In a supply arrangement, it is not uncommon for a purchaser and a supplier to exchange documents (i.e. quotes, purchase orders and invoices) which contain their respective terms and conditions of supply or purchase (as the case may be). Often each party proceeds on the basis that their terms apply and they commence work without any real resolution on whose terms do in fact apply.
This article examines this common problem often referred to as a battle of the forms and provides some guidance on how to avoid such a battle or if you can’t avoid it, how to make sure that you emerge from the battle, victorious.
Typical battle of the forms case scenario
Let’s take the following (fairly typical) scenario:
- A supplier provides a purchaser with a quote and attaches to that quote its terms and conditions of supply;
- The purchaser issues the supplier with a purchase order which contains its terms and conditions of purchase; and
- The supplier acknowledges receipt of the purchaser’s purchase order and commences the supply.
Assuming that the terms and conditions are inconsistent, in the event of a dispute, which party’s terms and conditions prevail?
Unfortunately the answer to the question of “whose terms prevail” isn’t always straightforward particularly when the facts are more complicated than the above case scenario.
How does a party win a “battle of the forms”?
Under Australian law, the “last shot rule” generally applies to determine priority between each party’s terms and conditions however courts will also look at the conduct of the parties to determine whether there are any other factors that should displace this rule.
What is the “last shot rule”?
The last shot rule applies the contractual principles of “offer” and “acceptance”. An offer can only be accepted if the terms of the acceptance mirror the offer. If the terms of a purported acceptance do not mirror the offer, then the other party is likely to have made a counter-offer to the first party and it is up to the first party to accept or reject that counter-offer.
Let’s apply this principle to our case scenario above.
- The supplier has made an offer to the Purchaser in the form of a quote on its set of terms and conditions of supply → Offer;
- The purchaser has furnished the supplier with a purchase order which contains its own set of terms and conditions of purchase (which differ from the supplier’s terms and conditions of supply). This is not an acceptance by the purchaser of the supplier’s offer, but rather a counter-offer and therefore no valid contract has been formed → Counter-offer; and
- The supplier commences supply without disputing the purchaser’s terms and conditions. This is likely to be regarded as acceptance by conduct of the purchaser’s counter-offer and at that point, it is likely that the contract between the supplier and the purchaser is formed1 → Acceptance.
In the above scenario, the purchaser has made the “last shot” because the purchaser’s purchase order (including its terms and conditions) is the last document put forward and as such, the purchaser is likely to have won the battle of the forms.
As noted above, this is a simplistic example and the courts are likely to review all of the conduct between the parties to determine who is ultimately victorious in a battle of the forms.2 In some cases, it will not be possible to apply the last shot rule because there is no clear offer, counter-offer or acceptance. This could lead to both set of terms applying or neither set of terms applying. In many cases however, it may be as simple as our case scenario and the victor in a battle of the forms is easily ascertainable by applying the last shot rule.
The English case of Butler Machine Tool Co Ltd v Ex-cell-O Corp (England) Ltd3 (Butler Case) is a case on point. The facts of that case are quite similar to our case scenario described above but with a slight and important twist in the analysis of which party has fired the last shot. In the Butler Case, the seller made an offer in its quotation to the purchaser to sell a machine on the seller’s terms. The seller’s quotation terms included a price variation clause allowing the seller to increase the price of the machine in certain circumstances. The purchaser ordered the machine, with its terms and conditions attached (which did not include a price variation clause) and with a confirmation of order slip attached which required the seller to sign and return the slip to confirm its acceptance of the order. The seller returned the tear-off slip at the bottom of the order, acknowledging that the order had been accepted, together with a letter saying that the seller had pleasure in acknowledging the purchaser’s order for the machine, which would be delivered in accordance with the seller’s quotation. The machine was subsequently delivered to the purchaser, but the seller, relying on its price variation clause, demanded that the purchaser pay more for the machine pursuant to the price variation clause in the seller’s quotation terms. The purchaser refused to pay the extra sum and the seller sued the purchaser for that sum. The court determined in that case that the purchaser had fired the last shot and the seller had accepted the purchaser’s counter-offer by returning the acknowledgement slip. This was despite the fact that the seller had included a letter stating that the deal was being made on the seller’s quotation terms.
