nor B's conditions; (iv) a contract incorporating some blend of both parties' conditions; or (v) no contract at all.
25. In my judgment, it is not possible to lay down a general rule that will apply in all cases where there is a battle of the forms. It always depends on an assessment of what the parties must objectively be taken to have intended. But where the facts are no more complicated than that A makes an offer on its conditions and B accepts that offer on its conditions and, without more, performance follows, it seems to me that the correct analysis is what Longmore LJ has described as the "traditional offer and acceptance analysis", ie that there is a contract on B's conditions. I accept that this analysis is not without its difficulties in circumstances of the kind to which Professor Treitel refers in the passage quoted at [20] above. But in the next sentence of that passage, Professor Treitel adds: "For this reason the cases described above are best regarded as exceptions to a general requirement of offer and acceptance". I also accept the force of the criticisms made in Anson. But the rules which govern the formation of contracts have been long established and they are grounded in the concepts of offer and acceptance. So long as that continues to be the case, it seems to me that the general rule should be that the traditional offer and acceptance analysis is to be applied in battle of the forms cases. That has the great merit of providing a degree of certainty which is both desirable and necessary in order to promote effective commercial relationships.
26. In the present case, it was not contended on behalf of Amphenol that there was no contract between it and Tekdata. The issue was whose conditions were incorporated into the contract. On behalf of Tekdata, it is submitted that the acknowledgement of order by which Tekadata's offer was accepted "subject to the terms and conditions as printed overleaf" was in law an unqualified acceptance of Tekdata's offer (including its conditions). It is said that the words "subject to the terms and conditions as printed overleaf" were not intended to have, and did not in fact have, any contractual effect and were to be ignored.
27. In my judgment, such a conclusion could only be reached if Tekadata could show that the parties had expressly agreed that these words were to be ignored or if such an agreement was necessarily to be inferred from the circumstances of the case. I acknowledge that this is a high hurdle for Tekdata to surmount, but anything less would lead to an uncertainty which is inimical to commercial relationships.
28. Mr Chapple does not say that there was any express agreement that the words on the face of Amphenol's acknowledgement of order were to be ignored and the judge made no finding to that effect. Nor did the judge ask himself whether there were facts which gave rise to the necessary inference that this is what the parties must have agreed. He held the parties must have intended that Tekdata's conditions should apply for a number of reasons all of which were founded in what he described as "reasonable commonsense" (para 19). At para 31, he said that it "would defy common sense in this particular commercial arrangement for the Amphenol terms and conditions to be party (sic) of any of these supplies". At para 56, he said that he justified his conclusion by reference to the context, the conduct of the parties in how they operated the contract "and one has to say that with the experience of a Mercantile Judge looking at how commercial parties in the aviation industry would behave and were behaving at this particular time."
29. I agree with the reasons given by Longmore LJ at [17] to [19] above that none of the factors relied on by the judge for concluding that Tekdata's conditions were incorporated justified his conclusion. Whether considered individually or in combination, they did not give rise to the necessary inference that the parties must have intended the words on the face of Amphenol's acknowledgement of order to have no effect and to contract on Tekdata's conditions.
30. In particular, the judge placed far too much reliance on the correspondence that was written after the dispute had arisen. I agree with Longmore LJ that post-contractual behaviour may be admissible to prove the terms of a contract. An obvious example is where there is an issue as to whether a term was orally agreed and in post-contractual correspondence the party who denies the existence of the term admits that it was agreed. But in a battle of the forms case where it is not suggested that there was any oral agreement as to which conditions should apply, I find it difficult to see how subsequent correspondence can shed light on the question of whose conditions were intended to apply, particularly, as Longmore LJ says, if the correspondence is written at the stage of trying to resolve a dispute. The question of whose conditions were intended to apply must be determined objectively on the basis of the proper interpretation of the documents which comprise the contract viewed objectively in their context. The focus must always be on what the parties must be taken, objectively, to have intended at the time when the contract was made.
31. I would add that I do not consider that the judge's reasoning gained any weight from his rather magisterial remark at para 56 based on his experience as a Mercantile Judge.
32. For these reasons as well as those given by Longmore LJ, I would allow this appeal.

Lord Justice Pill:

33. I agree that the appeal should be allowed.
34. I agree with Dyson LJ, at paragraph 30, that the focus must always be on what the parties must be taken, objectively, to have intended at the time when the contract was made.
35. The surrounding circumstances may throw light on their intentions. The judge was entitled to look for indications that Amphenol never intended, in their business dealings with Tekdata, that the terms and conditions printed on the reverse of their acknowledgement of orders should apply. If that was their state of mind, it could readily be inferred that they intended Tekdata's terms and conditions to apply and that, viewed objectively, was what the parties intended.
36. While not formulating it in quite that way, that appears to have been, at least in part, the approach of the judge. At paragraph 35 he posed these questions:

"Did the Defendants actually believe that by their conduct their own terms and conditions were appropriate, were extant in this case? Did they in fact rely upon them? This is a question where we can look at the conduct of the parties in some detail"

37. In answering those questions in Tekdata's favour, the judge attached considerable weight to the conduct of Amphenol after the dispute arose and in particular their failure, in correspondence, to place reliance on their terms and conditions. I agree with the analysis of that correspondence by Longmore LJ, at paragraph 19. Amphenol's letters demonstrate serious attempts to deal in a practical way with problems which had arisen with a customer of long standing. A conclusion that Amphenol had never intended their terms and conditions to apply cannot fairly be inferred from the terms of their letters.
38. To justify his conclusion, the judge also made findings of fact at paragraph 53:

"And it was well known between the parties, and certainly well known to those in the [appellant's] office, Mrs Hagan and Mr Dolton, that those particular conditions [Tekdata's] would be applied. Any attempt to say otherwise, in my judgment, is wrong."

These findings of fact were not justified for the reasons given by Longmore LJ at paragraph 15. There was no basis for them.

39. Thus while I would accept that in a "battle of forms" there could be a case in which a court would be entitled to conclude that one of the parties had not intended that printed terms and conditions attached to its acknowledgement would apply, the evidence did not justify such a finding against Amphenol in this case. Overall, I agree with Longmore LJ's and Dyson LJ's conclusions that, on the evidence in this case, there was, for the reasons they give, no basis for a finding in Tekdata's favour.