Court considers when sale contract concluded and on what terms

Tullow Ghana Ltd -v- Vallourec Oil and Gas France S.A.S [2025] EWHC 3059 (Comm)

In this dispute over the supply of allegedly defective tubing for use in injection wells in an oil field, the Court has provided a useful reminder of the principles applicable to deciding (i) when a contract has been concluded and on what terms, (ii) whether a party’s standard terms and conditions have been effectively incorporated into the contract and (iii) whether the statutory implied terms under the Sale of Goods Act 1979 have been incorporated or are excluded by the express contractual provisions.

The background facts

The claimant, Tullow Ghana Ltd, operated an oil field off the shore of Ghana. The defendant, Vallourec Oil and Gas France S.A.S, supplied tubular products to the oil and gas industry.

In November 2008, the parties entered into a contract for the supply of 7-inch VAM top tubing for delivery CFR Takoradi (Contract). The tubing was delivered in three batches. After the tubing had been delivered and installed in six water injection wells in the oil field, the claimant identified leaks in the tubing which it contended were due to manufacturing defects.

The claimant alleged that, as a result, the defendant was in breach of the Contract and also of sections 14(2), 14(2A) and 14(2B) of the Sale of Goods Act 1979 (SGA) in that the tubing was (a) not of satisfactory quality, (b) not fit for the purpose of being utilised in an offshore injection well and (c) not durable.

The claimant claimed (a) the cost of investigating the leaks, (b) additional costs of monitoring the injection wells and (c) the costs of remedial works said to have been carried out on each of the wells. In total, the claimant claimed US$257,484,257.00.

The defendant denied it was in breach of the Contract and also contended that the implied statutory terms were excluded from the Contract as a result of the defendant’s General Terms and Conditions (GTCs) being incorporated into the Contract and that the only remedy available to the claimant was pursuant to clause 8, the warranty clause in the GTCs. The defendant further submitted that the contractual terms prevented the claimant from recovering any of the costs claimed.

The parties had entered into a series of standstill agreements in 2015, the last of which on 29 October 2015 preserved the limitation period on a rolling basis terminable on 28 days’ notice.

Preliminary issues

The Court was asked to deal with a number of preliminary issues. Specifically:

1. When and how was the Contract concluded?

2. Were the defendant’s GTCs incorporated into the Contract and, if so, to what extent?

3. Was clause 8 of the GTCs incorporated into the Contract?

4. What was the correct and proper construction of the relevant clauses of the Purchase Order 167 Terms, which the claimant contended were the governing terms of the Contract?

5. Were the SGA implied terms implied into the Contract such that it was a term of the Contract that the 7 Inch tubing would be: (i) of satisfactory quality; (ii) fit for the purpose of being utilised as tubing in an offshore water injection well; (iii) free from minor defects; and (iv) durable?

6. Did delivery of the tubing to the claimant for the purposes of the Contract occur when they were loaded onto ships for subsequent carriage to Takoradi, or (b) once they arrived at Takoradi? This was relevant for limitation purposes.

7. In the context of limitation, did the claimant have to prove that its cause of action accrued within the limitation period prior to the issue of proceedings, or did the defendant have to prove the elements of its limitation defence?

The Commercial Court decision

Conclusion of Contract and incorporation of terms

The claimant contended that the Contract was concluded solely on the terms of a Purchase Order (PO 361), which the claimant signed on 17 November 2009 and which the defendant signed on 21 November 2008 and returned to the claimant on 25 November 2008.

PO 361 incorporated the terms of a previous contract evidenced in another Purchase Order (PO 167). The terms and conditions of PO 167 comprised the claimant’s standard terms and conditions as amended by the parties’ amendments contained in their email exchanges (PO 167 Terms).

The defendant argued that the Contract was not solely on the terms of PO 361 but also incorporated the defendant’s GTCs. Specifically, it referred to the fact that when it returned the signed PO 361 to the claimant, along with the Acknowledgement of Order, it also referred to and enclosed its GTCs. This, according to the defendant, was a counter-offer which the claimant accepted by proceeding with the order, including by inspecting and taking delivery of the tubing.

Considering the authorities on the last shot doctrine, the Court stated that it had to look at the contemporaneous evidence as a whole to determine when the Contract was concluded. It emphasised that just because parties were negotiating by reference to their respective standard terms did not necessarily give rise to a ‘battle of the forms’ situation. Furthermore, even where there was a ‘battle of the forms’ situation to which the ‘last shot’ doctrine applied, it was still necessary to look at the documents said to constitute the ‘last shot’ (or final counter-offer) as a whole to determine whether the party in question intended to make a final counter-offer or whether they were in fact accepting the last offer made by the other party.

