Liane Bylett examines the implications for businesses of the decision in GHSP Inc v AB Electronic Ltd [2010], in which the Court indicated that it will not always follow the “last shot” principle when deciding whose contract terms prevail in “battle of the forms” cases.
“Battle of the forms” cases arise when parties start to perform a contract without specifically agreeing whose standard terms and conditions will apply to the contract. When a dispute arises, the court must then decide which party’s terms and conditions have prevailed. As discussed in our previous article, usually the party who has “fired the last shot” before delivery of the goods will win. However the court has once again reviewed the previous battle of the forms cases and has deviated from “last shot” principle in the recent case of GHSP Inc v AB Electronic Ltd [2010].
The seller, AB Electronic Ltd, supplied a batch of faulty sensors to the buyer, GHSP Inc. The question of whose terms and conditions applied was particularly important in this case because the seller’s terms provided that the seller would have almost no liability under the contract, whilst the buyer’s terms provided for a full (and very expensive) indemnity from the seller. Whilst the seller consistently referred to its own terms, it never made any attempts to force the buyer to agree to them (no doubt realising that the buyer would not accept them). By the same token, throughout negotiations the seller consistently told the buyer that certain of the buyer's terms were not acceptable to it.
Each party clearly rejected the other’s terms, therefore delivery and acceptance of the sensors was not sufficient to imply that a contract had been made upon the terms of the party who had “fired the last shot” (in this case, the seller sent an acknowledgement of order - referring to its own terms – before delivery was made). The court found that neither the seller nor the buyer had accepted the other's terms and so neither party’s terms prevailed. The court’s ruling was bad news for the seller because, in the absence of terms being agreed, the Sale of Goods Act 1979 applied - which does not impose any limits on the seller’s liability.
In the majority of cases, the seller will usually win the battle of the forms on the "last shot" rule. However GHSP Inc v AB Electronic Ltd serves as a warning to sellers who avoid agreeing key contract terms and “button their lips, or fasten their seatbelts, and hope that there would never be a problem”. If terms are not agreed, and the parties conduct indicates that neither party’s terms have been incorporated, the court may simply decide that neither party’s terms prevail. Consequently the seller may be left with potentially wider liability under the Sale of Goods Act. Alternatively it is possible that a battle of the forms will sometimes not end in a winner, but a surprise goalless draw.
For further information on this or any other litigation issue, please contact Liane Bylett by emailing Liane or by calling her on 08450 990045, or speak to Stuart Evans, Head of Commercial Litigation or your usual contact in the Commercial Disputes Team.
This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.