In the Butler Case, the court held that the return of the acceptance slip by the seller was confirmation by the seller that it had accepted the purchaser’s terms. The last shot occurred at that point and it was fired by the purchaser. The letter attached to the acceptance was not regarded as a counter-offer by the seller because the wording used in the correspondence was not clear enough to constitute a counter-offer. The court considered the reference to the seller’s quotation as only referring to the price and the identity of the machine and that it did not “bring into the contract the small print conditions on the back of the quotation”.4
This case provides important guidance on the need for unequivocal action and language to ensure that you maintain the last shot in any battle of the forms scenario.
Other applications of the battle of the forms
While not a traditional approach, the recent case of Stepanoski v Aslan5, considered another aspect of the battle of the forms in the context of two contracts executed by the same parties. In particular, whether the last shot rule still applies in circumstances when parties conclude a contract and then enter into a subsequent contract for the same works without rescinding the first.
In this case, Mr and Mrs Stepanoski engaged Mr Aslan for the building of two residential homes. The parties entered into a “Cost Plus Contract” (First Contract) for the construction work. The First Contract was signed and the building process commenced. Some time after the parties signed the First Contract, they entered into a “Lump Sum Contract” (Second Contract) in relation to the same building work and made the effective date of the Second Contract on the date which the First Contract was signed. A Lump Sum Contract was required by Mr and Mrs Stepanoski’s financiers as it did not recognise a Cost Plus Contract for funding purposes because the final price of the build was ultimately unknown under a Cost Plus Contract.
Before the homes were completed, Mr and Mrs Stepanoski claimed damages against Mr Aslan for alleged breaches of a building contract in relation to the construction. Mr Alsan alleged the First Contract applied however Mr and Mrs Stepanoski claimed the Second Contract applied.
The parties requested the Court to reach a conclusion as to the terms of the building contract however as there were two contracts, the court had to determine which contract was binding on the parties. The Court applied the “last shot” approach and held that the parties were bound by the Second Contract.
The Court placed great weight on the intention of the parties but also on contemporaneous material presented to the Court. Emmett AJA found that despite minor inconsistencies in the contemporaneous material (i.e. emails referring to “Lump Sum Building Contract”, tax invoices headed “Cost Plus Building Contract” and tax invoices not particularising expenditure incurred in the works), the majority of the documents pointed to the parties’ intention to be bound by the Second Contract and the act of signing the Second Contract ultimately confirmed that intention.
Practical tips
- Ensure that your terms and conditions are the last shot. If you receive any terms and conditions from a counterparty during negotiations, expressly state in writing those terms and conditions are not accepted and that you will only proceed with the purchase or supply of goods (as applicable) on your terms and conditions (and make sure that you attach these again so that there is no misunderstanding as to the basis on which you are prepared to buy or sell);
- If possible and practical, enter into a more formal contract which is signed by both parties and which include the parties’ agreed terms – that way it is clear that both parties have agreed to the arrangements in one contract;
- Do not start performing any obligations such as delivering the goods (if the supplier) or paying the purchase price (if the purchaser) until the issue of whose terms and conditions apply has been resolved; and
- If the parties enter into more than one contract for the same supply ensure:
- the first contract is rescinded (either by terminating the first contract in writing or specifically making reference to termination of the first contract in the second contract);
- the second contract is executed; and
- the parties make their intentions absolutely clear and consistent (including through conduct and material) as to which contract is on foot.
This article was written by Teresa Torcasio, Partner and Caitlyn White, Senior Associate.
P: +61 3 8644 3623
E: ttorcasio@hwle.com.au
1 There is no contract until a counter-offer is unconditionally accepted, expressly or by conduct of the recipient: Trollope & Colls Ltd v Atomic Power Constructions Ltd [1962] 3 All ER 1035.
2 Butler Machine Tool Co Ltd v Ex-cell-O Corp (England) Ltd [1979] 2 All ER 965.
3 Ibid.
4 Ibid, 970.
5 [2018] NSWSC 1160, [69].