GHSP Inc v AB Electronic Ltd

In a battle of standard terms, contract formation is determined objectively, applying ordinary principles of offer and acceptance while taking the factual matrix into account. Acceptance may arise by conduct, but the conduct must objectively demonstrate an intention to accept the relevant offer. Where the parties have reached commercial deadlock over their competing conditions, preparatory performance, delivery, silence, or an acknowledgment referring to one party’s terms may not establish acceptance of those terms. A contract may nevertheless exist on terms incorporating neither party’s conditions. In that event, applicable statutory implied terms govern the contract.

The claimant purchaser ordered automotive sensors from the defendant supplier. The parties exchanged purchase orders, quotations, acknowledgments and delivery schedules, each referring to different standard conditions. The claimant’s conditions imposed potentially unlimited liability; the defendant’s conditions excluded consequential loss and restricted liability. Earlier negotiations had made clear that neither side accepted the other’s conditions, and discussions about a liability cap had ended without agreement.

At this preliminary hearing the court had to determine which, if any, terms governed the contract for the supply of the sensors. The parties agreed that, if neither set of conditions was incorporated, the contract would include the implied terms of the Sale of Goods Act 1979, subject to a later issue concerning section 14(2C)(a).

1. Applicable principles. In a battle of the forms, the court applies an objective test, ordinary principles of offer and acceptance, certainty and sufficiency of terms, and the factual matrix. Acceptance may be inferred from conduct, but only where the conduct objectively indicates an intention to accept the offer. The last-shot analysis is not automatic.
2. Neither set of conditions incorporated. The negotiations showed a continuing deadlock. The defendant knew that the claimant would not accept the defendant’s conditions, while the claimant knew that the defendant regarded the claimant’s conditions as unacceptable and wanted a liability cap. No compromise or agreed amendment was reached. Against that background, the defendant’s preparations, supplier contracts and delivery arrangements did not amount to acceptance of the claimant’s conditions. The claimant’s receipt or acceptance of deliveries did not amount to acceptance of the defendant’s conditions, particularly while the dispute remained unresolved.
3. Contract formation. The 3 November acknowledgment did not establish acceptance of the earlier blanket purchase order for the obsolete part number. The court’s preferred conclusion was that the contract was made when the defendant accepted the claimant’s delivery schedule on 3 December 2004. Alternatively, the defendant’s acknowledgment of order could have formal contractual effect, but it did not incorporate the defendant’s conditions and did not operate as a counter-offer successfully introducing them.
4. Result. The claimant’s purchase-order terms were not incorporated; the defendant’s terms were not incorporated; and the contract was governed by terms implied by the Sale of Goods Act 1979. The parties’ further dispute concerning section 14(2C)(a) was left for later determination because it depended on unresolved factual and legal questions.