Raising the standard

When contracting by reference in pre-contractual documentation to standard terms, it is vital that you supply the other party with a copy to increase the chance of the terms being incorporated.

Generally speaking, where there is explicit reference to a set of terms this will usually be sufficient to incorporate them especially if the terms are an industry standard or have been used between you and the other party before.

However, the case of Machenair v Gill & Wilkinson 2005 highlighted the importance of supplying a copy of standard terms in addition to referring to standard terms in pre-contractual documentation such as purchase orders, quotes, acknowledgements of orders and order forms.

Gill was engaged by Totty Construction Group as subcontractor to design, supply and install various mechanical and electrical installations. Gill in turn engaged Machenair as sub-subcontractor to carry out the mechanical works.

During the installation, Gill applied to Totty for a time extension, which was refused. Following completion of all subcontracted works, Totty maintained that delays by Gill had resulted in a setback of three weeks and, after some negotiation, Gill agreed to pay damages for the delay. Gill then sought to recover an amount from Machenair.

Machenair issued proceedings against Gill for the outstanding balance due on the installation and Gill counterclaimed against Machenair to recover damages for the delay. Gill contended that the note at the bottom of the purchase orders had the effect of incorporating Gill's standard terms and conditions into the contract, which allowed Gill to recover damages for any delay. Machenair argued that the conditions had not been incorporated, as the fax header had substantially obliterated crucial wording on the purchase orders.

The court found that the note at the bottom of the purchase orders was not sufficient to incorporate Gill’s standard terms into the contract, particularly when the wording had been substantially concealed. The court concluded that:

• it was unreasonable to expect the recipient to decipher the words underneath;
• the wording was insufficient to incorporate the standard terms;
• there was nothing in the previous course of dealings between the parties that incorporated the standard terms into the subcontract.

In addition, the fact that Gill’s standard terms were extensive, not an industry standard and Machenair had not seen them meant they could not be deemed to be incorporated.

The fax header had substantially obliterated crucial wording on the purchase orders

This case demonstrates the importance of correctly incorporating standard terms. The most effective way of ensuring this is by obtaining the other party’s signature on them, as this will indicate acceptance of your terms. In such circumstances, it is still advisable to include standard terms on all pre-contractual documentation, to ensure that you will be covered in the event that the other party fails to sign.

If you decide not to, or are unable to obtain signatures on the standard terms, then the standard terms will still be valid and effectively incorporated, provided that you have taken sufficient steps to ensure that they are brought to the other party’s attention before the contract is made.

You must ensure that the standard terms are brought to the attention of all customers at the earliest possible opportunity and must make it clear that any contract will be made on the basis of the standard terms.

If, for any reason, you decide not to attempt to get customers to sign up to the standard terms, incorporation can be achieved by bringing the standard terms to the attention of customers in as much pre-contractual and contractual documentation as possible. For example, standard terms should be set out:

• in brochures, catalogues or other publications;
• on the reverse of quotations or pricelists;
• on order forms;
• on the reverse of acknowledgements or confirmations of order;
• on the reverse of delivery notes.

Usually, standard terms will be printed on the back of such documents. In the case of quotation and order forms, acknowledgements of orders and delivery notes, you should also draw the customer’s attention to the standard terms on the front of the documents and must clearly state that the contract will be subject to the standard terms on the reverse of that document. If sending documentation by fax, you must ensure that you send the reverse page and that it will be legible.

It is clear that merely referring to standard terms in pre-contractual documentation is a risky strategy. Such an approach may not be sufficient to incorporate the standard terms as demonstrated by the case referred to above, the result being that standard terms will not form the basis of the contract – a situation you would no doubt rather avoid.

Marie Kell is head of the commercial law unit at Yorkshire Law firm Andrew M Jackson. Contact Marie Kell on 01482 325242 or email mck@amj.co.uk