Unlimited liability if battle of the forms is lost?
GHSP v AB ELECTRONIC [2010]
This is yet another decision on the battle of the forms which highlights once again the dangers of starting work without fully agreeing terms. Here, the supplier failed to ensure the buyer had agreed to its terms and conditions and now faces unlimited liability against claims for its defective products.
facts:
- G issued purchase orders to A for components which stated they were subject to its standard terms. These standard terms purported to impose unlimited liability on A. Although they were not enclosed with the orders, A was familiar with the existence and contents of G’s standard terms. Over the same period, A made routine references to its own standard terms, which included a cap on liability, in its quotations, invoices and order acknowledgments (and enclosed copies).
- Both parties found the other’s provisions unacceptable and were unable to agree on final terms. Discussions continued but focussed on technical and delivery requirements and subsequently the parts were delivered and paid for, without the parties having finally agreed the applicable contractual terms.
- A dispute then arose due to the defective quality of the components and significant losses were suffered.
- The Court was asked to decide whether the parties had concluded a contract for the supply of the components which incorporated A’s or G’s standard terms, the outcome being critical in terms of A’s exposure to liability.
decision:
- In a preliminary hearing (where a specific point is decided in advance of the main trial), the Court could not find any acceptance by A or G of the other’s contract terms, expressly or impliedly. There was clearly no express acceptance and the parties’ conduct was insufficient to amount to acceptance, given their respective well-established, entrenched positions. Both sides knew their conditions would not be accepted by the other and had, to all intents and purposes, buried their heads in the sand on dealing with the issue.
- Nonetheless, a contract was found to exist, based only on essential terms regarding the price, specification and delivery with neither party’s standard terms applying to the contract. Both parties accepted that if neither of their terms were incorporated into the contract, then the contract would be governed by, and incorporate, the terms of the Sale of Goods Act 1979 (SGA), particularly the requirement for goods to be of satisfactory quality.
- Consequently, A was unable to rely on the limitations and exclusions of liability in its terms and its liability under the contract was therefore unlimited. The SGA does not imply any terms limiting or excluding liability.
points to note:
- Once again, this case shows how starting work without having agreed all applicable contract terms can lead to an unwelcome outcome, for one or possibly even both parties; it was certainly disastrous for A. Failing to agree terms could be at your peril!
- Whilst in this particular case the outcome favoured the purchaser, this may not always be the case as the terms implied by the SGA may well not cover provisions regarded as being crucial by the purchaser.
- If you object to the terms proposed by the other party, you need to ensure this is communicated effectively. Otherwise you could be deemed to have accepted them by your unequivocal conduct of proceeding to act as though a contract is in place.
- Courts will typically often resolve these ‘battles’ by applying the ‘last shot doctrine’, which says that the battle is won by the last party to put forward terms and conditions that were not explicitly rejected by the recipient prior to the point at which conduct unequivocally demonstrated the existence of a contract. However, that doctrine does not work well in complex cases such as this, where there has been a long history of each party rejecting the terms put forward by the other and effectively a position of deadlock is reached.