Energy Supply Chain Contracts: Are your standard T&Cs incorporated?

In energy supply chain contracts, it can make an important difference if the supplier has managed to contract on its own standard terms that seek to exclude implied terms from the contract, so as to limit the buyer’s rights to express warranties. In Tullow Ghana Ltd v Vallourec Oil and Gas France SAS [2025] EWHC 3059 (Comm) the Commercial Court rejected a supplier’s argument that a ‘battle of the forms’ scenario had arisen and accordingly, its standard terms applied because it sent the ‘last shot’. In the context of the value of the claim, the result may have significant ramifications.

Facts

Tullow Ghana Ltd (“Tullow”) is the operator of the Jubilee Oil Field, offshore the Republic of Ghana. Vallourec Oil and Gas France SAS (“Vallourec”) is a supplier of tubular products to the oil and gas industry.

In November 2008, Tullow (as buyer) and Vallourec (as seller/supplier) entered into a contract for the supply of 17,500 metres of 7-inch VAM TOP tubing (the “Tubing”), delivery CFR Takoradi. 

The applicable terms of contract were in dispute (see further below). However, in summary:

1. Tullow contended the contract was concluded solely on the terms of purchase order TGL 00361, as signed by Tullow on 17 November 2008 and by Vallourec on 21 November 2008 (“PO 361”). PO 361 incorporated the terms of an earlier contract evidenced in purchase order TGL 00167 (“PO 167”). PO 167 contained Tullow’s standard terms and conditions as amended by the parties via email exchange (“Tullow GTCs”); and
2. Vallourec contended the contract comprised PO 361 and Vallourec’s standard terms and conditions (together “Vallourec GTCs”). In this regard, Vallourec relied on the fact that upon returning the signed PO 361 to Tullow (by letter dated 25 November 2008), it referred to and enclosed a copy of the Vallourec GTCs. 

Shortly after the Tubing was installed into the water injection wells, Tullow found that water was leaking from the Tubing. Tullow sued Vallourec for breach of both express contractual terms and implied statutory terms pursuant to sections 14(2), 14(2A) and 14(2B) of the Sale of Goods Act 1979 (“SGA”). As to this, Tullow contended the Tubing was:

1. Defective, by reason of alleged manufacturing defects, as well as or alternatively, alleged mechanical damage to the Tubing which occurred during its manufacture; and
2. not of satisfactory quality, not fit for the purpose of being utilised in an offshore injection well and not durable pursuant to sections 14(2), 14(2A) and 14(2B) of the SGA.

Tullow sought damages of US$257,484,257, comprised of: (i) The cost of investigating the leaks; (ii) the additional costs of monitoring the injection wells; and (iii) the costs of remedial works said to have been carried out on each of the wells.

Vallourec denied that it was in breach of either the express or implied contractual terms. As to this Vallourec contended:

1. The leaks were not caused in the manner alleged by Tullow. Rather, the leaks were caused by excessive operational stress on or poor installation of the Tubing; and 
2. The Vallourec GTCs excluded the implied provisions of the SGA from the parties’ contract. If there had been a breach, Tullow’s remedy was limited to the express contractual warranty in the Vallourec GTCs. 

Decision

Conclusion of the parties’ contract and the applicable terms 

The Commercial Court agreed with Tullow and found that the contract was concluded on 25 November 2008 based on PO 361 only (incorporating PO 167 and the Tullow GTCs). The Commercial Court rejected Vallourec’s argument that the Vallourec GTCs were incorporated via a ‘last shot’, when sending its letter dated 25 November 2008. In reaching this decision, the Commercial Court revisited the authorities relevant to ‘battle of the forms’ disputes and the ‘last shot’ doctrine. In summary: 

1. Where parties wish to contract by reference to a standard form document, a conflict between proposed forms (i.e. ‘battle of the forms’), is usually resolved by reference to the ‘last shot’ doctrine: Generally, where conflicting communications are exchanged, each is treated as a counteroffer. If a contract results (i.e. due to acceptance by conduct), the contract is made on the terms of the final document received; 
2. however, the ‘last shot’ doctrine may be “displaced” where there is evidence of the parties’ objective intention that the last shot should not prevail (See Tekdata Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209, albeit Longmore LJ cautioned at [1] “It will be a rare case where that happens”);  and
3. not every negotiation of a contract that gives rise to a dispute can be said to amount to a ‘battle of the forms’, merely because one party sends a draft contract to the other and there follows back and forth in writing regarding the terms (See BP Oil International Ltd v Glencore Energy UK Ltd [2022] EWHC 499 (Comm) at [115] to [119]).

Against this backdrop, the Commercial Court found that this was not a case in which a ‘battle of the forms’ scenario arose, or the ‘last shot’ doctrine was engaged. Rather, the Commercial Court said it was “essential” to review the contemporaneous evidence. In summary: 

