Chris Felton Dispute Resolution Partner explains how a Court battle over contract terms has left a company with a £110 million liability.
The High Court ruling was given in a case brought by sweet manufacturer Trebor Bassett Holdings against ADT, the fire and security company, and it’s prompted a reminder to business to check their supply procedures.
When a supplier provides a quote to provide goods or services on standard terms, and the purchaser accepts the price but counters to say it will be on their standard terms, the contract will normally be on the terms of the party that fires the last shot, although the courts will take into account relevant surrounding circumstances.
In this latest ruling, Trebor, the sweet manufacturers, were moving production lines to a new factory. They invited ADT to quote for the installation of a fire-prevention system, which was provided, subject to ADT’s terms and conditions. The quote was accepted using a purchase order which said that the contract was to be on Trebor’s standard terms, and that these had already been supplied.
When a fire broke out and destroyed Trebor’s new factory, they sued ADT and this is when the issue of whose terms would apply became crucial, as ADT’s terms would have limited liability to £14,000 whereas Trebor’s claim for damages was £110 million.
ADT claimed that they had supplied Trebor with a revised specification and quote that was drawn after work started, but the judge found that there was no evidence that the revised specification and quote had been delivered to Trebor. As a result, the work had been carried out on the basis of the Trebor purchase order. Although ADT had argued that Trebor’s standard terms had not been supplied to them, the Judge held that the fact that the purchase order stated that the terms had been supplied was enough to put ADT on enquiry as to what the terms were.
As Chris Felton explains: “A contract is formed when one party makes an offer and the other party accepts that offer. If A offers to do a job for £500 on his standard terms and B accepts the figure of £500 but says the job is to be done on different terms, the law regards this as a counter-offer. If A goes ahead and does the work without further negotiation he will be treated as having accepted B’s counter-offer. This is why the basic rule is that, where there is a battle of forms, the terms of the party who fired the last shot will normally apply.
“Large companies often use purchase order forms when buying goods or services. These forms will usually state that the purchase is made on the buyer’s terms, as in this case, even though the supplier will usually have delivered a quotation saying that the goods or services are supplied on their terms. Small to medium-sized businesses need to be aware of this when quoting for large companies and must realise that specifying terms in their quotation is not conclusive.” Chris added: “The case is also a reminder to make sure that the terms of business are actually communicated to the other party, it’s not enough to just say they exist. Even though Trebor were lucky to get away with it here, the best advice must always be to provide a copy of one’s terms or, at the very least, to say exactly where they can be viewed, for example, on one’s website.”