Date 21 October 2010
Disputes of this type can arise where the parties agree a contract without having settled whose terms and conditions should apply.
In a straightforward matter, the ‘last shot’ doctrine is commonly applied where the last party’s set of terms and conditions which are put forward, and which are not explicitly rejected by the other side, form the agreed terms.
In more complicated cases the result ‘…depends on the shots fired by 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.’
In a recent case, the Claimant purchaser (GHSP), a designer and manufacturer of electro-mechanical control systems for motor vehicles, placed an order for sensors with the supplier (AB), a manufacturer of automotive and industrial position sensors.
GHSP integrated the sensors into its own product which it then sold to the Ford Motor Company. Unfortunately the sensors supplied were defective which led to Ford incurring considerable losses. Ford claimed against GHSP, and GHSP in turn claimed against AB.
A preliminary hearing was held to determine whether the parties concluded a contract and if so whether it incorporated either:
1. GHSP’s standard conditions which provided that AB would have unlimited liability under the contract; or
2. AB’s standard conditions which provided that AB would have almost no liability under the contract; or
In the absence of either party’s express terms or conditions, the contract would be governed by the Sale of Goods Act 1979 (SGA), and in particular the implied term, by virtue of S14(2), that the goods supplied under the contract were of satisfactory quality.
The Judge found that there was a contract which was performed by the manufacture and supply of the sensors. However, there was no express acceptance of the conditions or of an offer containing the conditions, expressly or impliedly, by either side. Therefore, the Judge held that neither party’s standard conditions applied to the contract. As a result, the contract had been made on the basis of the implied terms of the SGA.
‘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’. Burton J.
Performing a contract before agreement is reached as to liability is common in commercial practice. However as this case demonstrates that can be dangerous for a supplier whose liability could be potentially unlimited.