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GHSP Inc v AB Electronic Ltd

[2010] EWHC 1828 (Comm)

Neutral Citation Number: [2010] EWHC 1828 (Comm)
Case No: 2008 Folio 1353
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 20 July 2010

Before :

MR JUSTICE BURTON

Between :

GHSP INC

Claimant

- and –

-

AB ELECTRONIC LTD

Defendant

Mr Mark Vinall (instructed by Reynolds Porter Chamberlain LLP) for the Claimant

Mr Peter Fraser QC (instructed by Messrs Cheyney Goulding) for the Defendant

Hearing dates: 6 and 7 July 2010

Judgment

Mr Justice Burton :

1.

This has been the hearing of a preliminary issue. The background is that GHSP Inc, the Claimant purchaser, a Michigan company, is a designer and manufacturer of electro-mechanical controls systems for motor vehicles. It placed orders in 2004 with AB Electronic Ltd, the Defendant supplier, an English company carrying on business as a manufacturer of automotive and industrial position sensors, for the manufacture of three-track pedal sensors (Item No 774106B), to be incorporated into one of its products, a three-track electronic throttle pedal, for on-sale to the Ford Motor Company (“Ford”) for use in Ford’s trucks. This sensor contained three sets of ‘double wipers’, consisting of a contact wiper and a support wiper. Unfortunately, there was in September 2006 a defective batch of such sensors, because, by error or inadvertence in that batch, the wrong kind of wiper was used within the sensor, in that, instead of one contact wiper, with non-oxidising precious metal contact tips, and one support wiper, without such metal tips, two support wipers were used. The result was that, without such metal tips on the contact wipers, the defective sensors could lead to intermittent engine stumbling, or uncontrolled deceleration and loss of power. Because the resultant losses are very substantial (including costs claimed by Ford in respect of the inspection of vehicles and replacement of parts), the consequential claims in respect of any breach of contract by the Defendant are very large, and have not been capable of consensual resolution. It has consequently been agreed and ordered that, before detailed consideration of the extent of breach and the quantum of recoverable loss, it should first be decided whether the Defendant has successfully exempted or restricted its liability by reference to its Conditions.

2.

Although originally there was to be an additional issue relating to whether such Conditions, if applicable, would be unenforceable under s3 of the Unfair Contract Terms Act 1977, that question has now been conceded, and the only issue for me to decide has effectively been a Battle of the Forms between the Claimant’s Conditions and the Defendant’s Conditions. The issues consequently are:

Did the parties conclude a contract in relation to the supply by the Defendant of Item No 7774106B (the three-track sensors) incorporating as terms either

1.1

the terms of the Claimant’s Purchase Order (including the terms included in the Claimant’s Supplier’s Manual); or

1.2

the Defendant’s Terms and Conditions of Sales; or

1.3

some other terms and if so which.

3.

It was, or became, common ground between Counsel who ably and succinctly argued the matter before me, Mr Mark Vinall for the Claimant and Mr Peter Fraser QC for the Defendant, that, with regard to the third issue, there was no dispute between the parties. It is agreed that, if I find that neither the Claimant’s nor the Defendant’s Conditions are incorporated into the contract, then, since there was plainly a contract, which was indeed performed, for the manufacture and supply of the sensors, in the absence of such express terms the contract would be governed by, and incorporate, the implied terms of the Sale of Goods Act 1979, and in particular the implied term, by virtue of s14(2), that the “goods supplied under the contract are of satisfactory quality”. Mr Fraser points out, and in due course will be relying on, the provisions of s14(2C), whereby “the term implied by subsection (2) … does not extend to any matter making the quality of goods unsatisfactory (a) which is specifically drawn to the buyer’s attention before the contract is made”. However, after some discussions at the outset of the hearing, it became entirely clear, and was in the event agreed, that the applicability of this subclause would depend not only on some arguments of law (not specifically made the subject of this preliminary hearing) but, more significantly, would depend upon disputed, or at any rate complex, questions of fact, none, or in any event insufficient of which, are before me. If, therefore, I decide that neither side’s Conditions were incorporated, then the claim will go forward on the basis of reliance by the Claimant upon the implied term in s14, and the well-signposted reliance by the Defendant, so far as appropriate, as a matter of law or on the facts, upon s14(2C)(a).

4.

