The companies avoided settling the issue, leaving uncertainty over liability for a product failure that must now be determined by general commercial law rather than the terms of either company's contracts.
GHSP is a US manufacturer of electronic control systems for vehicles. It agreed to buy position sensors from the UK's AB Electronic. The sensors would be a part of a system which GHSP supplied to Ford for use in its trucks.
A batch of those sensors failed, resulting in "engine stumbling, or uncontrolled deceleration and loss of power," according to the High Court.
"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," said the ruling.
GHSP's standard terms and conditions said that when it bought goods from companies those companies retained unlimited liability for breaches of the sales contract. AB's standard terms and conditions said that it restricted liability, to works of rectification and repair in only limited circumstances.
Mr Justice Burton in the High Court characterised the dispute as a 'battle of the forms', a case in which each company stuck to its own terms and conditions in the hope that they would be seen as being accepted by the other.
The Court found instead that neither company's terms could be said to have been accepted by the other, with the result that the dispute would be governed by the Sale of Goods Act rather than by the terms and conditions set out by either firm.
When the companies first began to discuss the deal a year before it eventually happened it became clear that the liability question was going to be a problem. In the spring of 2004, six months before the deal itself, negotiators for each firm acknowledged as much and decided that a solution had to be found. None was found, though, and the issue was ignored.
"There was, by March 2004, deadlock," said Mr Justice Burton. "As I have indicated, I do not consider that there was ever the possibility of the [GHSP] accepting [AB's] Conditions, but the discussion at all times had been as to whether there could be some amelioration of [GHSP]'s Conditions, and such amelioration was due to be discussed at [a] meeting, which was cancelled by [AB]. The same deadlock continued, or rather was resurrected, when there was fresh discussion in January and April 2005."
"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," said Dan Haverstock, GHSP's purchasing manager, of the avoidance of direct negotiations on the subject. "Both parties were hoping that the other party would come up with something which would be reasonable."
The deal was eventually negotiated and agreed in November and December 2004. As it neared its conclusion, each company stated in its emails that the purchase or supply of the materials was governed by its terms and conditions, but the issue was not explicitly discussed.
"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'," said Mr Justice Burton. "It is quite clear that [AB] knew that [GHSP] would never accept its Conditions, and neither Mr Joyce nor any other representative of [AB] ever tried to persuade Mr Haverstock to accept such Conditions during any of their meetings."
The judge said that there was undoubtedly a contract governing the commercial activities between the parties, but that it did not incorporate the conditions of either firm.
"I have no doubt whatever that, as and when it was made, it did not incorporate either [GHSP's or AB's] Conditions," he said. "There was no express acceptance of the Conditions or of an offer containing the Conditions expressly or impliedly. There was no conduct by [AB], 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 [GHSP's] Terms because they were contained in their [purchase orders]."
The judge said that none of GHSP's conduct constituted acceptance of AB's terms because the 'battle of the forms' was still going on in January of 2005.
Mr Justice Burton said that the liability issue would not be decided by either company's set of terms and conditions, but by the Sale of Goods Act's stipulation that goods that are sold are "of satisfactory quality".