Case Note on Butler Machine Tool Co. Ltd. v Ex Cell-O Corporation (England) Ltd. (1979) 1 WLR (401) Court of Appeal

Citation: Butler Machine Tool Co. Ltd. v Ex Cell-O Corporation (England) Ltd. [1979] 1 WLR 401

Historical and Legal Background

As per the English Contract law, an offer must be accepted in alignment of the precise terms to form a valid agreement. It must match the exact terms of the offer. It is an important element of a valid agreement that the offer and the acceptance are precisely agreed on by both the parties. Traditionally, the English Contract Law used the prerequisite of matching the offer and the acceptance as the means to identify the validity of an agreement. However, Lord Denning suggested a more flexible approach in a number of cases during the 1970s. This proposal was firmly rejected in Gibson v Manchester City Council[1979]^[1]. In recent times, there have been other suggestions as opposed to the approach of Lord Denning. These have resulted in the supreme Court’s decision in the case of RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh [2010]^[2] UKSC 14, [2010] 1 WLR 753.

Facts

The parties in the case, namely, Butler Machine Tool Co Ltd and Ex Cell-O Corporation (England) Ltd (Ex Cell-O) were involved in the negotiations for the sale of machinery. In the process of negotiation between the parties, several documents were exchanged between them. These papers included a quotation from Butler and an acceptance from Ex Cell-O’s side. However, these documents consisted of a wide range of terms and conditions that resulted in the formation of a “Battle of Forms” situation.^[3] The term “Battle of Forms” describes a situation wherein the parties to a contract exchange different standard forms, each of which consists of unique terms and conditions. The Battle of Forms is thus a conflicting situation between the standard forms passed on between the buyer and the seller in a contract during the process of negotiation in a sale of goods transaction.^[4]

In the present case, an offer was made by Butler Machine Tool Co. Ltd. to Ex Cell-O regarding the sale of machinery. The documents shared by them included a price variation clause. Hereafter, Ex-Cell-O made a counter offer to Butler Machine Tool Co Ltd which indicated they would buy the machinery but only when the terms and conditions of Ex-Cell-O will be exempted with the price variation clause. This offer was inclusive of a tear-off/ detachable receipt. Butler replied on the detachable receipt stating, “we accept your order on the terms and conditions stated therein” while also adding a letter that stated that the contract was being formed on the terms and conditions of Butler.

The said documents were exchanged via post, but before Ex-Cell-O posted its acceptance, Butler decided to withdraw its offer. However, considering the postal rule, an acceptance is considered valid when put into transit via post, even if it is not received by the offeror. As a result, Ex-Cell-O’s acceptance was posted before the receiving of the withdrawal. Subsequently, Butler delivered the machinery, asking for the amount decided upon by the parties originally and an additional amount added as per the price escalation clause. However, Ex-Cell-O had refused to pay the additional amount.

Issues

The primary issue that the Court of Appeal realised in this case was to determine the validity and enforceability of the contract entered into by Butler and Ex-Cell-O, keeping into consideration the conflicting terms and conditions mentioned in the documents exchanged between them. The court of first instance held a judgement in favour of the sellers and passed and ordered for the buyers to pay the additional costs. The buyers, however, appealed against this decision. It was important for the court to establish the exact point at which and on which the terms and conditions of the party had been formed, in the appeal.

The issues were as follows:

1. Was there an offer and an acceptance between the parties?
2. Whose terms were applied if there was an established contract?

Reasoning

The Court of Appeal, in their decision, made an observation that there was an established contract on the terms and conditions of the defendant. The defendant did not accept the offer of the claimant when they delivered their order. On the contrary, they had made a counter-offer. The claimant had accepted this counter-offer when they completed the tear-off slip.^[5] Most of the judges in the Court of Appeal used the conventional approach of ascertaining offer and acceptance to determine whether there was no acceptance conveyed as for the initial offer of the seller that was made on 23 May, 1969.

