When a buyer for Superdrug emailed a supplier, he ended up costing Superdrug £1.3m! The issue for Superdrug was that they were bound by a minimum commitment that they didn’t expect.
Athena was a relatively small supplier who had negotiated an exclusive deal with Superdrug for the supply of a new cosmetic product which Superdrug would sell in their stores. During negotiations – which involved a number of meetings, discussions and email exchanges between Athena and Superdrug’s Senior Brand Manager (who acted in a buying capacity) – various arrangements were made for the supply and resale of these products.
One particular note was that Athena sent emails detailing a lower price per unit but with increased volumes.
At the end of the negotiations, and in an attempt to summarise them in writing, Athena issued an email to Superdrug’s buyer stating:
“Just to confirm, you are placing orders and committing to the yearly quantity against all lines detailed below based on the ROS you have provided… We have agreed that you will call off stock, in exactly the same way as HiGlow, on an ad hoc basis within a 12 month period…
[there was then a table of 9 products with quantities and prices]
If you could drop me a note to confirm all the above ASAP that would be great, I shall then be in a position to push the button at this end.”
The buyer for Superdrug then replied:
“Please go ahead with the below, happy on Nature’s Alchemist…”
Superdrug then ordered some of the products in question. However those initial products didn’t sell very well and so Superdrug indicated that they weren’t going to purchase any more believing they were not bound by any commitments discussed during the negotiation process. I.e. that the content of the emails didn’t form part of the contract.
Superdrug’s established order process
- Buyer identifies products and carries out initial discussions/ negotiations with the supplier – including issuing a “Supplier Pack” which sets out the process for how orders are placed
- Buyer doesn’t have authority to enter into contracts on behalf of Superdrug, so the details of orders are finalised by the Supply Chain Team and placed via a Purchase Order
- Purchase Order is subject to Superdrug’s General Conditions of Purchase “to the exclusion of any other conditions of the supplier”
The above process envisages that a document will be drawn up setting out the specific terms of trade that have been agreed, which didn’t happen in this instance. So whilst the parties do not dispute that the contract is subject to Superdrug’s General Conditions of Purchase, the lack of clearly documented commercial details has allowed this dispute to arise.
Athena argued that Superdrug had agreed to a minimum to be called off over time and had priced in accordance with having that guaranteed order amount, including for the products which had already been provided to Superdrug. So they bought a claim for the unsold stock plus storage costs – totalling over £1.3 million!
Superdrug put forward various arguments to try and back-up their belief including that the emails did not form part of the contract and that the buyer didn’t have authority to commit Superdrug in such a way.
The court disagreed!
The court, amongst other things, considered that:
- The wording used in the email exchange did constitute acceptance of a minimum order commitment by the buyer. I.e. Athena would not have agreed to the lower price without the minimum volume.
- The email exchange did intend to create legal relations – the court rejected the argument that Athena ought to have known that it was “standard practice in the industry not to agree to such minimum order commitments for these types of “branded products”.
- Despite the buyer asserting that he could not be bound due to his lack of authority, the court rejected this. Their decision was based on the fact that at no point in his email exchange with Athena did he explicitly state that he could not bind his employer to such minimum order commitment. And further, that it was not sufficient that he may have mentioned it to them in the past, as it was held that his position since mentioning it could have, in fact, changed.
So whilst your company may follow an internal ordering process including the use of Purchase Orders (as Superdrug did), if your process has not been made sufficiently clear to highlight that “orders” by buyers will be non-binding, then email exchanges can be held to be an enforceable legal contract.
To try and avoid ending up in a similar situation, we recommend that sales negotiations emails are clear and include a disclaimer which states:
- “subject to contract” or
- “this email is subject to/conditional upon the issuance of a Purchase Order from us, and without such Purchase Order, the parties do not intend to be legally bound by anything included herein.”
It also helps if there is one document which clearly sets out the commercial terms of the arrangement to avoid having to rely on email exchanges.
If you have any questions regarding this case, please contact Alison on email@example.com or call 01202 724999.