Companies need protection. Carole Spiller, associate solicitor in the commercial dispute resolution team at Weightmans LLP discusses the supply contract controversy of condom manufacturer SSL
The recent case of SSL International and TTK LIG Limited (also known as the Reckitt Benckiser case) highlights the need for certainty in contractual arrangements to avoid disruption to your supply chain.
The facts of the case were that SSL, an English company who manufacture and market condoms, had entered into a joint venture with an Indian manufacturer TTK for the supply of condoms. The joint venture was governed by Indian Law. SSL however believed that the supply contract was subject to their standard terms and conditions which included an exclusive jurisdiction clause so that the contract was governed by English Law.
SSL’s terms and conditions were included on their purchase order. So far, so good. Unfortunately, however, TTK never saw the purchase order; they just received a purchase number.
Following a power struggle within the joint venture, TTK gained effective control of the joint venture board and a new arrangement was proposed which was detrimental to SSL. SSL accepted this new arrangement with a view to challenging it later but despite their agreement TTK failed to resume supply of condoms to SSL. This put pressure on SSL’s supply chain and they started to run out of stock.
SSL brought proceedings in India whereby TTK were ordered to resume supply. They failed to do so in breach of the order and enforcement proceedings were issued. SSL then decided to issue proceedings seeking to compel TTK to resume supply in the UK.
Unfortunately for SSL, there was a fundamental flaw in their plan. SSL’s standard terms and conditions were not incorporated into the supply contract and therefore there was no exclusive jurisdiction clause for English Law.
Although the terms and conditions were printed on the purchase order and available for inspection prior to contract they were not received by TTK. The standard terms and conditions had therefore not been incorporated into the contract.
It is easy when negotiating a large supply contract to lose sight of the little things but this is a salutary tale, particularly in the current climate. Don’t be dazzled by the size of the potential deal; make sure that the little details have been considered to ensure that the contract works.
To ensure that your standard terms and conditions are incorporated into the supply contract you must:-
1.Bring them to the attention of the other party either before or when the contract is formed. Post-contractual terms will not be incorporated.
2.They must appear on a document which one would expect to carry terms and conditions e.g. a purchase order.
3.Don’t simply rely upon a course of dealing; make sure that the terms of the contract are clear in each supply.
4.Notify the receiving party of your terms and conditions. Standard terms and conditions don’t have to have been read by the contracting party to bind them but you must ensure the receiving party knows that the document contains terms and conditions.
5.Where the terms and conditions are particularly onerous, the notification must be very clear; for example, use a larger font size or bold text.
6.The terms and conditions do not need to appear within the contract so long as they are available for inspection. If they appear overleaf, then say so and make sure both sides of the document are copied or sent.
The bottom line is that if you want the other party to be bound by your standard terms and conditions then you must make them aware of them either by providing a copy or by making them available to them when the contract is made and in order to provide evidence of their receipt of the terms and conditions you should ensure that part of your order process requires them to sign and return the terms and conditions verifying that they have been read.
Simple precautions can improve your contractual rights and preserve your supply chain.