In June 2005, a factory owned by Trebor and used by Cadbury for producing popcorn was destroyed by a fire. Trebor and Cadbury sued ADT Fire and Security, which had designed, supplied and installed the factory's fire suppression system, to recover their losses. (Trebor Bassett and Cadbury v ADT Fire and Security and Trebor Bassett and Cadbury v ADT Fire and Security  EWCA Civ 1158).
It was held that ADT's failure to design the fire suppression system with reasonable skill and care caused the fire. However, as Cadbury's own negligence in failing to install a sprinkler system (among other things) allowed the fire to spread, its damages were reduced by 75%. That first instance decision was upheld on appeal.
The two judgments deal with some key contractual issues which are explored below: the "battle of the forms", contributory negligence in contract and the implication of terms as to fitness for purpose and satisfactory quality.
Battle of the forms
The first issue for HHJ Coulson to determine was whose standard terms and conditions were incorporated into the contract. This mattered because ADT's terms included a cap on its liability of £14,000 - significantly less than the £110 million value of the claim.
A typical "battle of the forms" had occurred. On 23 August 2003, ADT sent Cadbury a quotation referring to its "attached" terms and conditions, which were not attached. On 3 September 2003, Cadbury sent ADT a purchase order referring to its terms as already supplied and available on request. Work commenced on 17 September 2003. On 17 September 2003, ADT produced an updated quotation and specification, but there was no evidence that this was sent to or received by Cadbury.
Following Tekdata Interconnections Ltd v Amphenol Ltd (2009) HHJ Coulson held that an offer/acceptance analysis should be applied. This will usually lead to the "last shot" fired being the contract, unless the parties' conduct demonstrates a common intention to the contrary.
Here, Cadbury's terms applied because:
- The parties did not expressly agree to be bound by ADT's terms, they had not been supplied and there was no evidence that they had ever been given to Cadbury.
- Work was carried out pursuant to the 3 September quotation, so the 17 September documents were immaterial (even if they had been sent).
- Cadbury's terms and conditions had been incorporated by reference and, as it was stated that ADT already had a copy, the onus was on ADT to read or request them.
This issue was not appealed, so the case upholds the traditional approach to resolving battle of the forms cases. It is also a reminder that parties must be clear about the terms of their contract. Copies of any terms referred to but not supplied should be requested and any proposed, unacceptable terms should be rejected quickly. Otherwise, a party may find that it has lost the battle of the forms and contracted on terms that are unfavourable.
Contributory negligence in contract
Claims tend to focus on the defendant's conduct; what it has done (or not done) that entitles the claimant to a remedy. But what if the claimant is partly responsible for its own loss? In tort, defendants can raise a defence of contributory negligence under the Law Reform (Contributory Negligence) Act 1945, enabling the judge to reduce the claimant's damages as he/she considers "just and equitable". In limited circumstances, this defence can also be used in contract.
Vesta v Butcher (1989) identified three types of breach of contract cases: (1) where the defendant's contractual duty to the claimant is co-extensive with its tortious duty; i.e. the duty is to use reasonable skill and care, (2) where the defendant's contractual obligation extends beyond that and no negligence is necessary for a breach to be found (such as a fitness for purpose obligation) and (3) where the contractual duty is less, such as a best endeavours obligation. Contributory negligence only applies to the first type of case.
Returning to the facts of Trebor and Cadbury v ADT, Cadbury appealed against the contributory negligence finding, arguing that ADT's contractual duty of care was higher than its tortious duty. Its main arguments were that:
- ADT had to supply a system that was fit for purpose in that it met the Specification (which it said was to prevent fire) (section 4 Supply of Goods and Services Act 1982); and
- The Specification guaranteed the system's success, so failure to prevent a fire automatically constituted a breach.
The Court of Appeal rejected these arguments, finding that the duties were co-extensive and confirming that the contributory negligence was, therefore, available. Defendants should remember this defence in circumstances where they have co-extensive duties.
In rejecting the appeal, the Court of Appeal had to consider the duty of care implied into contracts for the supply of services. Cadbury argued that terms as to quality and fitness for purpose should be implied into the contract. The Court of Appeal disposed of these arguments as follows:
- The system was not an off-the-shelf "good", but a bespoke system made up of component parts that had been selected for use and, therefore, "designed".
- Cadbury had not communicated any particular purpose for the system or the hazardous nature of the factory's process.
- There was no reliance by Cadbury as required for this term to be implied. Cadbury decided to replicate the system at another factory before it even approached ADT.
- It was impossible to assess whether or not the system was of good quality as it had no inherent characteristics that could be independently assessed. The issues were of design, not quality.
- ADT agreed to supply design skills and to use care when exercising them, so the relevant implied term was to use reasonable skill and care pursuant to section 13 of Supply of Goods and Services Act 1982.
As for the argument that the Specification constituted a guarantee, the Court of Appeal held:
- It was inappropriate to read it as a guarantee of performance.
- The agreement was for a fire-suppression system not a fire-prevention system, so there was no absolute obligation to prevent fire. The whole system presupposed that there would be a fire as it was designed to put one out.
- Cadbury knew that the system would not stop every kind of fire - it had additional systems in place and had experienced fires before.
- As a matter of construction the Specification did not provide a guarantee because it did not promise to eliminate risk in clear terms.
The Court of Appeal concluded that the usual standard of care for a professional is reasonable skill and care. It quoted from Lord Denning MR in Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners as follows: "The law does not usually imply a warranty that he [a professional man] will achieve the desired result, but only a term that he will use reasonable care and skill. The surgeon does not warrant that he will cure the patient." Consequently, designers will not usually be regarded as warranting that what they design will achieve the desired result because design is innately inexact.