Court implies statutory terms into commercial contract in preference to standard terms of either contracting party.

In GHSP Inc v AB Electronic Ltd [2010] EWHC 1828 (Comm), the High Court resolved a battle of the forms dispute in which both a buyer and a seller purported to contract on the basis of their own standard terms by implying the terms of the Sale of Goods Act 1979 instead of either set of standard terms. Although this case relates to the sale of parts in the motor industry, it illustrates the legal principles applicable to the incorporation of competing sets of standard terms in all contracts, including financial services contracts.

GHSP Inc (GHSP) placed orders with AB Electronic Ltd (AB) for components which were to be incorporated into one of GHSP's products. That product was then sold to the Ford Motor Company for use in Ford's trucks. AB supplied a defective batch of the components to GHSP, resulting in substantial losses for Ford. Ford claimed against GHSP, who in turn claimed against AB. Prior to detailed consideration of the extent of the breach and the amount of recoverable loss, the court considered whether AB had successfully exempted or restricted its liability to GHSP by reference to AB's standard terms and conditions. The issue before the Court was whether the parties had concluded a contract relating to the supply of the components which incorporated:

• GHSP's conditions, which imposed unlimited liability on the seller in respect of relevant breachs; or
• AB's conditions, which imposed almost no liability on AB; or
• Some other terms

It was common ground that if the Court found that neither GHSP's nor AB's conditions were incorporated into the contract, 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) of that Act, that the "goods supplied under the contract are of satisfactory quality".

In reaching its decision, the Court reiterated that it had an entitlement and an obligation to consider the conduct of the parties. On the facts, the Court found that a contract had been concluded between the parties but that neither of the party's conditions applied to that contract. Burton J did not consider that there was ever a possibility of GHSP accepting AB's conditions but it was also the case that GHSP's conditions were unacceptable to AB as it had continually sought a cap on its liability throughout the negotiations. There was no conduct by either party which suggested that they had accepted the other's conditions and indeed both sides knew that their conditions would not be accepted by the other. Burton J found that, in the face of a deadlock, both sides "buttoned their lips" and hoped there would never be a problem or that any problem which did arise would be small enough to deal with on a case by case basis. The contract that existed between them was, therefore, governed by the terms implied by the Sale of Goods Act 1979. The effect of this decision is that, subject to common law rules on the recovery of damages, AB's liability under the contract is unlimited.