Category: Contract

Unilateral promise within an employment context

Contract, Unilateral Promise

A short Outer House judgment of Lord Malcolm from the end of July 2016 has caught this blogger’s attention for its reference to the peculiarly Scots obligation of unilateral promise. In Fisher v Applied Drilling Technology international Ltd the pursuer was arguing that his employer had undertaken to offer him an enhanced redundancy package. There was nothing express in his contract of employment making the commitment, rather the pursuer’s case rested on the basis of “an implied term arising from what is said to be a longstanding policy or practice to offer enhanced redundancy payments” (para [1]). Such an approach would usually rest upon a contractual analysis, but Lord Malcolm makes an interesting suggesting in paragraph 24 of his judgment:

“[24] In Park Cakes (paragraph 35) it was noted that an analysis by way of offer and acceptance “may seem rather artificial, as it sometimes does in this field”. In Scotland, unlike south of the border, we might discuss this in terms of an enforceable unilateral promise created by an inference from facts and circumstances which bar an employer from denying liability. In any event, it seems plain that no hard and fast rules can be laid down. Every case will depend upon its own facts, with phrases such as “reasonableness”, “notoriety”, “certainty” and “widespread knowledge and understanding” regularly figuring in judges’ opinions. The open-ended nature of the description of the proper approach to questions of this nature, as outlined in the cases referred to at the hearing, militates against dismissal without evidence.”

This is worthy of note. Lord Malcolm is suggesting that an employer might be taken to have made an implied unilateral promise to offer the employee an enhanced redundancy package, the implication deriving from an established common practice of the employer (the practice is described in paragraph [2] of the judgment).

The defender’s plea to have the action dismissed was rejected by Lord Malcolm, so we will expect to see much more being said about the conduct of the employer which could amount to an implied promise as the action proceeds. But it offers an attractive added dimension to the case of an employee in the position of the pursuer: a unilateral promissory based approach would not need to demonstrate any actions constituting acceptance on the part of the employee, merely actions which might demonstrate an intention on the part of the employer to be bound. Of course, given that the promise is said to be an implied one, one would expect the employee to have to demonstrate very clear conduct from which the inference of promissory intent can be implied.

Lord Malcolm draws attention to the requirements needed for a promise at the end of his judgment (paragraph [26]), when he notes:

“paragraph 35 in Lord Hodge’s judgment in Royal Bank of Scotland [v Carlyle] is of interest. It highlights that Scots law will enforce a unilateral undertaking that is intended to have legal effect, notwithstanding an absence of consideration. Such an undertaking may, but need not be, collateral to a separate contract, and will be subject to an objective test, ie that which a reasonable outside observer would infer from all the circumstances.”

It will be of interest to follow the progress of this case to see whether the pursuer takes sufficient care to describe the conduct from which an unequivocal promissory intent could be inferred by a reasonable observer.

The “natural meaning” approach to interpreting contracts in the Court of Session

Contract

The decision of the Supreme Court last year in Arnold v Britton hinted at a shift in the thinking of the current Supreme Court justices in relation to the proper approach to the interpretation of contracts. In marked contrast to the scepticism of the Lord Hoffmann dominated House of Lords in relation to using the natural meaning of words as the starting point when interpreting a contract, the justices in Arnold showed themselves to be much more open to the utility of using natural meaning as an interpretative tool, and to not artificially creating ambiguities in the text of a contract in order to justify deviating from the natural meaning. Lord Neuberger referred in Arnold to the “sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it”, adding that this did not “justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning” (para 18). Since Arnold, there have been signs that there is also a receptiveness in the Scottish bench to a shift away from the choppy waters of Lord Hoffmann’s wide matrix of fact approach to the safer harbours of a more traditional approach. Such signs have manifested themselves again in the latest decision of the Inner House of the Court of Session on the subject, Hill v Stewart Milne Group Ltd [2016] CSIH 35 (in which the bench comprised Ladies Smith and Clark and Lord Brodie, the latter delivering the most substantial judgment).

