Member Article

A ‘Battle of the Forms’ commonly arises where each of the parties, in the course of the negotiation process, forwards to the other its own standard form of contract, with the aim of getting the other party to adopt such terms and conditions.

The question as to which set of terms and conditions constitute the contract often depends on the ‘last shot’ – that is, which form of contract was the one last ‘fired’ to the counter-party.

However, determining this is often not straightforward. The UK case of GHSP Inc v AB Electronic Limited (High Court judgment, 20 July 2010) illustrates what can be a chaotic battle, and highlights the perils of not agreeing the important terms before performing the contract.

The case concerned a contract for the supply of position sensors for use in cars. The claimant, GHSP, manufactured control systems while the defendant, AB Electronic, was to supply position sensors for use in GHSP’s control systems.

GHSP’s invitation to tender was subject to its own conditions. AB Electronic then provided a price quotation based on its own conditions, and stateda cap on its potential liability. GHSP then sent AB Electronic purchase orders based on AB Electronic’s quotation, but the purchase orders were expressed to be subject to GHSP’s own conditions. AB Electronic provided an acknowledgement of order in reply which on its reverse side referred to its own conditions. Following this, there was no further correspondence between GHSP and AB Electronic until a dispute arose after AB Electronic supplied a defective batch of sensors that caused mechanical problems in the engines in which they were installed. GHSP then commenced court proceedings against AB Electronic.

The manner in which the conditions of the contract were incorporated was a key preliminary issue to the main action.

Effectively, the only main issue for the Court to decide was the battle of the forms between GHSP’s conditions and AB Electronic’s conditions. On the facts before him, Mr Justice Burton ruled that he need not consider whether there was ever any possibility of GHSP accepting AB Electronic’s conditions (including because GHSP had not looked at them at all). Equally, GHSP knew that AB Electronic would not accept its conditions and required a cap on liability. Neither set of conditions was signed. The Court was therefore required to assess objectively which form applied and therefore constituted the contract. This entitled and required the Court to take into account the factual matrix, contractual principles of offer and acceptance, and of certainty and sufficiency of terms as regards when and how the contract was made.

He who fires the last shot…wins?

It is often difficult to determine which standard form constitutes the contract. Lord Denning MR held in the leading case of Butler Machine Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] WLR 401 that ‘in some cases, the battle is won by the man who fires the last shot’. This is subject to the requirement that the ‘last shot’ was taken without objection. Yet in other cases determining the winner depended on the shots fired by both sides. Where the two sets are ‘mutually contradictory… then the conflicting terms may have to be scrapped and replaced by a reasonable implication’.

Was there acceptance of any conditions?

The judge, in a thorough analysis, considered in detail the facts of the case in determining whether there had been acceptance, either express or implied, by the parties of particular terms. The Court found that there was no express acceptance of either set of conditions.

 

• GHSP’s acceptance of AB Electronic’s conditions by conduct? The judge quoted a passage from a respected legal textbook stating that: ‘conduct will amount to acceptance only if it is clear the offeree did the act of alleged acceptance with the intention of accepting the offer’. He found that there was no conduct by GHSP, including by way of receipt of AB Electronic’s acknowledgement of order, or accepting delivery of the parts, which could be taken as acceptance of AB Electronic’s conditions.
  
  
• AB Electronic’s acceptance of GHSP’s conditions by conduct? There was no conduct by AB Electronic, including after receipt of the purchase orders and preparing for delivery, by which it must be held to have accepted GHSP’s conditions because they were contained in the purchase orders.

The High Court therefore concluded that neither party’s terms and conditions applied due to clear objections expressed by both parties, and there was also no acceptance by conduct. In the absence of any express terms, the contract was subject to the terms implied by the UK Sale of Goods Act 1979 (Hong Kong’s equivalent being the Sale of Goods Ordinance (Cap 26)), which does not provide a cap on liability.

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For further information please contact:

Steven Yip, Partner
T +852 2841 6843
[email protected]