GHSP Inc v AB Electronic Limited (2010)

This case concerned the supply by GHSP of electrical systems to go into Ford trucks. AB provided pedal sensors to be incorporated into GHSP's systems.

A number of sensors were found to be defective. This caused substantial losses to Ford in relation to the replacement of those parts. Ford claimed against GHSP, which in turn claimed against AB.

The brief facts of the case are that GHSP invited AB to tender. The firm issued a quotation which stated that AB's goods would be supplied on its terms and included a cap on its liability. GHSP replied saying that its own terms would apply which provided for an open-ended liability of its suppliers. AB reviewed GHSP's standard terms and found them unacceptable. Neither party moved its ground but discussions continued on technical issues and the parties became locked into a tight delivery schedule. The issue was whether GHSP's or AB's standard terms were incorporated into the contract.

In cases involving the supply of goods or services, the supplier and the purchaser will normally each send their terms to the other. The court will generally decide that the terms which apply are those which appear in the final document leading up to the contract. In this case, it was not clear because the parties commenced work under the contract before the exact terms were properly concluded.

The parties agreed that if the court decided that neither party's terms applied, the implied terms under the Sale of Goods Act 1979 would apply which provides at section 14(2) that the goods supplied are of satisfactory quality.

Mr Justice Burton ruled that neither of the standard terms applied as neither party would accept the other side's terms and that in the face of deadlock, both sides 'buttoned their lips', hoping there would never be a problem. Although both parties were hoping to negotiate a mutually agreeable limit on liability, this was not done.

The judge decided that the contract had been concluded by the parties' conduct which meant that the implied term under section 14(2) applied and damages were assessed without the cap, subject to the usual rules relating to remoteness of damages. The case illustrates the problems of commencing work before the exact terms of the contract are agreed.