Hill concerned a dispute about the interpretation of a clause (2.13) in a contract entitling the pursuers, the Hill brothers, to a stipulated monthly penalty (not challenged as unenforceable under the penalty rule) to be paid by the defenders, Stewart Milne Group Ltd and Gladedale (Northern) Ltd, for each month after March 2008 in which certain sewerage works of the defenders, to which a development of the pursuers’ was to be connected, remained to be “completed and commissioned”. The defenders argued that the works had been completed, while the pursuers denied this, the issue between the parties turning on the proper interpretation of the phrase “completed and commissioned”. The pursuers’ principal argument was that the proper interpretation of that phrase fell to be made by reference to another clause (2.9) in the parties’ agreement, which referred to a requirement falling on the defenders to notify the pursuers within twenty-one days of the sewerage system having “been fully completed to the satisfaction of all relevant statutory authorities”. Because the relevant statutory authority, Scottish Water, had identified snagging issues with part of the works remaining for some considerable time after March 2008, despite those works being otherwise operational, the pursuers contended that this meant that, under clause 2.13, the works remained incomplete and un-commissioned (and thus that the monthly penalty sum continued to be owed). At first instance, the Sheriff had found in the pursuers’ favour, holding that they were owed £345,000 for the ongoing delay in the completion of the works. On appeal, the Inner House overturned this finding, holding that the Sheriff had approached the interpretation of clause 2.13 incorrectly.

A number of points are noteworthy in the substantive judgment of Lord Brodie on the interpretative question:

(1) The starting point: Lord Brodie takes as his starting point on contract interpretation the succinct summary of Lord Neuberger in Arnold:

“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101,para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.”

Lord Hoffmann is quoted in this summary of Lord Neuberger, but it is noticeable that the summary also makes express reference to the “natural and ordinary meaning of the clause”, a concept for which Lord Hoffmann had no time whatsoever. There is also reference to “commercial common sense” (language described by Lord Hope in another case involving Stewart Milne as a “makeweight”), a concept to which further reference is made below. The mention of the idea of the natural meaning of the words of the contract as the very first of the matters listed by Lord Neuberger makes for a striking contrast with the approach of Lord Hoffmann, and the reference by Lord Neuberger to Lord Hoffman looks, in that light, to be something of a polite piece of judicial realpolitik, intended to recognise the extent to which the Hoffmann approach has bedded in, before his Lordship sets out a new, preferable approach, one in which the natural meaning of words figures prominently (albeit as only the first consideration among a number of others). That Lord Brodie should begin his own comments on interpretation by referring to Lord Neuberger’s views looks to this blogger to be a clear sign of receptiveness in the Inner House to the shift away from the Hoffmann approach.

(2) The order of the words used: A further sign of the somewhat more traditional approach favoured by Lord Brodie is that he makes use of the order in which words appear in the contract as signifying temporal succession. His Lordship takes the view that the phrasing “completed and commissioned” suggests that completion is to be understood to be a temporally prior event to that of commissioning:

“… looking to the natural and ordinary meaning of the phrase, it can be said that the systems were “completed and commissioned” by December 2008. That conclusion is reinforced if it is to be inferred from the order of the words that commissioning is something that comes after completion, as would seem to make sense. What I mean by that is that the word order suggests the stage indicated by “completed” is a stage necessarily prior to the stage indicated by “commissioned” (para 31).

This approach places store on the importance of the text of the contract as drafted, suggesting that it is entirely legitimate to view the words chosen by the drafters of the contract as the best evidence of the underlying intention of the parties. We are some way, in such an approach, from the liberal “red pen” attitude to drafting of Lord Hoffmann.

(3) Unconnected clauses – independent meanings: The most significant piece of traditional thinking is seen in Lord Brodie’s attitude to the relationship between the wording in clauses 2.9 and 2.13. The Sheriff had taken the view that, because the word “completed” appeared in both clauses, the concept of completion was to be interpreted in a “unitary” fashion (and therefore that completion could not be taken to have occurred until the conditions required for notification in clause 2.9 were met). While Lord Brodie agreed with the Sheriff that
“construing any particular contractual provision requires examination of the other provisions and that, as a matter of generality, it would be wrong to read a particular provision (here clause 2.13) in isolation”, his Lordship took the view that a unitary interpretation was not appropriate in the context of this contract. He notes that:

“the result of such an examination may be to find that the various provisions inter-relate to a greater or lesser degree. Some may be inter-dependant [sic]. Some may be free-standing. It will be more readily apparent that provisions are inter-dependant where their drafting is coherent and consistent.” (para 33)

This is an important point. Merely because a similar phrase is used in different clauses does not mean that it serves the same purpose and hence warrants the same interpretation. Clauses in a contract may well serve independent purposes, and thus ought to be interpreted in a way which does not presume that a similar phrase in them was necessarily intended to convey the same meaning in one context as in another. Summing up this point, Lord Brodie comments:

“… any expectation of coherence in a contract may have to give way before the actual wording used by the parties to it. Where the wording is consistent then it may be assumed that the meaning is intended to be consistent. It is different where the wording is not consistent.”

