Will My Terms of Trade Apply?

Many businesses have standard form terms and conditions of trade that they use when dealing with their customers and suppliers. They often appear in credit application forms, quotations, supply agreements, purchase order forms and invoices. These standard form agreements often make their businesses operate more efficiently because there is no need to negotiate terms for each agreement signed. However, where a supplier and a purchaser have conflicting terms and conditions of trade, disputes often arise as to whose terms will govern the arrangement.

MST recently acted in a matter where a manufacturer entered into a supply agreement. When the manufacturer quoted the cost for producing the items, it included in the quote its standard form terms and conditions. The purchaser, for whom we acted, accepted the quote by submitting an order that had attached to it the purchaser's terms and conditions of trade, which were quite different to those of the manufacturer. Thereafter the manufacturer began supplying products. Twelve months later, after part of a debt was unpaid, the manufacturer asserted that its terms and conditions of trade prevailed, and that it was entitled to substantial interest and late payment fees. While there was no doubt that a supply agreement was in place, it was unclear whose terms and conditions would apply, as there was never any express agreement by both parties to be subject to either parties' particular terms.

The purchaser ultimately successfully argued that its terms and conditions of trade, which expressly stated that the manufacturer was not was entitled to substantial interest and late payment fees, prevailed. The Court held that because the manufacturer, upon receipt of the purchaser's terms and conditions of trade, did not say to the purchaser "I do not accept these", its conduct in going ahead and filling the purchaser's order was tantamount to an acceptance of the purchaser's terms and conditions of trade.

This scenario is often referred to as "the battle of forms" and it arises very often.

To put yourself in the best position legally, you should always supply, and get the other party to sign, your terms and conditions as soon as you enter into an agreement. Sometimes that is impractical and, if you are ever faced with a situation where the other party submits their terms and conditions of trade, read them carefully. If they are unacceptable, respond by saying so and confirming that your terms and conditions of trade will prevail.

Mason Sier Turnbull also offer franchise legal advice for franchisees and franchisors.