Is a quote a binding offer? - lessons from Megalift v Terminals [2009] NSWSC 324

Publications > Is a quote a binding offer? - lessons from Megalift v Terminals [2009] NSWSC 324

 

It’s everyday business practice in Australia to ask for a ‘quote’ before engaging a contractor or supplier to perform work.  The question is whether or not the quote amounts to an offer that is capable of acceptance by the recipient and therefore binding on the provider of the quote.  Guidance on this issue was provided by Bergin CJ in the case of Megalift v Terminals [2009] NSWSC 324.

 

Background to the dispute

The Plaintiff, Megalift Pty Ltd (Megalift) specialises in the transportation of heavy objects.  The defendant, Terminals Pty Ltd (Terminals) operates premises at Corio Bay near Geelong where it stores bulk liquids and gas.

Terminals engaged Megalift to lift a 270 tonne sphere that it planned to use to store butadiene from a ship via a barge to its premises at a quoted price of $270,000.00.  Unfortunately in order to lift the sphere from the barge it was necessary to excavate Terminal’s land to enable Megalift to safely transport the sphere.  This meant significant extra cost and delay.  The result was that Megalift sent Terminals a tax invoice on 19 May 2006 for a total of $402,137.67, well in excess of the initial quote.

 

Issues for determination

There were several issues to be decided in this case:
the status of the contractual relationship between the parties before 28 April 2006 when Terminals accepted the revised ‘quotation’:
the insurance issue that related to the barge;
the disembarkation issue; and
the demurrage issue.
For the purposes of this case note only the contractual issue relating to whether or not the quote was binding will be examined.

 

What the parties claimed in relation to the quotation

Megalift claimed that the letter sent to Terminals on 21 March 2006, was merely a quotation or ‘budget offer’ that was not an offer capable of being accepted by Terminals.  Clause 5 of the special conditions in the quote read that it was provided for “budget purposes only”.  Terminals claimed that the quotation and its purchase order proved that it had entered into a contract on 4 April 2006 and therefore that it had the right to sue Megalift for damages associated with this agreement.

What the Court decided

Bergin CJ said at 60 that the:
‘assessment of whether the parties entered into a contract prior to 1 May 2006 involves the objective determination of the intention of the parties by consideration of their communications in the context of their dealings at the relevant times’: Australian Broadcasting Corporation v XIV Commonwealth Games Ltd (1988) 18 NSWLR 540.

It was further said by Bergin CJ that an “estimate” provided by one commercial party to another may amount to an offer capable of acceptance – it will depend upon the context and circumstances in which the expression is used. See Croshaw v Pritchard and Renwick (1899) 16 TLR 45.
The letter dated 21 March 2006 included both fixed prices and estimates.  The estimates were for a Naval Architects assessment and the supply of spacer barges at costs of $12,000.00 and $20,000.00 respectively.  Further: the word “estimate” meant the likely price or approximate costs of doing a specified piece of work according to the The New Oxford Dictionary.

Bergin CJ held that this offer was available for acceptance on the basis that the services would be provided at the likely cost of $12,000.00 and $20,000.00 respectively on the understanding that the plaintiff would charge the defendant whatever it eventually cost on the understanding that the cost would be in the vicinity of these approximate figures.

The fact that there was a clause in the special conditions stating that the quotation was for ‘budget purposes only’ did not mean that the offer could not be accepted. Bergin CJ reasoned that this was the case because it would have been inconsistent with clause 10 that required Terminals to provide ‘written agreement to all terms and conditions as detailed” – which in fact Terminals did.  It was further held that the purchase order amounted to acceptance of the offer contained in Megalifts offer of 21 April 2009.

Megalift’s revised quotation of 28 April 2008, which terminals accepted via an email on 1 May 2006 created a new agreement between the parties.  It was held by Bergin CJ that there was nothing in the revised quotation that extinguished Terminals right to sue for damages for breach of the first agreement.  Additionally, Megalift's conduct was determined to be repudiation of the first agreement and therefore Terminals was entitled to seek damages for breach of contract.

 

Implications for businesses that provide ‘quotes’

If a party providing a quote does not intend to be legally bound, then the quote should expressly state that it is not an offer that can be accepted as a binding offer.

 

Where third parties are required to perform work as subcontractors, consideration should be paid to whether or not they contract with the client directly, thus removing them from the contractors risk matrix where the scope of the work is uncertain or at risk of changing.

 

Additionally parties should consider the extent that pre-contractual negotiations may be incorporated as terms of an agreement in the absence of entire agreement clauses.

 

"The information contained in this article is general in nature and cannot be regarded as anything more than general comment.  Readers of this article should not act on the basis of this comment without consulting one of Rostron Carlyle's legal practitioners who will consider their particular circumstances".

 

Other related articles that are available in Rostron Carlyle's Corporate Law series include:

 

	Organisational policies and the contract of employment - are they binding?
	Formal requirements for minutes of Directors' Meetings
	Strict compliance with the Corporations Act required for Minutes to be evidentiary (Lessons from Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287);
	Introduction to Shareholders Agreements
	Statutory directors duties - an introduction

 

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