Against that background, the Court concluded that the inclusion of the GTCs with the letter of 25 November 2008 was a purely administrative exercise that had no contractual effect. This letter, with enclosures, was not a counter-offer but was an unqualified acceptance by the defendant that the Contract would be on PO 167 Terms.

The Court stated that there was no indication in the covering letter of 25 November 2008 that the purpose of including the defendant’s GCs within the letter was to make a counter-offer to contract on PO 167 terms as amended by the incorporation of the defendant’s GTCs in the Contract. If that had been the defendant’s intention, then not only should it have been clearly spelt out in the covering letter but should also have been raised expressly during the negotiations with the claimant’s representative.

The Contract was, therefore, concluded on 25 November 2008, was subject to the PO 167 Terms and did not incorporate the defendant’s GTCs.

Even if this were wrong, the Court found that clause 8 (warranty clause) of the defendant’s GTCs would not have been incorporated into the Contract because it conflicted with clause 11 of the PO 167 Terms, which was also a warranty provision. In coming to this conclusion, the Court summarised the approach it will take to potentially conflicting terms. Specifically:

1. It is necessary to try and interpret all of the provisions of a contract together if possible.

2. To be inconsistent, a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses. It is only if terms are manifestly inconsistent that a clause should be rejected.

3. It is possible to read two clauses as supplementing or qualifying one another without there being a conflict.

4. The Court is entitled to reject terms if they are repugnant to the object of the agreement or if they are standard printed terms which cut across the parties’ objective intent as disclosed by bespoke or special terms.

Construction of the relevant PO 167 Terms

Clause 6 (Acceptance) of the PO 167 Terms dealt with acceptance and rejection of the tubing. The Court found that, so far as it is addressed the right of rejection, it was in effect establishing a ‘rejection code’. There is nothing in the language of clause 6 which justified the conclusion that its provisions were intended to limit or exclude the claimant’s remedies for breach of contract other than in relation to the right of rejection.

Furthermore, as amended by the parties’ email exchanges of May 2008, the right of rejection under clause 6 arose in respect of a non-conformity relating to quality or where tubing was not fit for purpose due to a fault or defect. Additionally, and pursuant to the parties’ amendments, the only additional expenses which could be claimed under clause 6 were those that were directly linked to tubing that was defective and had been rejected.

In relation to clause 11 (warranty), as amended by the parties, the Court found that it did not exclude the claimant’s right to claim damages for breach of contract, whether under the implied statutory terms or otherwise.

Did the Contract contain the implied statutory terms?

Even if clause 8 (warranty) had been incorporated into the Contract, its wording was not sufficiently clear or precise such that it would have been effective to exclude the implied terms under the SGA. Additionally, when placed in the context of the PO 167 Terms as a whole, clause 8 did not necessarily demonstrate the parties’ intention to exclude the implied statutory terms. Nor were the PO 167 Terms effective to exclude the statutory implied terms.

Delivery

Title and risk in each batch of tubing transferred to the claimant upon the placing of that batch on board the ship carrying it to Takoradi, Ghana. The parties had contracted on CFR terms and incorporated INCOTERMS 2000 into the Contract. Therefore, delivery took place when the goods passed the ship’s rail in the port of shipment.

The parties agreed a delivery address of CFR Takoradi, Ghana as well as agreeing delivery terms CFR. Prima facie, this required the defendant to deliver each batch of the tubing on board the ship which was to carry them to Takoradi. The defendant had no further responsibility for each batch once it has been delivered onboard. Had the claimant intended that title and risk was not to pass until arrival at Takoradi, Ghana then the delivery address should not, and need not, have included the reference to “CFR”.

There was no conflict between a delivery date of September 2009 in Ghana and a finding that the delivery point in the Contract was crossing the ship’s rail for carriage to Takoradi. The obligation on the defendant was to ensure that the tubing was with the claimant in Takoradi by September 2009 and all the defendant was required to do was to ensure that the tubing was shipped on board vessels which would arrive in Takoradi, Ghana for September 2009.

Whilst this shortened the effective period of the warranty under clause 11 of the PO 167 Terms by the time required for the carriage of the tubing to Takoradi, that was what the parties had agreed.

Limitation

The claimant had to show that, on the balance of probabilities, its cause of action came into existence within the six-year limitation period prior to a standstill agreement between the parties in June 2015.

The defendant then had to show that, in reality, the cause of action had accrued at an earlier date.

Comment

Whilst it is possible to exclude the statutory implied terms under SGA, the parties must use wording that is sufficiently clear and precise in order to do so effectively. The more reasonable it is for the parties to do so by express provision, the more likely that the Court will find that that was what was objectively intended.