Supply Chain Contracting – When Is A Contract Binding?

In a recent case, the High Court had to consider an attempt to create a supply chain from a manufacturer through to the intended purchaser and the involvement of an intermediary who acted on behalf of both the importer and supplier.

RSW International Ltd v Purple Surgical Manufacturing Ltd [2022] EWHC 2258 (Comm)

Case background

During the early stages of the pandemic, Purple was a manufacturer for the supply of medical and surgical instruments and devices. The company entered into transactions for the supply and purchase of personal protective equipment (PPE) to the NHS and Department of Health and Social Care. Mr Sharpe was the sole director of Purple.

RSW is, and was traditionally, in the industry of importing and distributing home and leisure products for consumers. Managing director, Mr Rubens, was already quite well acquainted with a Mr Samuels, a businessman involved in importing toys from China.

A Chinese supplier, Mr James Wan, of the JHT Group (JHT), had previously been introduced to Mr Samuels after he had visited one of the JHT’s factories.

Bearing in mind the demand for PPE due to the pandemic, Mr Samuels thought JHT would be a good supply of such equipment for the UK market. He, therefore, approached Mr Ruben with a proposal for RSW to be a designated vehicle for the acquisition and supply of PPE in the UK. Mr Rubens was happy to proceed on this basis and put forward Mr Samuels to act on RSW’s behalf.

This then started to form a “daisy chain” to meet the demand for PPE equipment.

RSW was approached by a Mr Bailey, on behalf of his business, offering to help create a relationship with a supplier to the NHS, that would be able to engage with the Cabinet Office and secure a sale transaction.

The certainty of the deal needed to be demonstrated to the manufacturer. Purple made attempts to secure arrangements with the Cabinet Office and issued a purchase order to the value of the early payment expected to be funded by the Government. RSW responded by giving a pro forma invoice to that price.

However, pro forma invoices are usually used in businesses to confirm the price of a proposed sale, but as the Court agrees, this should not be interpreted as acceptance of an offer made, unless the buyer chooses to make payment against the pro forma invoice and the payment is confirmed.

Purple failed to agree on a purchasing commitment from the Cabinet Office, which meant the supply chain bowed. Purple also wrongly suggested to the Cabinet Office that the PPE would be available for delivery soon.

This led to RSW alleging that a binding contract had been made. A significant element in determining whether a binding contract had been established was the role of the intermediary in the deal, specifically, whether they were a ‘pure’ intermediary or an agent.

The Court’s decision

Firstly, the Court needed to decide the position of Mr Bailey and what his part in the matter actually was, given his involvement with both parties. It was concluded by the Courts that Mr Bailey was to be seen as an agent acting in the best interest of both parties.

It was noted how there was no evidence that Mr Bailey actually concluded a contract and also that a binding contract between both parties could not be concluded without clear evidence. It was also recognised that the representatives of RSW acknowledged they were aware that a contract was yet to be concluded when they sent their pro forma invoice.

This case shows the Court will assess the overview of the daisy chain including the statuses and positions of the parties involved. The Court concluded that Purple could not be seen as having a binding commitment to RSW without a clear understanding of the commitment.

The Court also considered how it was unrealistic for RSW to think that it had a financial entitlement to carry out a transaction of £13 million when it knew there was no contractual commitment from the buyer.

Comment

Ensuring you have a binding contract is essential between the supplier and buyer. This case demonstrates that the Courts will scrutinise trading arrangements and will only uphold an enforceable contract where all of the required constituent elements can be established.

RSW v Purple Surgical Manufacturing

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Simon Key is a Partner in our Dispute Resolution team, specialising in manufacturing and business disputes.

For further information about the subjects discussed in this article, please contact Simon or another member of our team in DerbyLeicester, or Nottingham on 0800 024 1976 or via our online form.

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