The preliminary hearing was kept within a narrow compass in those circumstances. Although some reference needed to be made to earlier and subsequent events, the period under a microscope was that between October and December 2004. Only one witness on each side was called and cross-examined, Mr Dan Haverstock, the Purchasing Manager of the Claimant, and Mr Phillip Joyce, who was then Sales and Engineering Director of the Defendant, and there was little if any dispute between them as to what occurred. Both of them were entirely frank and honest witnesses, and it became clear that both of them had very much a similar background and mindset, being commercial men rather than technical, reliant upon design and engineering work being carried out by others. Short witness statements were served by two other proposed witnesses for the Defendant, but neither was able to attend and, although Civil Evidence Act Notices were served in respect of their evidence, in the event it was agreed that no reliance would be placed upon their evidence, which was accordingly not read.

5.

It is not in the event significant to dwell on the content of the two rival sets of Conditions. The Claimant purchaser’s Terms and Conditions purport to impose unlimited liability on the seller in respect of relevant breaches. It is not in dispute, as will be seen, that the Defendant was familiar with the existence and contents of those Conditions, which were regularly referred to by the Claimant. The relevant words appear on all the Claimant’s Purchase Orders, as “This PO is subject to the GHSP Supplier Manual where all provisions are incorporated by reference”. So far as that Supplier Manual is concerned, there is a provision for it to be signed by the supplier, and it never was signed by the Defendant. Although there was some discussion in this regard, it hardly bulked large in the argument, as Mr Fraser rightly conceded that the Conditions could have been accepted by the Defendant without their signature, i.e. that signature of the documents would clearly have been evidential, if not conclusive, against the Defendant, but that non-signature still leaves open the possibility that they either were, or objectively are to be concluded to have been, accepted by the Defendant (cf MSM Consulting Ltd v United Republic of Tanzania [2009] EWHC 121 at para 121).

6.

The Defendant’s Conditions were continually referred to over the relevant period by the Defendant in its relevant documents: 11 were produced between November 2003 and December 2004. In all its quotations there appeared the words “until stated otherwise AB Terms and Conditions shall apply”, while their Acknowledgements of Order/Invoices contain the rubric “subject to our Standard Terms and Conditions of Sale (see overleaf)”, and then, on the top copy sent or supplied to the customer, such conditions were recited. They purported to exclude any liability for consequential loss or damage, and to restrict any liability (and then in only limited circumstances) to works of rectification or repair. Again there was some discussion about the fact that Clause 2.1 of the Conditions provided that no binding contract would be created until notice of acceptance of the order in writing by the Defendant, but, once again, it was accepted that such a clause could not be of much if any significance to a Battle of the Forms, where the question at the end of the day is whether those terms have been accepted by the contracting parties (and a similar provision was of no effect in Butler Machine Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 401).

7.

So far as the content of the Defendant’s Terms and Conditions is concerned, Mr Haverstock said that he had not in fact read the Terms:

I did not need to. [Mr Joyce] basically reviewed our terms and conditions [and] told me the issues they had with ours. That is the basis that I have with all my negotiations. I do not bother looking [at] and reviewing the suppliers’ terms and conditions. The whole basis of the contract from the beginning is our terms and conditions. Very, very rarely do I review suppliers’ terms and conditions. The only time I do is if they will not do business with us under my terms and conditions.

I am satisfied that, at any rate during the relevant period, there was no discussion between the parties of the Defendant’s Conditions or their content: all the discussion, as will be seen, related to the imposition or otherwise of the Claimant’s Conditions, and in particular the Defendant’s desire that its liability be “capped”.

The Parties’ Respective Cases

8.

The Claimant’s case is that its email of 2 November 2004 with Purchase Order (“PO”) attached expressly referring to its Conditions (see paragraph 5 above) – “Use this email as your authorization to proceed” – was accepted by the Defendant’s email dated 3 November 2004: alternatively that either that PO was accepted by the Defendant’s subsequent conduct, or a subsequent PO dated 18 November 2004 was accepted by the Defendant’s conduct throughout November, and in any event after the receipt of the Claimant’s delivery schedule in its email of 23 November 2004, in placing orders with its suppliers and confirming compliance with such schedule, and eventually delivering. Such contract was on the basis of the Claimant’s Conditions, which had been disclosed to and discussed with the Defendant and which it knew were (absent some agreed amendment, which never occurred) a pre-requisite for any contract between the parties.

9.

