The application of standard conditions under framework agreements

The Scottish Court of Session has considered whether standard terms applicable under a framework agreement had been ousted by a “battle of the forms” during placement of orders under the framework. The Court’s decision shows that such standard transactional documentation is unlikely to displace terms otherwise applicable under a framework agreement.

Caledonia Water Alliance v Electrosteel Castings (UK) Limited

Electrosteel entered into a framework agreement with Scottish Water based on the NEC3 Framework Agreement to supply, among other things, ductile iron pipes and related materials (the “Framework Agreement”). The purpose of this agreement was to allow Scottish Water or those working for it to place orders with Electrosteel on the pre-agreed terms and prices set out in the Framework Agreement. To this end, the Framework Agreement included a copy of Scottish Water’s Terms and Conditions of Contract for the Purchase of Goods and Services under a Framework Agreement (the “SWT&Cs”) which were to apply to orders under the Framework Agreement.

Scottish Water entered into an Alliance Agreement with the Caledonia Water Alliance (“CWA”), a joint venture, for the design and installation of water pipes for a project known as the South Edinburgh Resilience Scheme (“SERS”). This agreement was based on the NEC3 Option C (Target Contract) terms. The Alliance Agreement obliged CWA to procure goods and services from suppliers, such as Electrosteel, with whom Scottish Water had agreed contracts under an overarching framework.

Between June 2018 and May 2022, CWA placed 60 orders with Electrosteel for ductile iron pipes for the SERS project. Each order was made via a purchase order from CWA followed by an order confirmation from Electrosteel. Both the purchase orders and the order confirmations contained standard wording seeking to incorporate each party’s standard terms and conditions. A dispute arose over whether either of these terms and conditions applied in preference to the SWT&Cs required by the Framework Agreement.

Framework terms applied

The Scottish Court of Session found that the SWT&Cs applied to the contracts despite the wording in the purchase order and order confirmation documents.  The decision was based on several key points:

1. Awareness of framework terms: Both parties were aware that their relationship was intended to be governed by the Framework Agreement, which included the SWT&Cs. In particular, a “supplier guide” prepared by Electrosteel stated that the Framework Agreement had been awarded without any deviations from the SWT&Cs, reinforcing the expectation that these terms would govern the relationship.
    
2. Objective consideration of party communications: The Court emphasised an objective consideration of all communications and actions between the parties. This included the initial setup of the relationship, the exchange of purchase orders and order confirmations, and the consistent reference to the SERS project and Scottish Water. Despite both parties’ documentation referring to their own standard terms, there was no evidence that either party intended to deviate from the SWT&Cs. The Court noted that the automatic inclusion of standard terms in the documentation was a common practice in the industry and did not reflect an intention to override the Framework Agreement.
    
3. Party actions under the Framework Agreement: Electrosteel’s invoices bore an account number which had been specifically set up for transactions under the Scottish Water Framework Agreement. Electrosteel also paid rebates on these invoices to Scottish Water as it was required to do under the Framework Agreement.
    
4. Common purpose: The Court also noted that its interpretation was supported by the parties’ joint purpose to participate in Scottish Water’s framework arrangement. This purpose supported the application of the SWT&Cs as intended by the Framework Agreement.  

Conclusions and implications

This case provides an interesting example of the tension that can arise between standard terms agreed in advance as part of a framework agreement and divergent statements made between the parties when orders are placed or work is “called off” under the framework arrangement. As this decision shows, standard wording which has unthinkingly been included in transactional documentation is unlikely to displace any standard terms and conditions mandated by an overarching framework agreement. Parties who do wish depart from such standard terms will need to signal their intentions with greater specificity.

References: Caledonia Water Alliance v Electrosteel Castings (UK) Limited [2024] CSOH 87