SaaS Agreement – Terms and Conditions – Limitation of Liability Invalid

Do you always ensure that your SaaS terms apply to contracts with customers. If not, the High Court has decided in Ghsp Inc v Ab Electronic Ltd that where two companies fail to agree on whose terms and conditions shall apply to an agreement, neither company’s terms can be enforced. This resulted in the supplier having unlimited liability to the customer for defective parts it had supplied.

Failure to Agree Terms

During the course of negotiating a sales agreement the supplier and customer failed to agree on whose terms would apply to the sale. They both rejected each other’s terms on a number of occasions and started to deliver and use products, without agreeing on the issue of liability, although both acknowledged that the issue needed to be resolved at some future date.

Later when some defects in the products arose the customer claimed that liability was unlimited, as its terms applied. The supplier argued that the limited liability clauses of its terms applied to the agreement.

Battle of the Forms

Each company stuck to its own terms and conditions in the hope that they would be seen as being accepted by the other. However the court looked at the negotiations and actions of the parties and concluded that:

  • there was no express acceptance by either party of the other’s terms;
  • there was no offer containing either party’s terms; and
  • there was no conduct by either party which amounted to acceptance of the other’s terms.

The Court stated that neither company’s terms could be said to have been accepted by the other. Instead the dispute would be governed by general commercial law and the Sale of Goods Act 1979. Under the Sale of Goods Act – goods must be of satisfactory quality. The supplier was therefore fully liable for all of the customer’s losses (both direct and indirect) as no exclusion clause limiting its liability was incorporated into the agreement between the parties.

Your Terms must be Incorporated into the Agreement

In order to avoid this situation from arising you must ensure that your terms and conditions are incorporated into the sales agreement by:

  • expressly stating in the agreement that the other’s terms and conditions are excluded;
  • expressly stating in the agreement and/or order form that only your terms and conditions will apply.

Help

Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:

irene.bodle@bodlelaw.com
www.bodlelaw.com

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