The Defendant’s case is that it did not accept the Claimant’s PO or POs until it sent an Acknowledgment of Order (“AO”) dated 3 December 2004, which expressly incorporated and referred to the Defendant’s Conditions, both by reference to the AO of itself (upon the reverse of which the Conditions were printed), but also to an earlier quotation, also referring to such Conditions, which was included in the package with the AO. The Defendant’s contention therefore is that the Claimant entered into a contract on the terms of the Defendant’s Conditions, by impliedly accepting the counter-offer contained in the AO, by not immediately responding to/rejecting such document, and by accepting the subsequent deliveries (each of them on the terms of delivery documentation/invoices expressly referring to the Defendant’s Conditions).

The Law

10.

There was no dispute between the parties as to the applicable authorities, to which I was helpfully referred. In a case of “Battle of the Forms”, as in any other case of construction of contract, the test is objective (RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2010] 1 WLR 753), subject to the Court’s entitlement and obligation to take into account the factual matrix; and ordinary principles of offer and acceptance and of certainty and sufficiency of terms apply as to when and how a contract (and what contract) is made. My attention was drawn to Butler, in which, as so often, there are wise words from Lord Denning MR at 404H ff:

… in most cases when there is a “battle of forms”, there is a contract as soon as the last of the forms is sent and received without objection being taken to it … The difficulty is to decide which form, or which part of which form, is a term or condition of the contract. In some cases, the battle is won by the man who fires the last shot. He is the man who puts forward the latest terms and conditions: and if they are not objected to by the other party, he may be taken to have agreed to them … There are yet other cases where the battle depends on the shots fired on both sides. There is a concluded contract but the forms vary. If … they are mutually contradictory … then the conflicting terms may have to be scrapped and replaced by a reasonable implication.

11.

What was called by Longmore LJ in Tekdata Interconnections Ltd v Amphenol Ltd [2010] 1 Lloyd’s Rep 357the traditional offer and acceptance analysis” would, at least in what Dyson LJ in Tekdata describes as an uncomplicated case, be likely to lead to the last shot being adopted. However, as Dyson LJ pointed out, the conduct of the parties must always be considered, as must the objective interpretation of the documents (paragraph 30). Acceptance by conduct can always be inferred. Steyn LJ, in G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25 at 27, lists matters of importance, the first of which is

the fact that English law generally adopts an objective theory of contract formation … [The] yardstick is the reasonable expectation of sensible businessmen. Secondly, it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation … but it is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance.

12.

Thus in The Kurnia Dewi [1997] 1 Lloyd’s Rep 552 at 559, Clarke J said that “a contract thus came into existence when the plaintiffs mobilised in response to the “formal instructions” in the fax”. But, as is pointed out in Chitty on Contracts (30th Ed) Vol I 2-030, “conduct will amount to acceptance only if it is clear that the offeree did the act of alleged acceptance with the intention (ascertained in accordance with the objective principle) of accepting the offer”, and, as Butler itself makes clear, acceptance by the buyer of a delivery from the seller may well not be sufficient, as Lawton LJ said in that case (at 406G-H):

It cannot be said that the buyers accepted the counter-offer by reason of the fact that ultimately they took physical delivery of the machine. At the time they took physical delivery of the machine, they had made it clear by correspondence that they were not accepting [the plaintiff’s conditions].”

13.

Finally an example of the case anticipated by Lord Denning in Butler at 405E (cited above) - and expressly provided for (as set out in paragraph 3 above) in this case in the event that both sides’ primary submissions are not successful - namely that there was a contract, but one which incorporated neither party’s conditions, is Lidl (UK) GmbH v Hertford Foods Ltd [2001] EWCA Civ 938, as explained by Chadwick LJ:

23. … In my view it is impossible to hold that they were agreed that either set of standard conditions was applicable. As the judge found, they said nothing to each other which indicated agreement on that point; and … there is no basis upon which agreement on that point can be inferred.

24. … On that basis, knowing that they had not – and, in the circumstances, probably could not – reach agreement as to the applicability as to either set of standard terms, the only inference that can be drawn is that their agreement was made on the basis that neither set of standard terms would be applicable. That conclusion seems to me at least as likely to accord with reality as a conclusion either that they reached no binding agreement at all or that either agreed to contract on the standard terms of the other.

The Facts

14.

