In a previous article we examined the legal concept known as a “battle of the forms”, which commonly arises where two contracting parties attempt to apply their “form” (ie their terms and conditions) to a transaction to regulate the sale or purchase of goods or services. In our previous article we considered the Australian legal position that is often used to determine who wins such a “battle”, known as the “last shot rule”.
In this article, we provide a recap of the current Australian position, and consider the recent UK decision of TRW Ltd v Panasonic Industry Europe GmbH [2021] EWHC 19 (Panasonic), in which it was found that in a battle of the forms, it may in fact be the “first shot”, rather than the “last shot”, which prevails. We examine the reasons why the UK High Court came to this conclusion and consider whether the court’s reasoning is in fact aligned with the position under Australian contract law, despite the apparent differences in the approach taken to the last shot rule.
What is the Australian position?
The Australian position in a battle of the forms is to consider the issue from a contract formation perspective. Australian courts will look to evidence of an offer, and subsequent acceptance of that offer, to determine which party made the “last shot”, being the last offer subsequently accepted by the counterparty.
To provide a worked example, consider the following scenario:
- Sally the supplier provides Penelope the purchaser with a quote for the supply by Sally of her coffee beans. Sally’s terms and conditions of supply are attached to the quote.
- Penelope issues Sally with a purchase order for coffee beans. Penelope’s terms and conditions of purchase are attached to her purchase order.
- Sally acknowledges receipt of Penelope’s purchase order, and delivers the coffee beans the next day.
In our worked example, the “last shot” rule would work as follows:
- Sally makes an offer to Penelope in the form of her quote (with terms and conditions of supply attached) → Offer;
- Penelope gives Sally a purchase order which contains her own set of terms and conditions of purchase that are quite different to Sally’s terms and conditions of supply. Penelope has not accepted Sally’s offer, but rather has made a counter-offer (and therefore no valid contract has been formed) → Counter-offer; and
- Sally commences supply of the coffee beans without disputing Penelope’s terms and conditions. This is likely to be regarded as acceptance by conduct of Penelope’s counter-offer, and at that point, it is likely that a contract between Sally and Penelope has been formed → Acceptance.
In the above example, one party has clearly made the “last shot”. However, not all scenarios are as clear cut as this, and often each party will include in their terms and conditions a provision which states that in any battle of the forms scenario, their terms will prevail (or words to that effect). In practice, there may be many communications that flow between the parties when they are negotiating an agreement, and so it will often be difficult to clearly identify an offer, a counter-offer and acceptance. In some cases, it will not be possible to apply the “last shot rule”, and there could be situations where both “forms” apply, or conversely, where neither apply.
What is the UK position?
The “last shot rule” originates from English common law, and as such, the UK position has historically (for the most part) been consistent with the Australian position. However, in the recent Panasonic case, the court found that the terms and conditions of the party that fired the “first shot” should prevail.
The facts of the Panasonic case are as follows:
- Panasonic and TRW entered into a commercial relationship whereby Panasonic would supply automotive resistors to TRW.
- TRW physically signed Panasonic’s ‘customer file document’ (Document).
- The following words were included under the signature panel in the Document that was signed by TRW: “legally binding signature of the customer”, … “even if no reference is made to them in particular cases, the following terms and conditions shall apply exclusively to the entire business relation with us… unless different conditions, particularly conditions of purchase of the contracting party, have expressly been confirmed by us in writing“.
- TRW did not place orders for some time after it signed the Document. When it did commence placing orders, it made them on its standard purchase order form, which provided that the terms and conditions of the purchase order applied to the order.
- A dispute arose between the parties due to alleged faulty resistors. The key dispute was whether the claim should be heard in Germany (per the jurisdiction in Panasonic’s terms and conditions) or England (per the jurisdiction in TRW’s terms and conditions). TRW contended that as it had fired the “last shot”, its terms and conditions should prevail.
So what happened?
The court disagreed with TRW, and concluded that even though TRW had fired the “last shot”, the manner in which Panasonic had fired the “first shot” (and the subsequent actions of TRW), meant that the parties had effectively concluded the contract after the “first shot” was fired, creating a barrier against any further shots being fired by TRW.
In setting aside the application and declaring that the German courts had exclusive jurisdiction over the dispute, the court found that the signing of the Document by TRW was the determining factor, with Lord Justice Coulson stating:
“[TRW’s] signature was the only time that one party expressly signed something which referred to the other side’s terms and conditions. It was the only overt sign of an agreement. To continue the warfare analogy commonly used in these cases, it was the only occasion when one side walked across no-man’s land, and fraternised with the enemy.“
It was the signing by TRW of Panasonic’s terms and conditions that indicated acceptance and the conclusion of a contract. Any purchase order terms submitted thereafter did not create a counteroffer to the offer made by Panasonic, as the contract had already been concluded upon the signing of the Document by TRW. This is analogous to parties executing a formal agreement to expressly govern their supply arrangements and the purchaser then trying to insist that the terms contained in its purchase order form (used for the practical purpose of ordering goods under that contract) should prevail (without the contract expressly permitting this).
The fact that no orders were placed at the time the Document was signed did not alter the court’s reasoning, with the court drawing analogies between this scenario and a customer ordering goods, when required, under a standing order agreement.
What’s the bottom line?
While the prevailing view in Australia is that, for the most part, the “last shot” wins in a battle of the forms, contracting parties should exercise caution when interpreting how this doctrine applies in practice. Ultimately, the last shot rule is not just about the timing of documents, but rather the proper identification of when offer and acceptance take place. The Panasonic case shows us that courts are more interested in the substance of any agreement, looking to evidence of a party actually accepting the terms and conditions of another to determine which shot (be it first or last) should prevail. In Panasonic, if the Document had not been signed by TRW, the result may very well have been different. It is therefore essential for contracting parties to ensure that there is some positive act of acceptance from a counterparty (whether by signature or some other form of confirmation, preferably in writing) before commencing the supply or purchase of goods or services. Failure to do so could lead to a costly battle about whose terms should prevail.
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This article was written by Teresa Torcasio, Partner and Zoe Vise, Solicitor.