In this contract, the wording was not consistent: cl 2.9 spoke of a date when the works “have been fully completed to the satisfaction of all relevant authorities”, and tied the concept of “completion” in that clause to this date; cl 2.13 spoke of the works being “completed and commissioned”. The wording and the purpose of each clause was different.

Building on this analysis, Lord Brodie sums up with a very clear defence of the importance of treating different wording differently, in accordance with the natural meaning of the phrase in question (emphasis added):

“Generally, when one is construing a text of any sort, if different words or combinations of words are used then it is to be presumed that different meanings are intended. I accept that if the words used are unclear or the drafting is otherwise poor, the more ready the court can properly be to depart from their natural and ordinary meaning. However, that does not justify the court in searching for or constructing drafting infelicities in order to justify a departure from the natural meaning: see Lord Neuberger in Arnold at paragraph 18. The language of the provision being construed is of prime importance and its meaning is most obviously to be gleaned from that language: see Lord Neuberger in Arnold at paragraph 17. In other words the meaning of a provision is primarily to be understood from the natural and ordinary meaning of the actual words used.” (para 34)

The message is very clear, and the supporting reference to Lord Neuberger in Arnold very pointed. Lord Brodie adds a remark which will be of particular interest to those drafting contracts:

“If the intention was to link 2.13 back to 2.9, the draftsman could have used that expression again to import “fully completed to the satisfaction of all relevant statutory authorities” into the Longstop clause. The draftsman did not, however, do so. Whilst that may not be determinative, it certainly puts in question the sheriff’s “unitary” construction of the paragraphs under consideration.” (para 34)

So, if a similar though not identical phrasing is to be used in different parts of a contract, and a drafter wishes the phrases to bear the same meaning despite the difference in wording, a clear link will need to be made between the clauses to show that the same meaning is intended. Going further, of course, one might suggest that providing a definition clause in which the phrase in question is defined would be the surest way of preventing any dispute from arising in the first place.

(4) Commercial common sense: Lord Brodie undertakes a short discussion of the idea of the “commercially sensible” approach to contract interpretation. This blogger has shown a degree of scepticism in the past of the extent to which this concept may prove helpful to courts (given that parties will often be able to adduce perfectly reasonable but opposing commercially sensible considerations, which courts may not be best suited to arbitrate), and to some extent Lord Brodie’s judgment also reinforces the risk in using such a concept to reach a preferred interpretation of a contract. First, he notes that:

“The sheriff saw what she considered was the commercial purpose of the agreement as supporting her construction of clause 2.13 … With all respect to the sheriff, this seems to amount to no more than an assertion on her part with nothing much by way of underpinning in the findings-in-fact (presumably because no relevant evidence was led).”

To this blogger’s mind this criticism highlights that the perennial trotting out of the idea by courts in support of preferred outcomes may have created a culture where it is used in an unreflective way. If “commercial sense” is indeed a makeweight, as Lord Hope previously suggested, it is nonetheless one which, if referred to, will require some support from an analysis of the commercial considerations underpinning the contract.

Second, in discussing the parties’ conflicting suggested interpretations of clause 2.13, Lord Brodie appears to this blogger to suggest (in para 37) that the differing outcomes deriving from each interpretation might each be argued to have some commercial sense underpinning them. That being so, it is unsurprising that he appears ultimately to place no reliance on the conflicting arguments about commercial sensibility in reaching his preferred interpretation. In this blogger’s eyes, we have another example of a case where the vague concept of “commercial sensibility” has been shown to be of elusive assistance in a court’s deliberations.