As I set out in paragraph 4 above, the basic facts can be found with some ease because, so far as they involve the two main protagonists, Mr Haverstock and Mr Joyce, and can be gleaned from admissible documents, there is not any material dispute. There are notes taken by others who have not been called, and which are not accepted as accurate by those who have been called, and I have placed no reliance upon them, preferring the oral evidence. Material events begin in November 2003, when, after an invitation by the Claimant to the Defendant to quote (on the Claimant’s Terms) was responded to by a quotation dated 10 November 2003 for three-track sensors on the Defendant’s Terms, the Defendant stated to the Claimant that it would “need a cap on liability”. Mr Haverstock made clear in an email dated 26 November 2003 his position that the Claimant’s Conditions (to which he referred) would apply, and that “any exceptions to this would need to be documented and agreed upon in a contract”.

15.

It is plain that Mr Joyce carefully reviewed the Claimant’s Conditions after that, and he said in an internal email dated 8 December 2003 that “they contain most of the things that we do not like”. There was further discussion between (inter alios) Mr Haverstock and Mr Joyce in January 2004, when there was a proposal to reach a written agreement between the two companies by the end of February. The Defendant’s notes record that Mr Haverstock “does not have an issue with coming up with additional terms beyond their standard terms and conditions”. Mr Haverstock accepts that he was told that the Defendant did not find the Claimant’s Terms and Conditions acceptable, but that he was awaiting some suggestion for amendments to them.

16.

The last time (until months later, after shipment commenced) that there was face-to-face discussion of relevance was in March 2004. Once again, the Defendant indicated that they would not sign the Claimant’s Conditions as they currently stood, and there was discussion as to whether a cap on liability could be negotiated, and a “list of exceptions” to the Claimant’s Conditions be put forward by the Defendant for agreement. By email dated 10 March 2004, Mr Haverstock sent an agenda for a working meeting to have such discussions, and attached a proposed “long term supply agreement”, which included various possible special terms which might form the basis of such exceptions, but made no concession in respect of the Claimant’s Conditions with regard to unlimited liability on the Defendant (as referred to in paragraph 5 above). Such meeting was fixed for the end of March, but the Defendant cancelled it. The Defendant therefore did not during the course of negotiations agree to accept the Claimant’s conditions – Mr Haverstock confirmed in cross-examination that the Defendant stated at least once, if not more than once, that they would not sign the Claimant’s Conditions as they were currently stated. On the other hand, there was never any discussion of the content, nor any suggestion as to the applicability, of the Defendant’s Conditions at any meeting or in any email. The possibility of the Claimant’s accepting the Defendant’s Conditions was not the subject of any debate between them, as I have set out, and found, in paragraph 7 above. Mr Haverstock very fairly in his evidence said that he was waiting for the Defendant to bring up for discussion what he called some “middle ground”, i.e. some kind of acceptable cap on liability (as opposed to the unlimited liability provided for by the Claimant’s Conditions and the almost entirely excluded liability in the Defendant’s Conditions). He said:

I could not come up with a term [i.e. a proposal for a cap on liability]. Neither party at that point said, “How about this dollar amount?” I think they might have been waiting for me. I was waiting for them.

17.

There never was a further meeting, but, as Mr Haverstock said later in his evidence, “Both parties were hoping that the other party would come up with something which would be reasonable”.

18.

Against this background, discussions about pricing etc and engineering proposals went back and forth between the parties, both at the design level (between engineers) and at the commercial level (largely between Mr Joyce and Mr Haverstock). Finally, a quotation dated 7 October was sent by Mr Joyce for a three-track pedal sensor, at a price commencing at $4.70 per piece. That quotation concluded, as did all the Defendant’s quotations, “Until stated otherwise, [the Defendant’s] terms and conditions shall apply”. Things were obviously still in flux, because the Claimant had not yet received confirmation from Ford, but Mr Haverstock sent an email dated 27 October which said “Attached is the PO to get things going until we have a formal contract from Ford. We have been told we are moving forward, but only verbal commitment”. This PO dated 20 October number 46203 specified the sensor as item number 7774106 (which was the drawing number then adopted). It was a “blanket PO” in the sense that no quantities were included, and it expressly provided that it was subject to the Claimant’s Conditions (as did all their POs).

19.

It seems that at that time substantial changes had been made to the design of the part 7774106, in particular so as to add a second wiper, and gold plated terminals, and to increase the wiper force. The new design drawing, and corresponding part, was by now numbered 7774106A, although it appears that this new drawing did not reach the Commercial Department and Mr Haverstock until some time prior to 4 November, albeit that it does appear that it was that part which was the subject matter of the quotation of 7 October, since the increased price of $4.70 took into account the additional cost of the gold for the terminals.