The traditional approach concerning the concepts of offer and counter-offer adopted by Lawton and Bridge suggested that the reply of the buyer was a counter-offer that was expressly accepted by the seller upon signing and returning the acknowledgement. Lord Denning further opined that this analysis was out of date in many cases and a better approach would be to distinguish the issues of the formation of the contract from the content.^[6] The remedial steps suggested by the court were that of the content for deciding which form or part of which form is the governing term and condition of the contract. Lord Denning suggested three possible resolutions to this problem. He started by mentioning that there may be a traditional approach for the analysis of express or implied acceptance from conduct of the last form exchanged between the parties. Second, the reply of the offeree may differ so materially that it might affect the price. In this case, the buyer may not be allowed to take benefit from the difference until they bring it to the attention of the offeror. Lastly, there might be a concluded contract consisting of varying forms. In this scenario, the terms of both parties to the contract are to be considered alongside. If it is not possible to reconcile the two to bring out a harmonious outcome, the conflicting terms and conditions will be restored by an alternative reasonable implication.^[7]

Their reply dated 27 May, 1969 contained a counter offer since the terms and conditions mentioned in them were different. In their acceptance, the clause associated with price variation had been removed. Butler (the seller) had sent back the acknowledgment slip on 5 June thereby, accepting the counter offer that concluded the contract without the price variation clause. As a consequence, the decision was in favour of the buyers as the sellers were not entitled to add an extra amount. Lord Denning, rather than using a traditional approach, adopted the use of the “battle of the forms” and held in favour of the defendants. He suggested a better approach, which was to obtain from all the documents that were exchanged between the parties along with their conduct through the process to determine whether they had come to an agreement on all material points in spite of any differences between the terms and conditions and the forms. He cited the judgement of Lord Cairn in Brogden v. Metropolitan Railway (1877)^[8] to substantiate this claim.

He further stated that the document exchanged on 5th June, 1969 was the conclusive document. This implied in unambiguous terms that the contract was to be on the terms and conditions of the buyer and not the seller. As a result, this established that on the basis of the material terms of the offers, there was no agreement formed between the parties in this regard. Lord Denning came to a conclusion by stating that since the impugned document did not contain the price variation clause, the case was directed in favour of Ex-Cell-O Corp.^[9]

While reaching this decision, the Court of Appeal encountered and addressed a wide range of key legal principles that were associated with offer, acceptance, and the Battle of Forms. The court had initially applied the well-established postal rule that states that acceptance is deemed to be valid and effective once it is posted. This rule is formulated to promote certainty and avoid any conflicts associated with the timing of acceptance. Thus, even though Butler attempted to withdraw its offer, the acceptance given by Ex Cell-O was held to be valid and binding after it was posted.

In addition to this, the Court of Appeal also took into account the Last Shot Principle and the concept of the Battle of Forms. They discussed the idea of the Battle of Forms, a problem that frequently arises in business transactions where the parties employ standard forms with varying terms and conditions. The final set of terms and conditions put out by either party prior to the creation of the contract shall govern, according to the last shot rule. In this instance, Ex Cell-O's acceptance was posted before the withdrawal could be submitted. In the Battle of Forms, this forms as the final shot. Therefore, the terms and conditions set forth in the acceptance of Ex Cell-O became the governing and primary terms and conditions of the agreement between the two parties of the contract. This superseded the terms Butler had suggested in their opening quotation.^[10]

Impact

As far as the impact of the decision is concerned, the judgement in Butler Machine Tool v Ex Cell-O has resulted in significant implications in the realm of contract law. In particular, the situations that are associated with the Battle of Forms. The Court of Appeal, while reaffirming the postal rule, supported the importance of considering the exact moment when acceptance is posted rather than when it is received. The present judgement serves as a warning to the parties that engage themselves in contractual negotiations to be mindful while using standard forms with conflicting terms. The principle of the application of the last shot could result in unexpected and unintended consequences since the final set of terms and conditions exchanged between the parties to an agreement will govern the contract.

