GHSP Inc v AB Electronics Ltd - truce in the battle of the forms? (1)

This new case on the "battle of the forms" highlights the perils of starting work without agreeing terms: in this case, the supplier failed to have its terms and conditions applied to the work and now faces unlimited liability against claims for its defective products.

Background

GHSP Inc v AB Electronic Ltd (2) is a fascinating case in the conclusion it comes to. AB Electronics is a UK supplier of specialist electronic parts and was requested to supply certain parts to GHSP based in America. These parts were required for onward supply to Ford for use in the manufacture of cars. As a result of a mistake made in the manufacture of the parts by AB Electronics, their use in cars could result in intermittent engine stumbling, uncontrolled deceleration and loss of power. The potential losses can well be imagined - not least the costs claimed by Ford for the inspection and replacement of the affected parts.

Facts

The case was heard as a preliminary issue - where the judge decides a specific point in advance of the main trial. Such hearings can help save costs, as they give the parties an early view of how the important points are decided.

GHSP invited a tender from AB Electronics, to which a quotation was duly issued on 10 November 2003. This quotation specified that goods would be supplied on AB Electronics' terms, and would include a cap on liability. GHSP replied on 26 November, saying that its terms would apply and any changes would need to be documented and agreed in a contract. In fact, GHSP's own terms provided for an open-ended liability by its suppliers.

AB Electronics reviewed GHSP's terms and found them unacceptable, not least because of the unlimited liability. There followed further discussions in early 2004 when the parties tried to come to an agreed set of terms. This led to a meeting being arranged in March, which in fact AB Electronics cancelled. However, AB Electronics continued to state that they would not accept GHSP's terms.

Thereafter, things just drifted, neither party moving its ground, and each rather expecting the other to come up with something for discussion and possible agreement. In the meantime, discussions continued apace on the technical specifications, which underwent significant changes.

Coming through to 2 November 2004, GHSP sent an email advising AB Electronics that Ford was requiring very tight deadlines, and attaching a purchase order with GHSP's terms included. The email said in terms that AB Electronics were to rely on it as their authorisation to proceed. GHSP sent further such emails, with updated references to the specifications in early November, and were chasing AB Electronics for commitments to dates. In turn, AB Electronics were requisitioning materials and lining up their own suppliers.

An internal email of AB Electronics on 9 November acknowledged that they should raise an acknowledgement of order, so as to ensure that their own terms and conditions would apply. Nothing was, however, done in the short term, and AB Electronics threw itself into preparations for achieving the tight deadlines. Discussions continued between the parties about the technical requirements throughout November.

On 3 December 2004 GHSP asked for formal confirmation that AB Electronics would comply with the current delivery schedule, and AB Electronics made that confirmation. Only later that day did AB Electronics send its acknowledgement of order - not by email, but by courier, and unfortunately to a different office of GHSP from the one where GHSP chief negotiator worked, so it would have taken some days to come to the attention of that person at GHSP.

At two further meetings in January and April 2005, AB Electronics again requested some cap on its liability, but did not maintain that its own terms applied in any case.

The judgment

The judge observed that neither party was going to accept the other's conditions and they just carried on hoping there would never be a problem. That being so, it was clear that, whenever the contract was made, it did not incorporate either party's terms, as they each made it clear that they rejected the other's terms and would not sign them.

That being so, it was necessary to look at all the facts to see when the parties actually reached agreement. In doing so, it was not necessary to insist on signature of some document, since acceptance could be found in the conduct of the parties in just getting on with the contract.

In looking at facts such as these, it was necessary to find agreement on precisely what was to be done and delivered - these are the crucial aspects of any commercial deal. That being so, it was tempting to look at the exchange on 3 November 2004, but at that stage the parties had still not finalised what it was they were buying and selling. This was resolved in a series of further purchase orders from GHSP, culminating in a revised purchase order on 18 November 2004.

However, it was still necessary to find some agreement on the delivery schedule, especially in the light of the tight deadlines imposed by Ford. Even though AB Electronics was throughout this period gearing up in readiness to manufacture and deliver the components, this was still insufficient as an unequivocal act of acceptance. Instead, the judge preferred to find the final act of acceptance as AB Electronics' acceptance of everything in GHSP's email on 3 December 2004 - but prior to their sending out their acknowledgement of order.

Therefore, the acknowledgement of order, when it was finally sent out, could not be seen as a counter-offer, as GHSP had made it abundantly clear that it would not accept those terms and the deal was already done.

Learning points

This case highlights very well the chaos that descends when parties are locked into impossible-seeming delivery schedules, against a background where they are still apart on the terms and conditions. Almost inevitably, it seems, the parties ignore the terms and conditions while getting on with the actual work. There is some hint in this case that the parties tacitly declined to talk about the terms and conditions because they knew it would result in disagreement.

When in this situation:

• Don't let the contractual points slip to the bottom of the agenda, or even off the bottom of the agenda - the terms are just as much part of the deal as the specs or the price!
• Try to negotiate and agree the difficult points in good time before you become swamped with the commercial and technical parts of the deal as all attention is directed to getting delivery done on time
• Don't leave the difficult things like limits of liability to the very end
• Don't duck the issue altogether, or hope the other side will come up with something - remember that the first person to make an offer will often have the advantage of setting the parameters of what the deal will end up like
• Of course, it may suit you to leave things open - in which case, this case shows that objecting to particular terms may mean that you are not found to have taken on terms you did not like

Remember that the result for the supplier in this case is the worst of all possible worlds: by not forcing the issue on limits of liability, it found itself in a contract without any terms and conditions at all, and so potentially liable without any limit of its liability.

Notes

(1) Copyright Richard Stephens 2010. The law is stated as at 17 August 2010.

This note is intended to provide general information about legal developments in England & Wales and you should not apply any of the advice or information contained in it to specific situations without seeking professional advice first.

(2) [2010] EWHC 1828 (Comm)