20.

On 29 October, Ford sent an email to the Claimant stating that it is “authorized to proceed with this concern immediately”, as a result of which the Claimant needed, as it was put in an internal email, to “kick-off” the Defendant.

21.

At 15.46 on 2 November there was communication between the Defendant’s engineers and the Claimant’s engineers, supplying what became the final form of drawing, 7774106B. This drawing did not reach Mr Haverstock until some time before 18 November. It did not make as many changes to the previous drawing, 7774106A, as that drawing had made to its predecessor; primarily it further increased the wiper force – and it does seem that some specimen 7774106A’s were ordered (pursuant to a discrete PO from the Claimant) by the Defendant from its suppliers and were sufficiently similar to be used satisfactorily in finished goods instead of 7774106B’s.

22.

At 22.56 on 2 November, Mr Haverstock sent an email to Mr Joyce, which read in material terms as follows:

It has finally materialized. Ford has given us the approval to go into production. One of our largest concerns was timing, and Ford has not helped us on this subject. They have given us a schedule that is almost impossible, with the direction to pull all the stops to make it happen. They are requiring we have one week’s production in place at their facility prior to the production start-up after the Christmas break … We are waiting schedules from Ford, but until then, will generate [our own] schedule to forward to you.

The attached PO is based on your latest quote dated October 7. As you know, [we] still must work to find a cost solution to get the sensor and ETC pedal to a point where it is commercially viable. We will need to have further discussions immediately, but, wanted to get [you] going asap on material issues, equipment issues, any other production issues and getting the product [approved] and in production.

Use this email as your authorization to proceed. Let me know what else you need … Now the real fun begins!

23.

This included another copy of PO 46203 (still dated 20 October 2004) by way of a blanket order at $4.70 per unit for item number 7774106.

24.

Mr Joyce responded on 3 November:

I acknowledge receipt of this kick-off and I agree the schedule is almost impossible!

He continued by dealing with various ancillary matters.

25.

On 4 November, it would seem that Mr Haverstock, having by then received the drawing for 7774106A, sent a blanket order in identical terms to that sent on 2 November 2004, save for a new number (46416) and date, but now referring to this item number. There is a composite email of 8 November 2004, containing exchanges as between Ford and the Claimant. Mr Joyce accepted in cross-examination that, at this time, the Claimant was badgering the Defendant for a commitment date for when they might be able to ship the sensors, and Mr Joyce accepted that, by 8 November, the Defendant had told the Claimant that they had “kicked off all their suppliers and have quarantined 7 weeks worth of raw material”.

26.

Unknown to the Claimant, Mr Joyce sent an internal email to, among others, Mr Gray of the Defendant, dated 9 November 2004, stating that:

It is important that we acknowledge the [Claimant’s] order in writing on an AB Electronic Acknowledgement printed document that carries our standard terms and conditions of sale to avoid future potential conflict over the terms and conditions. Attach a copy of the quote with the acknowledgment.

27.

Two and a half hours later, on 9 November, Mr Gray sent an email to Mr Haverstock of the Claimant (copied to Mr Joyce), confirming the dispatch of 6000 parts with a target of 22 December 2004, and setting out dates for the following weekly shipments of 6000 parts. Daily conference calls were set up as from 12 November 2004, and there was a working sheet agenda dated 12 November to include discussion of the “confidence levels on meeting ... ship dates”.

28.

There were plainly contracts placed by the Defendant with its suppliers in Taiwan for the purpose of its compliance with the required shipment dates. Although no Purchase Orders have been found or produced by the Defendant, it has disclosed shipments of relevant quantities of relevant components as from 6 December 2004, which must have originated from contracts placed in November.

29.

By email dated 18 November 2004, Mr Haverstock sent a “new purchase order” – being a blanket order (numbered 46691) and attached drawing for item 7774106B – saying “I believe this drawing should reflect what is anticipated for production launch. Please update your system accordingly.” Although this is the drawing to which the engineers had been working for some time, Mr Haverstock confirmed in evidence that he will only have had it a couple of days before sending the new PO. Again, of course, this new PO was expressly subject to the Claimant’s Conditions.

30.