Overall, this is an interesting and noteworthy decision of the Inner House. The result reached by Lord Brodie and his judicial colleagues looks to this blogger to be the right one. The decision does a number of things: (1) in general, it sets down a marker that the Court of Session appears to be receptive to the flow of contract interpretation doctrine in the Supreme Court away from the Hoffmann “wide matrix of fact” approach (in which interpretation and rectification became so blurred as to be almost indistinguishable) towards a more traditional approach in which the courts begin from the natural meaning of the words used, in the expectation that the parties intentions will usually best be found within the context of the words of the written contract; (2) it reminds us that, while the entire contract forms the context in which words in particular clauses are to be interpreted, similar phrases in unconnected clauses need not be interpreted in a uniform way; and (3) it also reminds us that citing commercial common sense is not some totem which can magically justify a specific interpretation. If commercial common sense is to be cited in support by a court, that court must explain clearly what the commercial factors at play are, and why they support a particular outcome; even then, when commercial common sense is examined, it may be found that equally plausible arguments can be advanced on each side of the debate, so that the concept furnishes no support to the interpretative task of the court.

Donations obtained by misrepresentation

Contract, Delict, Unjustified enrichment

An interesting letter published in a recent edition of the New York Times was brought to my attention:

“I’m on the art-museum board, so that is my preferred artistic donee. An acquaintance repeatedly called me for a donation to the opera. I don’t like opera. I said he should donate to the art museum. He said he’d give to the museum whatever I gave to the opera. We agreed on $10,000 apiece. He called the next four years and offered to make the same deal. I accepted each year. As I was looking through our donor list for unrelated reasons, I discovered he has been giving only $1,000 a year. I sent him an e-mail telling him of my discovery, and he responded, “Nailed me.” As if it were funny. What is my ethical response? Demand my excess back from the opera? Threaten to sue him if he doesn’t pony up to the museum? Gossip? T.S., LOCATION WITHHELD”

The author of the letter asks what the ethical response would be, but the facts make interesting ones when considering any possible legal remedies. What follows are some observations on whether, under Scots law, any remedy would be available to ‘T.S.’ – let’s call T.S. ‘A’ for ease of reference, and his (or her) friend ‘B’, the opera company to which A donated, ‘C’, and the museum to which B donated ‘D’. I am assuming for present purposes that C knew nothing of B’s deception (the letter gives no suggestion of any such knowledge on C’s part); complicity by C in B’s fraud would likely render it liable to repayment, based on the rule applicable in Scots law against profiting from another’s fraud. Any comments on my preliminary thoughts on this problem would be welcome.

Does A have any remedy against B? One could argue that A and B stand in a contractual relationship towards each other: their precise relationship would arguably be constituted by consecutive, discrete contracts in each of the five years in question, each of the parties having annually contracted to make matching donations of a stipulated amount to a stipulated recipient. There is certainly sufficient agreement on the essential terms of a contract. The only objection might be that, while such agreement existed, there was a lack of contractual intent: all that there was, it might be said, was an understanding, binding in honour only, between the two. On the other hand, there is a reasonably substantial pecuniary element to this arrangement, and third parties are intended to benefit under it, so a court might well feel that these arrangements were sufficiently serious to demonstrate contractual intent.

If the relationship is contractual, however, each of the contracts appears to have been formed as a result of B misrepresenting (probably fraudulently) his intentions; furthermore B appears to have breached each contract by failing to make the full payment agreed. A misrepresentation inducing a contract is actionable in delict, and a breach of contract in, of course, contract itself. (If there is no contract between the parties, then A might still seek to make a claim in delict unrelated to any alleged contract which flowed from the misrepresentation: the misrepresentation, made directly by B to A has still caused the losses discussed further below, and although these are pure economic losses the relationship of the parties seem sufficiently proximate to justify a claim in delict.)

A subsidiary contractual question also arises: if the annual undertakings to make the donations are indeed contractual in nature, could one also argue that, under Scots law, the two stipulated recipients (the opera company and the art gallery) are third party beneficiaries deriving a jus quaesitum tertio from such contracts? There is certainly an intention on the part of the contracting parties to benefit the third parties in question, but the stumbling block (post the Carmichael case) would appear to be that there is no delivery of the contract, or any equivalent (e.g. informing the intended recipients about the arrangement), and without this there can be no concluded third party rights. So, D would have no direct claim to enforce B’s undertakings in contract.

