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OP I N ION BY CHERYL SATIN BANKING ON CORPORATE Battle of the forms mentally important client matters are addressed, including price, payment terms, delivery and transfer of risk, rights to reject goods, and limits on liability. However, can we truly say by ensuring our client has airtight terms and condi- tions, we have protected our client's inter- ests? Can our clients rely on those terms governing each transaction in which they engage? Unfortunately not. Frequently, a supplier will have stan- A dard, supplier-friendly terms upon which it is prepared to supply goods or services, and the buyer will have its own standard, buyer-friendly terms for acquiring them. When the parties engage in a trans- action, the buyer submits its purchase order along with its standard terms of purchase, and the supplier fulfils the order and encloses its standard terms of sale with the packaging slip or invoice. Rarely do these two sets of terms mirror each other. So what happens in the event of conflicting terms, or if one set of terms addresses matters not covered by the other, and a dispute arises? What was the contractual basis upon which the goods were supplied? In the seminal 1979 case Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corp. (England) Ltd., the English Court of Appeal set out possible approaches to resolving these "battles of the forms," using combat- appropriate terminology. In some cases, the battle is won by the party that fires the last shot, such that the submission of the supplier's standard terms with the invoice is considered a "counter-offer" and unless the buyer objects, it is deemed to have accepted those terms. In others, it is the party landing the first blow, or the terms advanced by the buyer that govern, on the theory the seller's form arrived s corporate lawyers, we often review a cli- ent's standard terms of purchase and sale. We try to ensure all funda- too late; the contract was formed when the goods were supplied and it cannot be altered without both parties' consent. Alternatively, if shots are fired on both sides, the parties' respective terms may be read together in an effort to achieve a harmonious result, or the common law that would otherwise apply forms the basis of the contract. Of course, there is always the possibility that no contract was formed at all given a meeting of the minds never occurred. Practically, the idea that no contract exists is not palatable so a "deal" must have been reached. So it is up to the law- yers to determine a means for establish- ing the terms of that transaction. In Canada, the courts have adopted a flexible approach. In deciding which of the Butler doctrines should apply, the courts consider factors such as the rea- sonableness of the disputed terms, the conduct and past practices of the par- ties, adequacy of notice, when the con- tract was formed, and the reasonable beliefs and expectations of the parties. While there is merit in evaluating each case individually, the Canadian approach does not offer any predictability or cer- tainty for companies routinely engaging in these transactions. In the United States, legislators attempted to induce clarity through the Uniform Commercial Code. In essence, s. 2-207 of the UCC provides that the terms upon which both parties agree form part of the contract, and any con- flicting terms are "knocked out" and replaced with the UCC's default provi- sions unless the parties contract out of the UCC's application. In practice, in an effort to preserve use of their own standard terms rather than outdated or incomprehensible statutory terms, most commercial parties opt out of the UCC's application. Thus, the UCC provisions have had little impact in addressing the problem. Internationally, in the context of cross-border transactions, the 1980 U.N. Convention on Contracts for the International Sale of Goods adopts the last-shot doctrine unless the changes to the terms made by virtue of the last form delivered materially alter the terms of the offer or the recipient of those terms objects in a timely manner. "Material alterations" include any differences in price, quality or quantity of goods, pay- ment terms, place or time of delivery, extent of liability, or dispute-settlement mechanisms. Essentially, all of the terms that generally give rise to a commercial dispute are material, such that CISG is of limited value. In any event, parties may also opt out of the CISG's application. So what is the answer? The courts and legislators have tried several differ- ent methods to end these disputes, all of which seem to have had limited success or have given rise to complexity and uncertainty. There is no one-size-fits-all approach that will work. But leaving the issue to be resolved on an individual basis does not work either. Perhaps the better approach is to encourage clients to band together as part of industry organizations and develop industry-specific terms that apply absent agreement between indi- vidual parties. Having terms set on an industry basis allows for the commercial norms and sensitivities of each industry to be taken into account. And consensus among the players in any given industry gives the terms more weight. The terms could then be made publicly available by the industry associations as advance notice to customers. Some industries have already adopted this approach. Should your client's indus- try be next? Cheryl Satin is a partner at Blake Cassels & Graydon LLP in Toronto practising in the business group. She can be reached at cheryl.satin@blakes.com. www.CANADIAN Lawyermag.com JAN UARY 2011 15