By a widely distributed email of 23 November 2004, a Mr Hawkins of the Claimant sent to the Defendant a detailed Supplier Schedule, with first delivery of 6000 parts on 30 December 2004, and then specified through to 18 April 2005: it was expressly subject to the Claimant’s Conditions, and described as “Your first blanket schedule for 7774106B 3-Track sensor”. Mr Joyce stated in evidence that there was a delay between his email of 9 November (referred to in paragraph 26 above) and 3 December, when Mrs Lines sent the acknowledgment, to which I shall now refer, “because the quantities of what we were agreeing to ship and the part number were not firmed up until the very early part of December”.

31.

On 3 December 2004 two things occurred:

i)

At 08:18 an email was sent by Mr Hawkins of the Claimant to (among others) Mrs Lines of the Defendant, asking for confirmation that “on the 7774106B, you will [now] be shipping against the below production schedule/PO 46691 [the PO of 18 November referred to in paragraph 28 above]. Is AB on track with the first production release delivery of 6000 pcs 12/30?” This production schedule (which again expressly referred to the Claimant’s Conditions) was not in any material respect different from the schedule supplied on 23 November 2004, referred to in paragraph 30 above. There is a handwritten note on Mrs Lines’ copy of the email “per M.E. YESwith a ring round the YES. Mr Joyce explained this as meaning that Mrs Lines was recording information supplied to her by Mr Ennever, the Defendant’s Production Director, and he accepted that it would be very surprising if Mrs Lines, having been asked the question by Mr Hawkins, and having been given the answer by Mr Ennever, had not gone back to Mr Hawkins with that answer. I find that she did.

ii)

Mrs Lines arranged for the AO to be sent by the Defendant to the Claimant at its address in Hart, Michigan, being the address from which the PO number 46691 was sent. It was sent by carrier (UPS). As with all the Defendant’s AOs, it referred to (and contained on the reverse) the Defendant’s Conditions, and the package also contained the Defendant’s quotation dated 28 September (which should in fact have been its quotation dated 7 October), which quotation (as with all such quotations) again referred to the Defendant’s Conditions.

32.

Mr Haverstock did not see the AO. This may be because (as is now conceded) it was sent to, and received at, Hart, while Mr Haverstock is based some 50 miles away at the Claimant’s other address in Michigan, at Grand Haven, to which the Defendant’s quotations had been addressed; although there must have been a system whereby communications sent to the one office were at least available to the other office, certainly if it were thought they were of any significance. Insofar however as there is any relevance to the AO, it must be deemed to have come to the attention of, and be capable of being dealt with by, the Claimant, within a day or two after its leaving Romford.

33.

There was in the event no response to this AO, and all the Defendant’s subsequent invoices referred to their Conditions. However there were two further meetings, to which I should refer:

i)

there was a meeting between the parties in Romford on 10 and 11 January 2005. The Defendant did not assert that its Conditions applied to the contract, but once again asserted that it wanted some kind of cap on liability. There was discussion of a ‘case by case’ basis.

ii)

there was further such discussion in a meeting in April 2005.

34.

In an internal email dated 30 June 2005, Mr Haverstock, seeking to summarise the position as he saw it, stated that the Defendant “clearly would not accept our Ts & Cs with respect to liability for quality issues ... their position was they would only review and accept them on a case by case basis.

Applicability of Terms and Conditions

35.

The factual matrix is entirely clear. There was, by March 2004, deadlock. As I have indicated, I do not consider that there was ever the possibility of the Claimant accepting the Defendant’s Conditions, but the discussion at all times had been as to whether there could be some amelioration of the Claimant’s Conditions, and such amelioration was due to be discussed at the meeting, which was cancelled by the Defendant. The same deadlock continued, or rather was resurrected, when there was fresh discussion in January and April 2005. I have already referred to the evidence of Mr Haverstock in paragraphs 15 to 17 above. Mr Joyce’s evidence was similar. He said:

“... we were trying to find accommodation and explore any areas for an accommodation with a customer, which then would have been referred back to our parent company for approval ... I wanted something that was acceptable to us both. How that would have worked out would have been how it would have worked out”.

He recognises that:

Sometimes there is physical agreement. Sometimes neither party agrees and we go through the beginning, middle and the end of a contract. There [is] never ... a dispute and the thing is never tested.

36.