In respect of both B’s misrepresentation to A and B’s breach of contract, damages are A’s obvious remedy, in the misrepresentation case damages designed to put A in to the position he would have been in had the misrepresentation not occurred. In assessing A’s counterfactual position, a court would imagine circumstances where B had made an accurate representation, i.e. where he had represented that he would give the amount which he in fact gave, i.e. £1,000 (we shall call it pounds, not dollars), rather than £10,000. Had that been the representation made by B, then A would only have pledged to match such an amount with a £1,000 donation (£9,000 less than what he in fact gave). An award of £9,000 per annum for each of the five years would thus be the measure of A’s losses flowing from the misrepresentation, i.e. £45,000 in total over the five years in question (this would be so whether or not A and B were in a contractual relationship).

In a breach of contract case, damages would be designed to put A in to the same position he would have been in had B performed his obligations: had B in fact paid £10,000 per annum, A would still have done exactly as he did, i.e. he would still have given £10,000 per annum to the opera company. So A is no worse off as a result of B’s breach of contract, and no contractual damages are due to him, something which clearly makes a contractual claim less desirable to A than a delictual one.

Turning the focus away from a possible claim against B, might there alternatively be a way for A to reclaim the sums paid by him directly from C either in unjustified enrichment or in donation? In unjustified enrichment, the factual circumstances seem to match up most closely with the condictio causa data causa non secuta, the claim for something given for a cause (i.e. reason) which does not transpire. A’s argument would be that his transfers of funds to the opera company were made in order to secure a matched donation to the art gallery: this was the causa of A’s donation. Such causa did not follow – causa non secuta – B not making the matching donations, so A’s transfers to the opera company failed to secure the purpose for which they were made. However, A seems to have made these donations without disclosing his reasons for so doing to the recipient, C. That is a somewhat unusual case, as the question of whether or not a causa has been disclosed to the recipient of a transfer usually only arises in relation to two party cases, whereas in this case A has agreed with B to make a conditional transfer to C. Nonetheless, just as in two party cases any causa must, to be relevant, be express or able to be reasonably implied from the circumstances of the transfer, so I would argue it must be in the case of a transfer to a third party: if such a transfer was made by A to C without disclosing the causa for which it was made, A should not be able to make a claim based upon the condictio causa data against C (the same reasoning would apply in any claim based upon the law of donation: an undisclosed condition cannot found a claim that the donation was conditional and that the condition was unfulfilled). Even without this fundamental objection to an unjustified enrichment claim by A, C would be able to plead the defence to an enrichment claim of ‘change of position’: the money donated will likely have been spent by the opera company.

So, at first glance, the problem disclosed in the above letter would, under Scots law, seem to afford A with a damages claim in delict against B, but no claim against C.

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Two recent decisions on the battle of the forms (i.e. conflicting standard conditions of contract)

Contract

Two decisions of the courts in recent months have focused on a seldom litigated aspect of contract law: the so-called ‘battle of the forms’, or, to put it less figuratively, on the question of what is to happen when parties’ standard terms of contract conflict and there is a dispute as to which set of terms should prevail. The two judgments are analysed below.

(1) Specialist Insulation Ltd v Pro-Duct (Fife) Ltd
The first decision is a judgment of Lord Malcolm in the Outer House of the Court of Session: Specialist Insulation Ltd v Pro-Duct (Fife) Ltd [2012] CSOH 79. The litigation raised a number of contractual matters, the relevant one for the present discussion was whether or not an adjudication clause had been incorporated into the parties’ contract; if it had not, then the decision of an adjudicator in relation to a dispute between the parties to which the defender had objected as incompetent would not be binding on them. Somewhat unusually for a battle of the forms case, both parties were insisting that the other side’s terms and conditions should apply.

The parties’ contract had been preceded by two written communications between them:

(i) on 29 October 2010 the pursuer sent a quotation for the supply of ductwork in the sum of £216,819.40. This had stated that the supply was “subject to our standard terms and conditions of trading (available on request)”. These terms provided inter alia that any additional conditions of the defender’s were excluded unless agreed to in writing by the pursuer, that the pursuer’s terms were to prevail in the event of any inconsistency with any other terms, and that any dispute relating to the conditions or the sale was to be referred to arbitration;

(ii) in response, a purchase order was submitted by the defender. Along with this, although not referred to in it, the defender forwarded a document headed “Pro-Duct (Fife) Ltd – Material Supply only Sub-contract Agreement”. This document, though its heading referred to ‘material supply only’, narrated that the defender wished to engage the “sub-contractor” (i.e. the pursuer) to carry out certain work (“the sub-contract works”) on a “labour only basis”. There was thus an internal inconsistency as to the nature of the contract envisaged, between its being either ‘material supply only’ or ‘labour only’. The price of works was stated as £211,469.12 (note the difference to the price stated by the pursuer). This document was executed on behalf of the defender. Immediately below the defender’s signature was the heading “Executed on behalf of the sub-contractor”, and then space for the name, signature and date of signature on behalf of the sub-contractor. This document was never executed on behalf of the pursuer. One of the terms in this document was a clause stating that “Either party may refer such disputes as may arise under this contract to adjudication at any time”. It was this clause on which the pursuer sought to rely.

