Instead of drafting contracts of sale specific to each transaction, parties to commercial transactions generally rely on their own standard terms and conditions, creating a situation of competing terms and conditions. The question is – which terms and conditions apply?
Justice Lord Denning MR, in Butler Machine Tool Co v Ex-Cell-O Corporation (England) Ltd, referred to this as the “Battle of Forms”. But who wins the “battle”?
Under common law, the law of contract is based on the basic principles of offer and acceptance also known as “The Mirror Image Rule”. According to this rule, acceptance of the offer has to match the offer in every detail. In the event that the acceptance of the offer is purported to be governed by the acceptor’s terms and conditions instead, it is not acceptance at all but rather a counter-offer rejecting the initial offer. The other party can then decide to accept or reject the counter-offer; an absence of the refusal thereof is implied acceptance.
In most cases however, this “battle” is won by the party who “fires the last shot”, termed as the “Last Shot Rule”. In this instance, the last party to put forward their terms and conditions before performance of the purported contract would govern the contract. Again, the lack of any objection thereto would be implied acceptance thereof.
In the Butler Machine Tool Co case, Justice Lord Denning asserted that a contract will exist “as soon as the last of the forms is sent and received without objection”.
In South African case law, Guncrete (Pty) Ltd v Scharrighuisen Construction (Pty) Ltd 1996 2 SA 628 (N), it is illustrated that South Africa follows a similar approach to that of the Last Shot Rule. In this case, the court held that the contractor’s acceptance of the sub-contractor’s tender, which acceptance included a clause that the contract would be subject to the contractor’s terms and conditions, amounted to a counter-offer which was “impliedly” accepted by the sub-contractor.
It must be noted that different legal systems favour different approaches to resolve the “battle of forms” as the abovementioned methods are not practiced everywhere, and while the aforesaid approaches aid the resolution of the “battle of forms”, parties to a purported commercial contract should aim to resolve the “battle” before performance by either party.
Bearing this in mind, parties to international commercial transactions should ensure that their standard terms and conditions are properly drafted for the purpose of avoiding any uncertainty by either party.