RSW International Limited v Purple Surgical Manufacturing Limited

An intermediary may be authorised to negotiate fundamental contractual terms without having authority to conclude a binding contract. Whether a contract has nevertheless been formed depends on whether the intermediary obtained the parties’ agreement to the same terms, or, alternatively, whether there was an offer and final, unqualified acceptance.

The court assesses intention objectively in the commercial context. A purchase order issued to progress negotiations or reserve manufacturing capacity may not be a contractual offer. A pro forma invoice issued to facilitate a deposit may not amount to acceptance. The absence of required regulatory approval and payment, together with the parties’ established commercial practice, may demonstrate that no binding contract was intended.

RSW International Limited claimed damages from Purple Surgical Manufacturing Limited, alleging that exchanges of emails, a purchase order and a pro forma invoice created a binding contract for the supply of 110 million surgical face masks.

The transaction formed part of a proposed supply chain for the Department of Health and Social Care during the COVID-19 pandemic. RSW argued that Adam Bailey acted as Purple’s agent and communicated Purple’s offer, which RSW accepted by issuing the pro forma invoice. Purple contended that Bailey was only an intermediary, that regulatory approval and a deposit were prerequisites, and that no contract had been formed.

The central issues were Bailey’s status and authority, and whether the parties had objectively manifested an intention to contract.

1. Claim dismissed. The parties did not enter into a binding contract for the sale of the face masks.

2. Bailey was a dual agent of RSW and Purple, rather than a pure intermediary. Each party authorised him to identify counterparties, communicate information, provide advice, negotiate fundamental terms and reach agreement in principle. Neither party authorised him to conclude a binding contract without express agreement. The parties’ knowledge relating to the subject matter of the agency was generally imputed to them, including Bailey’s knowledge of the Department of Health and Social Care’s approval procedures.

3. The applicable inquiry was whether the intermediary obtained the agreement of both parties to the same terms, as stated in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyds Rep 601. The same result followed from the ordinary analysis of offer and acceptance.

4. Objectively assessed in their commercial context, the 10.30 am email and purchase order were intended to progress the proposed transaction and help reserve factory capacity. They were not contractual offers. Even if they could be construed as an offer, Purple lacked the requisite intention to create legal relations before Department of Health and Social Care approval.

5. The email forwarding the pro forma invoice did not constitute final and unqualified acceptance. A pro forma invoice may, in some circumstances, form part of contractual documentation, but here it was issued at Bailey’s request to facilitate payment of the deposit. The surrounding documents did not indicate an intention to create a binding contract before approval and payment.

6. The hypothetical question whether approval or payment constituted conditions precedent or subsequent was left undecided because no contract had been formed. The court made no order on costs or other consequential matters at this stage, inviting submissions.