As is obvious, the two conceivable sets of terms governing the parties’ contract were manifestly inconsistent (and, additionally, the defender’s terms were internally inconsistent as to the nature of the contract). The defender sought to apply the pursuer’s terms (which made no provision for adjudication); the pursuer sought to apply the terms in the defender’s document attached to the purchase order, which did. Lord Malcolm disposed of an initial question – was there a contract at all? – by stating: “It would be unrealistic to hold that the parties had not reached an agreement that the ductwork should be supplied at the specified price”. Curiously, Lord Malcolm does not make clear (at least to this observer) which ‘stated price’ he means: was it the pursuer’s suggested £216,819.40, or the defender’s suggested £211,469.12? Ignoring that troubling question, having held that there was a contract, Lord Malcolm recognised that there was a conflict between the two conceivable sets of terms which might govern the contract: “it is difficult to reconcile all of its [i.e. the defender’s document] terms with the purchase order, which relates to an order for the supply of movable goods, as opposed to an agreement to carry out sub-contract works on a labour only basis. Amongst other things it provided that the “sub contract works” were to be “in accordance with the following schedule and conditions”. It appears that this was a reference to the other forwarded document headed “Conditions of Sub-contract Agreement”. It is clear that these conditions were intended to relate to construction or engineering works, or something of that nature.”

In Lord Malcolm’s view, the original quotation of the pursuer was an offer; on the assumption that the response of the defender (the purchase order, with attached document) was a counter-offer, this envisaged that it was to be accepted by the document being signed by the pursuer. It was not. The sending of the goods by the pursuer was therefore not referable to the defender’s counter-offer, but was referable to the terms of its original quotation (which had stated that the pursuer’s terms were to apply, unless it agreed otherwise). The defender, in accepting the goods, had therefore accepted the pursuer’s terms, and the contract was concluded on that basis, i.e. without the incorporation of any adjudication clause. Lord Malcolm therefore found for the defender, held the decision of the adjudicator to be invalid, and granted decree of absolvitor.

Lord Malcolm might conceivably have held there to be no contract at all: the pursuer had proposed a contract for the supply of goods; the defender bizarrely appeared either to have proposed a ‘labour-only’ contract, i.e. one for the provision of services, or no contract at all (arguably its terms were inconsistent as to whether the contract was one of supply or of labour, and therefore void for cunertainty). The court could therefore have taken a similar approach to that adopted in Mathieson Gee (Ayrshire) Ltd v Quigley, where one party had proposed a contract of hire of goods, the other of hire and the provision of labour: in that case there was held to be no contract, there being dissensus between the parties as to the nature of the contract. While the same result might have prevailed in this case, a more realistic view is that both parties knew that what was envisaged was the simple supply of goods for an agreed price, the defender’s inclusion of the language of a labour-only contract apparently the result of infelicitous language used because of the attachment of a not wholly appropriate set of standard terms. But if that is right, and there was a contract, there was an evident problem: if the defender’s standard terms used inappropriate or inconsistent language to describe the contract, could those terms be held to govern the contract in any so-called battle of the forms?

The traditional approach to solving such a battle of the forms is to apply a ‘last shot’ analysis: whoever’s terms are stated last are treated as the contractual offer, accepted either by an unqualified agreement to those terms or by performance by the offeree. On that approach, Lord Malcolm’s decision might appear suspect: it was the defender’s terms which were the ‘last shot’ (if one assumes, as Lord Malcolm does, that the document accompanying the purchase order was correctly seen as a proposal of contractual terms), and on that basis the conduct of the pursuer in supplying the goods without any demur as to those terms would, one might have expected, have been seen as an unqualified acceptance of those terms. Moreover, the defender’s reply being a counter-offer, the pursuer’s original offer should have been seen as having been ‘killed off’, and should not have been open for acceptance by the defender; yet Lord Malcolm holds that it was. Is there anything that can be said in favour of Lord Malcolm’s seemingly unorthodox approach, of using the first shot rather than the last shot, and of seeing the original offer as not having been killed off?

