Caledonia Water Alliance against Electrosteel Castings (UK) LTD (Court of Session)

Factual and Procedural Background

This case concerns a jurisdictional dispute arising from the contractual relationship between a joint venture, hereafter referred to as the Pursuer, and a supplier company, hereafter referred to as the Defender. The Pursuer, formed by two companies, entered into an Alliance Agreement with a public water authority, under which it was obliged to procure materials from suppliers contracted under a framework agreement established by the water authority.

The Defender entered into a separate Framework Agreement with the water authority to supply ductile iron pipes and related materials. The Pursuer placed 60 separate purchase orders with the Defender between June 2018 and May 2022 for pipework required for a water infrastructure project in a major city (the "Project"). Each order involved a purchase order from the Pursuer, an order confirmation from the Defender, delivery of materials, and invoicing.

The parties dispute the contractual terms governing their relationship, specifically whether the contracts incorporate the water authority's standard terms under the Framework Agreement or the Defender's own terms of sale. This dispute affects the court's jurisdiction. The court heard a preliminary proof limited to the jurisdictional issue.

Legal Issues Presented

1. Whether the 60 contracts between the Pursuer and Defender are governed by the water authority's Standard Terms (Appendix B of the Framework Agreement) or by the Defender's own terms and conditions of sale.
2. Whether this court has jurisdiction to hear the dispute based on the applicable contractual terms and choice of law and jurisdiction clauses.

Arguments of the Parties

Pursuer's Arguments

• The contracts were project orders under the Alliance Agreement calling off work under the Framework Agreement, thus subject to the water authority's Standard Terms.
• Both parties objectively intended to contract under the Framework Agreement terms, as evidenced by the background, primary objectives, subsequent conduct, and commercial common sense.
• The repeated references to each party’s own standard terms in exchanged documents were due to automated procurement systems and industry practice, not a genuine intention to exclude the Framework Agreement terms.
• The Defender was aware of the Framework Agreement and its obligation to use the water authority’s Standard Terms, and the Pursuer was obliged by the Alliance Agreement to procure materials under those terms.
• The parties’ conduct, including the setting up of the Pursuer’s account with the Defender referencing the Framework and the Defender’s rebate payments to the water authority, supports the application of the Framework Agreement terms.
• Precedents support an objective construction approach, considering the reasonable expectations of honest business people and surrounding circumstances, including conduct after contract formation.

Defender's Arguments

• The contracts were formed between the Defender and one constituent company of the Pursuer, and are governed by the Defender’s own terms of sale, which specify English law and jurisdiction.
• The traditional offer and acceptance analysis applies, with the "last shot" rule favouring the Defender’s terms incorporated by order confirmation.
• There was no common understanding or knowledge by both parties that the contracts were to be governed by the water authority’s Standard Terms.
• The references to each party’s own terms in the exchanged documents were deliberate and reflected the parties’ intention to rely on their own standard terms.
• The Defender was not aware of the Pursuer’s obligations under the Alliance Agreement, nor was the Pursuer aware of the full terms of the Defender’s Framework Agreement with the water authority.
• The Framework/Contract meetings and account setup were administrative and did not have contractual significance.
• Precedents require clear evidence to displace the express terms exchanged by the parties, which is not present here.

Table of Precedents Cited

Court's Reasoning and Analysis

The court commenced by acknowledging the parties’ consensus that contracts were formed by the 60 purchase orders and deliveries, focusing the dispute on the contractual terms governing those contracts and the consequent jurisdictional question.

The court applied an objective test to determine the parties' intentions, considering all communications and conduct, including the surrounding commercial context and shared knowledge, consistent with established Scottish and English case law.

The court found that both parties shared a common understanding from the outset that their relationship was governed by the water authority’s framework, including its Standard Terms. This was evidenced by the parties’ participation in framework arrangements, the Defender’s inclusion on the water authority’s Framework Supplier List, the setup of the Pursuer’s account with the Defender referencing the framework, and the conduct of the parties including delivery and invoicing practices.

The court considered the repeated references to each party’s own standard terms in the exchanged documentation were the result of automated procurement systems and industry custom rather than an intention to exclude the framework terms. The parties’ silence over multiple communications regarding terms and conditions reinforced this conclusion.

The court rejected the Defender’s argument that the parties’ lack of detailed knowledge of each other’s respective agreements with the water authority negated a shared understanding of the governing terms. It held that a common understanding that the framework terms applied was sufficient without both parties knowing the underlying legal obligations of the other.

The court further noted that neither party acted in accordance with their own standard terms in contract formation, such as the absence of signatures or formal acceptance required by those terms, supporting the inference that those terms were not intended to apply.

Finally, the court found that the Defender’s conduct post-contract formation, including issuing invoices referencing the Pursuer’s framework account and paying rebates to the water authority, was consistent with the application of the framework terms.

On this basis, the court inferred that the parties intended to contract on the water authority’s Standard Terms and to ignore the express references to their own standard terms in the exchanged documents. The court acknowledged the high threshold for inferring that express terms are to be disregarded but found the particular facts and commercial context met that threshold.

Holding and Implications

The court held that the contracts between the Pursuer and Defender are governed by the water authority's Standard Terms as set out in Appendix B of the Framework Agreement.

Accordingly, the court repelled the Defender's plea of no jurisdiction and confirmed that this court has jurisdiction to hear the dispute. The case was continued for further procedural directions. No broader legal precedent was established beyond the direct effect on the parties’ contractual relationship and the court’s jurisdiction in this matter.