Mr Vinall put to him that, by reference to the cancelled meeting, he had declined “the opportunity to have a grown-up discussion about what the terms of this contract were actually going to be” and that he “knew perfectly well that if [he] had actually raised it with Mr Haverstock, he would have told [him] very clearly that he was not remotely interested in contracting on your terms”. Mr Joyce’s response was “I am sure he would have maintained his position, as we maintained ours”.

37.

The reality seems to me clear. As must be the case very regularly in commercial discussions, both sides buttoned their lips, or fastened their seatbelts, and hoped that there would never be a problem, or that, if a problem arose, it would be a small enough one that, with goodwill, it could be settled “on a case by case basis”. It is quite clear that the Defendant knew that the Claimant would never accept its Conditions, and neither Mr Joyce nor any other representative of the Defendant ever tried to persuade Mr Haverstock to accept such Conditions during any of their meetings. Mr Joyce did his best to preserve the position by giving the instruction of 9 November referred to in paragraph 26 above, which was eventually complied with by Mrs Lines on 3 December, but, as he himself accepted in the exchange referred to in paragraph 36 above, he knew that if they had had a “grown-up meeting”, the Claimant would never have agreed to the Defendant’s Conditions. Equally the Claimant knew that every time it raised its Conditions, the Defendant said they were not acceptable, and that a cap on liability would be needed. Hence its Conditions were never signed, as it was provided that they should be (see paragraph 5 above), and indeed the Defendant declined to do so: a compromise might have been reached, with some kind of cap on liability, but such was never discussed, or, at any rate, agreed.

38.

Against that extremely important aspect of the factual matrix, that is not a promising background against which the Court can seek to spell out, whether using the traditional offer and acceptance analysis, or by looking for unequivocal acts of acceptance by conduct or “acts of alleged acceptance with the intention (ascertained in accordance with the objective principle) of accepting the offer”. I shall below seek to reach a conclusion as to precisely when the contract was made between the parties, but I have no doubt whatever that, as and when it was made, it did not incorporate either the Claimant’s or the Defendant’s Conditions:

i)

There was no express acceptance of the Conditions or of an offer containing the Conditions expressly or impliedly.

ii)

There was no conduct by the Defendant, whether in respect of the period during November when it was preparing itself for delivery and setting up its contracts with its suppliers, by which it must be held to have accepted the Claimant’s Terms because they were contained in their POs.

iii)

There was no conduct by the Claimant, by way of accepting delivery of the parts or otherwise, after its receipt of the AO of 3 December or otherwise, certainly bearing in mind the meeting of 10 and 11 January 2005 (by which time only the first shipment of 6000 parts was due to have been made) when, as set out in paragraph 33(i) above, the unresolved Battle of Forms was still continuing.

When was the contract made?

39.

This question is, although much the most important question contractually, quite clearly secondary in the context of this preliminary issue, when I am satisfied that, whenever and however the contract was made, it did not incorporate the Conditions of either party.

40.

The first candidate is, or at any rate, prior to detailed exploration in the course of the hearing, one might rather say was, an acceptance of the PO number 46203 on the Claimant’s Conditions, sent under cover of the “Authorization to proceed” email of 2 November, by Mr Joyce’s “I acknowledge receipt of this kick-off” in his email of 3 November 2004.

41.

There are difficulties in construing the latter as an acceptance of the offer contained in the blanket order PO 46203. In particular, some of the wording of the email of 2 November (“we will need to have further discussions immediately”), could be said to have left open whether all the terms were finalised, and the schedule of deliveries was certainly not final. Further, the reference in the Claimant’s email to the attached PO being “based on your latest quote dated October 7”, which quotation itself had specified the Defendant’s Conditions, could be said to be a hurdle standing in the way of the Claimant’s otherwise clear case that its PO expressly imposed the Claimant’s Conditions (notwithstanding of course the earlier unresolved discussions to which I have referred above).

42.

Unfortunately, however, it is clear that the Claimant is not relying on the contract contained in the blanket PO 46203 in respect of delivery of items 7774106. Mr Haverstock’s evidence was clear and straightforward, and as the commercial man on the Claimant’s side, it was entirely consistent with the evidence from the commercial man, Mr Joyce, on the Defendant’s side. In this field it is very important that both buyer and seller know with precision what is being bought and sold. What was ordered by PO 46203 was the part 7774106, even though, by then, it had been overtaken, not just by item (and drawing) 7774106A, but 7774106B. It was not Mr Haverstock’s evidence that what he ordered (and what Mr Joyce could objectively be said to have agreed to) was whatever part by then the two sides’ respective engineers had agreed upon. Mr Vinall rightly pointed out in cross-examination of Mr Joyce that in fact 7774106 is not at all what would have been wanted by the Claimant: that it would have had only one wiper, not have been sufficiently durable, not had a sufficient wiper force and above all would not have contained the gold terminals. They would also have been agreeing to pay $4.70 (because of the gold terminals) for a part which would or should have been priced at a lesser amount.

