Caledonia Water Alliance v Electrosteel Casting (UK) Ltd

[2024] CSOH 87 

In June 2015, Caledonia Water entered into an alliancing agreement, based on the NEC3 Target Contract Option C, which allowed Scottish Water to engage Caledonia Water to carry out project orders. This Alliance Agreement obliged Caledonia Water, subject to certain conditions, to obtain items of plant, material and services from suppliers with whom Scottish Water had agreed contracts under an overarching framework. In February 2016, Electrosteel entered into a framework agreement with Scottish Water, the purpose of which was to allow Scottish Water (and others) to order plant and materials from them on the basis of agreed terms. 

Caledonia Water ordered substantial quantities of ductile iron pipe from Electrosteel. Between June 2018 and May 2022, there were 60 orders in various quantities. In each case, the orders were made by a purchase order from Caledonia Water to Electrosteel followed by an order confirmation from the Electrosteel to Caledonia. Each order constituted a separate contract.

Caledonia Water argued that each contract was a project order, made under the terms of the Alliance Agreement, calling off work in terms of the Framework Agreement. Electrosteel said that the contracts were regulated by their terms and conditions of sale. Under Electrosteel’s T&Cs, English law applied; under the Alliance Agreement, Scottish law applied.

Lord Richardson noted that the orders were placed, the materials delivered and the invoices paid. The dispute between the parties was not whether contracts were formed but rather on what terms. If Electrosteel’s terms applied, then the Scottish courts did not have jurisdiction. To determine which terms applied, Lord Richardson took three propositions from previous case law: 

1. Where there would appear to be a conflict between the parties’ intentions, it was all the more important to approach the question of what the parties intended objectively.
2. The general rule is that a traditional offer and acceptance analysis, which often results in the “last shot” determining the outcome, is to be applied. Such an approach has the significant benefit of providing “a degree of certainty which is both desirable and necessary in order to promote effective commercial relationships.” 
3. However, it was clear that where there was express agreement between the parties or such an agreement could be inferred, it may be concluded that the parties intended to ignore the standard terms and conditions they had exchanged.

Both parties had called witness evidence. The Judge noted that all the witnesses were doing their best to recollect events accurately. In considering, objectively, what had been communicated between the parties, the first step was to consider what they knew prior to the first order being placed.

The evidence showed that Caledonia Water first became aware of Electrosteel when Scottish Water emailed a number of their alliance partners noting that they were their preferred supplier. 

Caledonia Water completed a form and set up a customer account. This form referred both to Scottish Water and to a framework, albeit it erroneously gave the equivalent English reference number. Both parties understood at the outset that the supplies were to be made in the context of Scottish Water’s framework. However, this was not enough. Did this common understanding extend to knowledge by both parties that their relationship was to be regulated by Scottish Water’s Standard Terms? The Judge considered that it did.

There was clear evidence that both parties knew of and had access to Scottish Water’s Standard Terms. Further, the Supplier Guide prepared by Electrosteel noted that its purpose was to: “Provide a consistent standard of supplier information to the Framework Users for all Frameworks”. The Judge felt that on the basis of this document: “it would be reasonable to infer that amongst the information to be covered by the guide would be the terms and conditions under which goods and services were to be supplied”. The Judge noted that: 

“What matters is whether both parties shared a common understanding that their relationship was to be regulated by Scottish Water’s Standard Terms not whether both parties shared a common understanding of why that should be the case.” 

Next, the Judge considered the documentation exchanged between the parties. This always included the exchange of one of the Caledonia Water’s  purchase orders and one of Electrosteel’s order confirmation forms. So, for every one of the 60 transactions, each party sent pro-forma documents to the other referring to their own standard terms and conditions. 

Both documents contained wording which apparently sought to oust the incorporation of Scottish Water’s Standard Terms. Did this mean that the parties had agreed that this wording was to be ignored? No. The parties understood that their relationship was under and in terms of Scottish Water’s framework. For example, the prices were generated in accordance with the framework rates. Significantly, the Judge noted that: “at no point during the multiple emails between the parties over the course of the placing of the 60 orders which conveyed the quotations, purchase orders and order confirmations to and fro between them, is there a single reference to any intention by either party to change the basis upon which the orders were to be dealt from the Scottish Water framework to any other basis”.

This silence was striking. Certainly, neither party acted consistently with their own standard terms and conditions. On the basis of this, it was a reasonable inference that, in light of their shared understanding, their relationship was to be governed by Scottish Water’s framework. Both parties simply ignored both the inclusion of their own standard terms and conditions and receipt of the other party’s. 

As a result the Judge concluded that “considered objectively”, prior to any orders being placed with Electrosteel, the parties shared a common understanding that their relationship was to be governed under and in terms of the Scottish Water framework, including Scottish Water’s Standard Terms. One of the primary purposes of the parties was to participate in Scottish Water’s framework.  

Accordingly, Scottish Water’s Standard Terms (and Scottish law) applied to the parties’ contracts. 

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