Lord Malcolm highlights two matters as being important in his decision: (1) the absence of any signature of the pursuer agreeing to the defender’s terms; and (2) the fact that the terms proposed by the defender envisaged a contract of a type (the provision of labour) which was patently inappropriate to what both parties knew was a contract for the supply of goods. On the first point, Lord Malcolm’s view is that, because the defender’s offer envisaged that it had to be accepted in writing before a contract was concluded, the supply of goods by the pursuer without such a written acceptance ought not to be seen as referable to the defender’s offer, but rather to its own proposed terms: “The pursuer chose not to execute the document proffered by the defender, therefore the goods were supplied on the basis of the pursuer’s standard terms – and, given the silence of the defender in respect of the failure of the pursuer to sign and return the said document, the buyer must be taken as having accepted the goods on the same basis.” That, however, only works as an argument if the original terms proposed by the pursuer were still on the table, and thus still validly able to be referred to as the basis of the supply. Yet, orthodoxy states that a counter offer kills an original offer, so it is hard to see these original terms could still be seen as live. Things might have been otherwise if the pursuer’s terms had been restated at the time of supply, by inclusion along with the goods sent, but they were not (so far as can be ascertained from the reported facts). Only in the rare case where two offers are on the table at the same time, is it possible to attempt to argue that performance relates to one or other, as the case may be. Such cases are very unusual, and one might have expected that if such dual offer reasoning was being utilised, a case of this type might have been cited in support; none was. Instead, Lord Malcolm refers to the dubious idea that the pursuer had ring-fenced its terms by stating, at the outset, that those terms were to apply unless they agreed otherwise in writing in what may be styled an ‘over-riding clause’; but the efficacy of such ‘first shot’ ring-fencing has been specifically rejected in Scots law.

On the second point, Lord Malcolm might be on firmer ground: the defender did seem to be proposing what could be described either as internally inconsistent, and thus incoherent, terms, or else terms for a contract of a sort (labour only) which was patently inapplicable to the envisaged transaction. Holding such terms as governing the contract would have been ludicrous: how could internally inconsistent terms, or terms of a ‘labour only’ contract, govern a contract for the supply of goods? So one might argue that, if such terms could not govern the contract, it would have to be the other party’s terms (clearly specified as relating to a supply only contract) which governed the transaction. This offers a more persuasive way of justifying the result: if the terms proposed by the defender were internally inconsistent, they could not constitute a valid offer (any contract concluded on the basis of them would be void for uncertainty). That would therefore mean that the only valid offer capable of acceptance was that of the pursuer’s, and this offer could be argued to have been accepted by the defender’s conduct in taking delivery of the goods. This argument would, of course, depend on the pursuer’s offer still being open for acceptance, i.e. as not having been impliedly rejected by the issuing of an invalid offer by the defender. That might plausibly be argued, given that existing authority only goes so far as stating that a valid counter offer destroys an original offer; by extension, an invalid offer could be argued as not having destroyed an original offer (it is not, after all, an express rejection of the original offer).

Lord Malcolm does not quite go so far as adopting this reasoning, however, as he seems to envisage the defender’s communication as a valid offer, albeit one subject to some difficulties given the internally conflicting terminology used in it. He prefers to rely mostly on the first (dubious) point noted above, with only secondary reliance being placed on the notion of the defender’s terms being inappropriate for the type of contract envisaged. As such, his decision is open to the legitimate criticism that it is not consistent with the orthodox approach to the battle of the forms, and comes dangerously close to a ‘first shot’ approach which seeks to ring fence the pursuer’s ‘our terms prevail’ provision. It also seems, arguably, to place too much emphasis upon the defender’s expectation that their offer would be accepted by the pursuer’s signature. In a Supreme Court case from 2010 (RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co [2010] UKSC 14), parties’ original intentions that written terms would govern the contract only if accepted in writing, were held superseded by subsequent performance, the need for such written acceptance having been overtaken by such performance. That approach of the Supreme Court seems out of step with Lord Malcolm’s preoccupation with the lack of a signed acceptance by the pursuer of the defender’s terms.