43.

There could plainly have been material here for an argument of fundamental mutual or perhaps unilateral mistake, whatever might have been said in the emails (although, as it happens, Mr Joyce, like Mr Haverstock, was basing himself on the paperwork, and not the underlying drawings). It might thus have been that the Claimant could have sought rectification of any contract of 2/3 November thus created. But this did not arise. Recognising, as he did, the force of the point put to him by Mr Fraser, referred to in paragraph 40 above, as to the need for specificity, and consistent with his own case as to how the paperwork operates, Mr Haverstock insisted, in re-examination by Mr Vinall, that, although the particular item and drawing were by 2 November “obsolete”, or at any rate overtaken by engineering events, the PO he was placing was for item 7774106. This PO was replaced by not one but two subsequent POs, once he received the more up to date drawings, and hence the PO of 18 November, PO 46691 for part 7774106B was a “new order”. In those circumstances I am satisfied that I cannot look to the content of the 3 November email to see whether there is contained in it an acceptance, by conduct or otherwise, of the PO upon which the Claimant in fact relies, namely that dated 18 November.

44.

The next problem is the absence of a contractual schedule for delivery, particularly against the background of the acknowledgment by both Mr Haverstock and Mr Joyce in the exchange of emails of 2 and 3 November of the impracticability of what Ford was requiring. It seems to me to make absolute sense that the Defendant waited until it knew what that schedule was, before sending its AO, albeit that there does seem to have been some unnecessary or unexplained delay even after 23 November. What was going on in the meanwhile is in my judgment entirely consistent with the Defendant putting itself into the best possible position, by way of storing up materials and setting up contracts with its suppliers, to be able to comply with whatever the schedule would be. I do not conclude that the conduct of the Defendant after 18 November (or even, if, contrary to my conclusion above, the earlier period is relevant, then after 3 November), is to be read unequivocably as acceptance by conduct of the Claimant’s offer.

45.

My preferred conclusion is that the contract was finally sealed by acceptance by the Defendant, when it accepted the Claimant’s schedule on 3 December 2004 (as described in paragraph 31(i) above). As set out in paragraphs 35 to 38 above, I am entirely satisfied that that contract was not accepted by them on the terms of the Claimant’s Conditions (and certainly not on the terms of the Defendant’s Conditions).

46.

If I am wrong in that conclusion, then the contract was accepted by, or as a result of, the Defendant’s AO dated 3 December, sent by UPS. So far as that is concerned:

i)

For the reasons I have given, I do not conclude that it was a contract upon the Defendant’s Conditions, even though it made a last desperate effort to cross-refer to those Conditions. It amounted to an acceptance (probably only as a matter of formality, in the light of what I have concluded above as to the Defendant’s confirmation, of that day, that they would comply with the Claimant’s delivery schedule) of the PO, but not (because of the clear lack of consensus in that regard) upon the basis of the Claimant’s Conditions.

ii)

I do not conclude that the Defendant’s sending of the AO amounted to a counter-offer. I am not surprised that the Claimant did not at the time question the absence of an acknowledgment, given the fact that the contract, in accordance with the delivery schedule, was plainly in effect, but if, contrary to my view, it is to be concluded that, notwithstanding its non-receipt by Mr Haverstock, the AO had some contractual effect in amounting to a counter-offer, or alternatively that one or more of the Defendant’s deliveries (accompanied either before or afterwards by their Conditions) amounted to a counter-offer, once again, because of the lack of consensus between the parties, I conclude that, if it was accepted, such counter-offer was accepted without incorporation of the Defendant’s Conditions.

47.

Accordingly, I give the following answer to the preliminary issues set out in paragraph 2 above, namely:

i)

1.1. No.

ii)

1.2. No

iii)

1.3. The terms implied by the Sale of Goods Act 1979.

GHSP Inc v AB Electronic Ltd

[2010] EWHC 1828 (Comm)

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