Deadlock as to whose standard terms apply


GHSP was an American company which manufactured electro-mechanical control systems for vehicles. The defendant supplier, AB Electronic, was an English manufacturer of sensors. In 2004 GHSP placed an order with AB for the manufacture and supply of these sensors.

In 2006 there was a defective batch which became incorporated in throttle pedals that GHSP sold on to Ford Motor Company (Ford) for use in its trucks. Ford suffered substantial consequential losses which it claimed from GHSP. GHSP, in turn, sought to recover those losses from AB.

A dispute arose between GHSP and AB as to whose standard terms and conditions the parties had contracted on!

GHSP's conditions imposed unlimited liability on AB which extended to consequential losses ie Fords claim on GHSP. AB's conditions, on the other hand, purported to exclude any liability for consequential loss or damage, and restricted any liability to works of rectification or repair!

The judge found that in negotiations the parties had reached "deadlock" as to whose terms would prevail. There was, in the judge's view, "no doubt" that the contract, whenever it was formed, incorporated neither side's terms and conditions!

Having made that finding, the judge concluded that there was a contract which the parties had started to perform. In the absence of any express terms, the contract was governed by, and incorporated, the terms implied by the Sale of Goods Act 1979 (SGA 1979)!? Bad news for AB because section 14(2) SGA 1979 implies a term that "goods supplied under the contract are of satisfactory quality" without providing a statutory cap on liability.

An inability to agree terms, or the delay caused by negotiations, may result in the loss of a deal. In those circumstances, a party may take the commercial decision to leave the matter unresolved or uncertain as to whose terms prvail.? However, a party should only take this decision in the full knowledge that it may not have the protection normally afforded by its standard terms and conditions such as exclusion of liability for consequential loss or absence of any cap on liability.

Case: GHSP Incorporated v AB Electronics Ltd

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