The buyer (a company that made control systems for vehicles) placed orders with the seller (a company that supplied pedal sensors). Both parties traded on their standard terms of business, the key difference between the two being, as it is usual to expect, the extent of the liability, if something went wrong under the contract. The buyer’s conditions sought to impose unlimited liability on the seller for certain breaches, while the seller’s conditions purported to exclude any liability for consequential loss or damage and restricted its business liability to repair.

The sensors were defective resulting in serious problems, including uncontrolled deceleration and loss of power. The buyer suffered substantial losses as a result, including the cost of inspections and replacement of parts. It sought to argue that the contract was formed on its business terms and sought to recover its losses from the seller. The seller argued that the contract was formed on its terms and that its liability was limited to repair, in accordance with its standard terms which the buyer had accepted by taking delivery of the sensors; while the buyer argued that the seller’s liability was unlimited (in accordance with its standard terms).

So, the preliminary question before the Court was on which terms the contract between the parties was formed.

In an unexpected decision, the Court decided that, the contract did not include either set of standard terms, because the parties had not reached agreement on their precise wording and there was no conduct that could be interpreted as accepting the other’s terms. The Court, therefore, held that the contract terms were governed by the Sale of Goods Act.

The Court, in giving its decision, summarized some of the key principles from previous cases, where there was a “battle of the forms”:

• The contract must be read objectively;
• In most cases, a contract is formed once the last set of terms is sent and received, without the recipient objecting;
• One party can be found to have accepted the other party’s terms by its conduct, but such conduct must be clear (looking at it objectively) with the intention to accept those terms; simply taking physical delivery of the goods is not enough;
• Where parties have not agreed which set of standard terms applies, the only inference that can be drawn is that, the contract was made on the basis that neither set would apply.

In conclusion, terms must be agreed between the parties before the contract is signed or executed. Even expressed wording in contract terms stating that the standard terms will prevail over others may not be effective where it can be shown that no agreement was reached, whether expressly or by way of conduct.