1. In May 2008, Tullow and Vallourec previously negotiated terms for a separate contract. That agreement was recorded in PO 167, incorporating Tullow’s GTCs as amended by the parties.
2. On 20 August 2008, Tullow invited Vallourec to tender for the Tubing contract. This enclosed PO 361 with Tullow’s GTCs on the reverse. 
3. Vallourec responded on 3 September 2008 to the tender: (i) enclosing (amongst other things) “the conditions of purchase agreed for [PO 167]”; (ii) including a statement that “We add our own Conditions of Sales to our proposal so that we can agree on common conditions asap”; and (iii) including a statement that “[Vallourec is] pleased to submit herewith attached our best proposal as per our general conditions for the supply of tubulars…”. 
4. The Commercial Court found that a copy of the Vallourec GTCs was not included with Vallourec’s response on 3 September 2008. Further: (i) the references to “our own conditions of sales” and “our general conditions”, were found to be references to PO 167; and (ii) the further correspondence exchanged between the parties after this date, showed a clear expectation that the terms of PO 167 would apply.
5. On 4 November 2008, a draft PO 361 was sent to Vallourec in terms that “… please advise if you are OK with it. I have made mention to the same Ts and Cs as per [PO 167]”. The draft PO 361 also included the words “The terms and conditions applicable to this Purchase Order will be those as agreed within our previous [PO 167]”. Further pre-contractual correspondence was exchanged, yet no discussion ensued regarding incorporation of Vallourec’s GTCs. 
6. On 17 November 2008, Tullow sent PO 361 to Vallourec for signature (including the same wording as in the draft PO 361, as referred to above). The terms were specifically brought to Vallourec’s attention with Tullow’s representative confirming “I have made reference within the Order to the Ts & Cs that apply will be those as per [PO 167]”. Vallourec signed PO 361 without amendment and returned it to Tullow on 25 November 2008. Vallourec stated in the covering correspondence “I also enclosed (sic) our General Conditions of Export sale”.

The Commercial Court was satisfied that Vallourec’s letter dated 25 November 2008 was not a last counteroffer. Rather, it was an unqualified acceptance that the contract would be on the terms of PO 167. The issue of whose terms were incorporated on the basis they were last in time, did not arise. The Commercial Court described Vallourec’s attempt to incorporate the Vallourec GTCs as an “administrative exercise” rather than a contractual counteroffer. The Vallourec GTCs were not incorporated into the contract: It was subject only to the terms in PO 167.

Implied Terms and the SGA

Accordingly, the Commercial Court found the implied statutory terms under sections 14(2), 14(2A), and 14(2B) of the SGA were implied into the contract. Vallourec’s attempt to exclude these via: (i) The application of the Vallourec GTCs (specifically Clause 8); or alternatively (ii) an entire agreement clause at Clause 19 of PO 167, was unsuccessful. Taking each in turn:

1. Clause 8 Vallourec’s GTCs: Even if the Vallourec GTCs had been incorporated, the wording of the provision relied on was insufficient to contract out of the SGA implied terms. Clause 8 reads: “[Vallourec] gives no other warranty or guarantee express or implied, including (without limitation), any warranties [of] merchantability or fitness for a particular purpose” (emphasis added). The Commercial Court found (see [133] and [138]), this wording was not sufficiently clear or precise to exclude the statutory implied terms: It is necessary for the terms in question to expressly exclude other ‘conditions’, rather than ‘warranties’ ‘guarantees’ or ‘representations’ (See Bominflot v Petroplus Marketing (“The Mercini Lady”) [2010] EWCA Civ 1145).
2. Clause 19, PO 167: This states “the terms and conditions set out in this Purchase Order … represent the entire terms and conditions of the agreement”. This wording was also deemed insufficient to exclude the statutory implied terms. Generally, ‘entire agreement’ clauses will not affect or prevent the implication of terms implied by statute. Should such a clause seek to exclude statutory implied terms, clear words are required: No such wording exists in Clause 19.

Comment

This decision grapples with several thorny issues that frequently arise up and down the oil and gas supply chain, and in relation to commodity sales. In this respect:

1. Whose standard terms: Parties seeking to incorporate their standard terms should be careful to ensure that any ‘final agreement’ is clear that those terms are incorporated. Simply referring to a set of standard terms in the acceptance of an offer is problematic – as (in its nature) this is confirmation to be bound by terms already offered by another party. 
2. Excluding conditions implied by law: A term seeking to exclude implied conditions in the SGA, as a matter of general principle, must exclude other / implied ‘conditions’ (rather than merely excluding other ‘warranties’ or ‘representations’). Although the law on exclusion clauses has moved on since The Mercini Lady, at [59] to [64] per Rix LJ, the authority remains good and binding law.  
3. Excluding the SGA without excluding “conditions”: The above said, there is an exception to this general rule if the terms agreed evince an intention to contract out of the terms set out in the SGA (see Air Transworld Ltd v Bombadier Inc [2012] EWHC 243 (Comm) at [27], [29] and [30]). A party may exclude the terms of the SGA by saying so. For example, in Transworld the words “all other… obligations… or liabilities express or implied arising by law” were sufficient to exclude terms implied by the SGA notwithstanding there being no reference to the word ‘condition(s)’.
4. Industry examples: Practice varies across the industry:
   1. The LOGIC Model Form agreements do not seek to exclude terms implied by statute; 
   2. the BP Oil International Limited general terms & conditions for sales and purchases of crude oil and petroleum products 2015 edition (version 1.2) state: “This sub-section constitutes the whole of the Seller's obligations with respect to the description, quality and fitness for purpose of the Crude Oil or Product and (save to the extent that exclusion thereof is not permitted or is ineffective by operation of law) all statutory or other conditions or warranties, express or implied, with respect to the description or satisfactory quality of the Crude Oil or Product or its fitness for any particular purpose or otherwise are hereby excluded”. (emphasis added) 
5. Entire agreement clauses: As a general rule ‘entire agreement’ clauses do not prevent the application of terms which are implied by statute (See Chitty on Contract, 35th ed at [17-020] and Lewison, The Interpretation of Contracts, 8th ed at [3.140]).

Judge: Nigel Cooper KC (Sitting as Deputy Judge of the High Court)