In the present case, the principle of the “last shot” as derived from the case of Hyde v Wrench (1840)^[11] was applied, which states that the last set of terms and conditions suggested by one party before the formation of a contract shall prevail. Hence, the acceptance of Ex Cell-O was the last communication before the establishment of the contract between the parties, thereby making them the governing terms of the contract. In furtherance of getting to a final judgement and gaining a comprehensive understanding of the Battle of Forms issue, the Court of Appeal referred to various cases that involved similar issues. One such case was Brinkibon Ltd. v Stahlwarenhandelsgesellschaft MBH [1983] 2 AC 34 (House of Lords).^[12] The House of Lords, in this case, established that for an acceptance to be valid, it must be communicated to the offeror. The postal rule shall apply only when acceptance is authorised to be communicated through post either expressly or impliedly. Further referring to the case of Tekdata Interconnections Ltd v Amphenol Ltd. (Court of Appeal) [2010]^[13], the significance and relevance of the “mirror image” rule was underlined. It shed light on the fact that an acceptance must mirror the terms and conditions of the proposed offer without modifying or altering it to validly form a contract.

Conclusion

Consequently, the case highlights the need for clear and effective communication while negotiating a contract. The parties must also make sure that any change or withdrawals made to the offer are communicated effectively to avoid any unintended contract formations. The judgement of this case encourages businesses to adopt a sturdy practice of entering into contracts. The parties involved in such contracts may choose to adopt comprehensive methods like utilising well-drafted and agreed upon terms before they exchange acceptance. This is important to bring into practice to reduce vagueness in contracts and curtailing the possibility of risks and conflicts arising out of Battle of Forms.

In conclusion, the case of Butler Machine Tool Co. Ltd. v. Ex Cell-O Corporation (England) Ltd.^[14] is a case law with considerable significance in contract law that provides helpful information with regard to figuring out the governing provisions of contracts related to the Battle of Forms. The Court of Appeal addressed the criteria that courts use to decide disputes that arise from contradictory standard forms exchanged between the parties during contract negotiations by delving into the Battle of Forms and Last Shot theories.

^[1] Gibson v Manchester City Council[1979]# 1 WLR 294

^[2] RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh [2010]# UKSC 14, [2010] 1 WLR 753.

^[3] Rick Rawlings, “The Battle of Forms” ‘The Modern Law Review’ [1979] JSTOR 42, 6

^[4] Thomson Reuters Practical Law, ‘Battle of the Forms’ (Westlaw, 2023) ,https://content.next.westlaw.com/practical-law/document/Idb88f14e44fd11e9adfea82903531a62/Battle-of-the-Forms?viewType=FullText&transitionType=Default&contextData=(sc.Default)#:~:text=In%20a%20sale%20of%20goods,instead%20of%20signing%20an%20agreement.> accessed 7 August, 2023.

^[5] Vallika Varshri, ‘Case Summary: Butler Machine Tool Co Ltd vs. Ex-Cell-O Corp (England) Ltd’ (Lawlex, 18 June 2020) accessed 7 August 2023.

^[6] Rick Rawlings, “The Battle of Forms” ‘The Modern Law Review’ [1979] JSTOR 42, 6

^[7] Rick Rawlings, “The Battle of Forms” ‘The Modern Law Review’ [1979] JSTOR 42, 6

^[8]  Lord Cairn in Brogden v. Metropolitan Railway (1877): HL [1877] LR 666.

^[9] Rick Rawlings, “The Battle of Forms” ‘The Modern Law Review’ [1979] JSTOR 42, 6

^[10] Mary J. Sharif, ‘“Revisiting the Battle of the Forms: A Case Study Approach to Legal Strategy Development” [2009] SSRN accessed 7 August 2023.

^[11] Hyde v Wrench (1840) 3 Beav 334

^[12] Brinkibon Ltd. v Stahlwarenhandelsgesellschaft MBH [1983] 2 AC 34 (House of Lords)

^[13] Tekdata Interconnections Ltd v Amphenol Ltd. (Court of Appeal) [2010], [2009] EWCA Civ 1209; [2010] 2 All ER (Comm) 302; [2010] 1 Lloyd’s Rep 357; [2009] 2 CLC 866; [2010] CLY 2832

^[14] Butler Machine Tool Co. Ltd. v Ex Cell-O Corporation (England) Ltd. [1979] 1 WLR 401

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