While negotiating the cost or fee in lieu of rendering a proposed service, we often use the term “quote”. Quoting actually refers to an offer to carry out certain work for a fixed price. Often quotes can form the basis of a legally binding offer. Therefore parties to a contract should exercise due diligence in using the term.

This has been made amply clear by a recent decision of the Supreme Court of New South Wales in Megalift v Terminals [2009] NSWSC 324 wherein it was decided that the term “quote” is capable of being a contractually binding offer. The Supreme Court, while deciding whether a quotation constituted an offer or not, took into account the circumstances of negotiations between the parties coupled with the intention of the parties. The fact of the case has been discussed here briefly.

Facts of the Case and Background of Dispute

Terminals employed Megalift to elevate a 270 tonne sphere by means of a barge on Terminals’ land. However to lift the sphere from the barge, Megalift found it necessary to excavate some of Terminals’ land in order to safely transport the sphere and therefore, this led to unnecessary delay in discharging the work and additional expenditure. Megalift claimed from Terminals the extra amount it incurred owing to such excavation and sent Terminals a tax invoice in excess of the initial quote. Terminals cross-claimed the excavation costs that it incurred in addition to the initial quotation. While Megalift claimed that Terminals was indebted to it for the services it provided including a claim for demurrage, Terminals on the other hand claimed that Megalift was indebted to it for various amounts, including the costs of excavation so as to safely release the sphere from the barge.

Megalift submitted its quotation twice to Terminals. Megalift submitted its earliest quotation by a letter dated 21 March 2006against which Terminals issued a Purchase Order dated 04 April 2006. Thereafter, Megalift submitted a revised quotation through its letter dated 28 April 2006 which was accepted by Terminals on 01 May 2006. Berging CJ Eq, while determining various issues involved in the case, dealt in details whether a contractual relationship existed between the parties prior to 01 May 2006.

It was claimed by Terminals that the parties had entered into a contract the day when Terminal issued a Purchase Order against Megalift’s letter dated 21 March 2006. In reply to this claim, Megalift submitted that its letter of 21 March 2006 was nothing but a “budget offer” which was not capable of acceptance. Furthermore, Megalift emphasised Clause 5 of the Special Conditions in the quotation wherein it was mentioned that the “quotation” was provided for “budget purposes only”. Berging CJ Eq held the following:

  • The acceptance of Megalift’s terms of the offer dated 21 March 2006 by Terminals and its subsequent issuance of Purchase Order of 04 April 2006 (the first agreement) established the contractual relationship between the parties and therefore the same was legally binding. Berging CJ Eq further said that “an estimate provided by one commercial party to another may amount to an offer capable of acceptance” and this can be determined from the context and circumstances of the case in which the expression has been used.
  • The quotation contained in the letter of Megalift dated 21 March 2006 included both fixed prices and estimates for a Naval Architects assessment and the supply of spacer barges for an amount of $12,000 and $20,000 respectively and therefore it amounted to an offer. Therefore, Terminals was liable to pay Megalift all costs that accrued in vicinity of the approximate charges.
  • Clause 5 of the Special Conditions which read that the quotation was for budget purpose only, did not make the offer incapable of acceptance. Moreover Terminals’ issue of Purchase Order as per Clause 10 of the Special Conditions evidenced the acceptance of the quotation terms by Terminals.
  • Although the acceptance of the second quotation by Terminals created a new agreement between the parties, that did not take away Terminals’ right to sue for damages for breaching the first agreement. Hence Megalift’s conduct amounted to repudiation of the first agreement and Terminals was entitled to seek damages for breach of contract.

Here at Owen Hodge Lawyers we are always striving to deliver the legal advice and guidance you need. Read our recent post about the validity of unsigned contracts and more on the Owen Hodge blog today!

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