(2) Grafton Merchandising Gb Ltd t/a Buildbase v Sundial Properties (Gilmerton) Ltd
This second decision is an unreported decision of the Edinburgh Sheriff Court, given on 30th January this year. In this case, the defender applied to the pursuer for a trade credit account. The application form which the defender completed and returned contained the pursuer’s terms and conditions. Condition 5(a) of those terms provided that payment for goods supplied on a credit account, unless otherwise agreed in writing by the pursuer, was due and payable not later than the last day of the month following the month of delivery. In an attempt to pre-empt a purchaser relying on the purchaser’s own terms and conditions in a subsequent purchase order, condition 1 of the pursuer’s conditions provided:

“All orders are accepted by the Company solely on these Terms and Conditions, which override any terms and conditions stipulated, incorporated or referred to by the Customer whether in its order or any negotiations. No variation or addition to these Terms and Conditions shall be incorporated into the Contract unless such variation or additions and the Company’s agreement thereto are both expressly agreed in writing.”

This term therefore attempted to act as a ‘first shot’ which would ring fence the pursuer’s conditions and trump any attempt later shots.

The defender submitted a purchase order on 14 April 2009 for cedar deckboard in response to a quotation from the pursuer of the same date. The purchase order referred to the order being subject to the defender’s terms and conditions (which it averred were printed on the back of the purchase order). Condition 15 of those conditions provided that the defender had the right to require the goods to be delivered according to schedules submitted by them, and that it had the right to defer or suspend deliveries. The defender requested that the pursuer store the goods ordered, to which request the pursuer agreed. Two and a half years later, in September 2011, the pursuer wanted payment for the remainder of the goods and rendered an invoice. The defender refused to pay because it had not requested delivery. The pursuer sued for payment on the ground that, under its conditions, the defender was bound to take delivery and pay for the goods. The defender pleaded that, by virtue of its condition 15 which the pursuer had accepted, the defender had not requested delivery, and it did not have to pay until delivery. The odd twist to this particular battle of the forms case was that the defender admitted that the pursuer’s conditions applied, but averred that the defender’s conditions also applied (it did so in order to try to take advantage of one of pursuer’s conditions, condition 5(a), which stated that a buyer did not have to pay for goods until the last day of the month following the month of delivery). This was not therefore a standard case where each party was arguing that its conditions applied instead of the other’s.

Perhaps unsurprisingly, given the apparent non-application of the orthodox approach to the battle of the forms in the earlier decision of Lord Malcolm in Specialist Insulation Ltd v Pro-Duct (Fife) Ltd, that earlier case was relied upon by the pursuer in an attempt to argue that it had ring-fenced its terms through its ‘first shot’. The Sheriff however distinguished this earlier case on the basis that the outcome of Specialist Insulation had been dependent upon the judicial view expressed in it that the defender’s terms envisaged signature as a prerequisite to their being accepted (which had not occurred): it was that factor (in the Sheriff’s view), rather than an attempted ring-fencing of the pursuer’s terms in the ‘first shot’, which had determined that the defender’s terms had not applied. Such ring-fencing as was attempted in condition 1 of the pursuer’s terms in this case could not work as a means of guaranteeing that ‘first shot’ terms prevailed in all cases, because such a ring-fencing clause would only become operative if the terms in which it was contained were unqualifiedly accepted. That was not what had happened: the defender had issued a counter offer when it submitted its purchase order. The pursuer had then proceeded to process the order and had written on or about 16 April 2009 stating that it was in a position to deliver the goods. It therefore appeared to the Sheriff as if the pursuer had to be regarded as having accepted the defender’s conditions, though he was not willing to so hold conclusively until a proof was held on the question of whether, as the defender averred, its terms had been brought to the pursuer’s attention by having been printed on the back of its purchase order.

OVERVIEW: The second of these two decisions is more in line with the orthodox approach to the battle of the forms; by contrast, one has to do some work to make Lord Malcolm’s decision in Specialist Insulation fit with orthodoxy, given its reliance on the somewhat uncertain argument that the defender’s terms could not prevail, despite delivery of the goods by the pursuers, because of the lack of an expected signature. A stronger case (discussed above) might have been made for the result, but supportive reasoning for such a case is lacking from the judgment. It would be surprising to this observer if the reasoning adopted in Specialist Insulation was to find much support in the higher courts.

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