It is a familiar scenario: A wants to engage B to provide works or services, and each of A and B want the engagement to be on its own (self-serving) standard terms. The competing forms, A’s and B’s respective terms, cover the same ground but are very different, like a parallel universe or evil twin. Each of the forms purports to govern the engagement – but they can’t both be right, for in this ‘battle of the forms’, there can only be one winner.
Which form will prevail is highly fact-dependent. The courts approach these disputes by analysing the parties’ communications (including the language contained within the forms) and conduct to ascertain which form the parties objectively intended to govern the engagement. That said, some common themes and legal principles emerge in these ‘battle of the forms’ cases, which, if understood, can assist commercial parties maximise the chances that their preferred terms will prevail.
In this article, Alex Ottaway (Special Counsel) and Michael Graziano (Solicitor) discuss the decision of the New South Wales Court of Appeal in Forte Sydney Construction v N Moit & Sons (NSW) (Forte),1 which involved a ‘battle of the forms’.
What happened?
- A head contractor (Forte) sought to engage a subcontractor (Moit) to carry out excavation, anchor and shotcrete work;
- Moit provided various iterations of its tender submissions, quoting various prices for the proposed works. Moit ultimately provided Forte with its Final Tender Submission;
- Later that same day, Forte provided Moit with a Letter of Engagement enclosing its Proposed Subcontract for execution. The Letter stated that Moit could ‘accept this proposal’ by signing and returning the Letter, or, if Moit does not sign and return the Letter, Forte would assume that Moit accepted the terms set out in the Proposed Subcontract;
- Forte did not expressly agree to the Final Tender Submission, and Moit did not sign and return the Letter of Engagement or execute the Proposed Subcontract;
- Nonetheless, Moit commenced the works; and
- During the project, a dispute arose as to Forte’s entitlement to retention and Moit’s entitlement to claim variations. The key question was, whose form prevailed – Moit’s (i.e. the Final Tender Submission) or Forte’s (i.e. the Proposed Subcontract)?
What was the effect of Moit’s Final Tender Submission and Forte’s Proposed Subcontract?
The Court of Appeal found that:
- Moit’s Final Tender Submission was an offer made by Moit to Forte, to perform the works on the terms contained within that document; and
- Forte’s Proposed Subcontract – which contained terms that were inconsistent with Moit’s Final Tender Submission – was a counter-offer to procure Moit’s works on the terms set out in the Proposed Subcontract.
As a ‘counter-offer kills the original offer’,2 Forte’s Proposed Subcontract was a rejection of Moit’s Final Tender Submission, meaning that the latter was incapable of governing the engagement.
Accordingly, the question for determination by the Court was whether Moit had accepted Forte’s Proposed Subcontract.
Did Moit accept Forte’s Proposed Subcontract?
Forte’s Letter of Engagement enclosing the Proposed Subcontract stated:
“To accept this proposal, please sign at the foot of this letter and return to me no later than 23rd May 2018.
If, for any reason, this document is not signed and returned, Forte… will assume acceptance by [Moit], of all terms and conditions as set out in the Contract and Scope of Works.”
Neither the Letter of Engagement nor the Proposed Subcontract were signed by Moit.
Silence, on its own, does not amount to acceptance of an offer. In the 1862 decision of Felthouse v Bindley,3 a man wanted to buy his nephew’s horse, and wrote to him saying ‘if I hear no more about him, I consider the horse mine at 30l 15s’. The nephew did not reply. The Court of Common Pleas found that no contract arose, as no agreement could be inferred from the nephew’s silence.
That said, the Court in Forte noted that:4
“While an offeror may not stipulate that silence will be taken as acceptance of the offer …, acceptance may be tacit, or implied from conduct, as opposed to express … The silence of an offeree in conjunction with the other circumstances of the case may indicate that he has accepted the offer…”
Similarly, in Empirnall Holdings v Machon Paull Partners,5 the Court said that ‘an offeree who has omitted to accept an offer but has nonetheless taken the benefit of that offer will be bound by the contract’.6
The Court found that, on the facts, Moit had accepted Forte’s Proposed Subcontract, as:
- prior to commencing works on site, Moit had asked Forte to revise the volume of shotcrete appearing within Forte’s Proposed Subcontract, which Forte did. Moit then thanked Forte for ‘the revised contract’; and
- Moit commenced the works in circumstances where Forte’s Proposed Subcontract was the latest set of terms that had been discussed and exchanged between the parties.
Did Forte’s Letter of Engagement set out an exhaustive means of accepting Forte’s Proposed Subcontract?
In some cases, where an offer letter prescribes a means for the offer to be accepted (such as signing and returning the letter), this can be interpreted as being the sole means by which the offer can be accepted, precluding acceptance by any other means (such as by conduct).
Forte’s Letter of Engagement requested that Moit indicate its acceptance by signing and returning the Letter, but it also stated that, whether or not Moit did this, Forte would take Moit to have accepted. Whilst this attempt by Forte at ‘deemed acceptance’ was legally ineffective, it indicated an intention that Moit could accept Forte’s offer either by signing and returning the Letter of Engagement or by any other means. On the facts, Moit was found to have accepted Forte’s offer by (amongst other things) commencing the works.
Takeaways
- Communication is key. It is prudent to state one’s understanding as to whose terms govern the engagement, and expressly reject any terms that are not agreed, rather than leaving these matters unspoken. Being crystal clear with the other contracting party at the outset of the engagement may, in some circumstances, result in a difficult discussion or delay the commencement of the works, but (as the Forte case demonstrates) it may avoid a costly and time-consuming dispute at a later stage.
- Expressly state whether the means of acceptance set out in an offer letter is mandatory or whether the offer can be accepted by some other means. Stating that an offer will automatically lapse if not accepted by a particular time ordinarily means that the offer will be incapable of being accepted after that time, although in some cases the offeror can waive the requirement to accept an offer by prescribed means or within a prescribed time.
- Does ‘the last shot win’? As ‘a counter-offer kills the original offer’,7 the last person to submit a form prior to the commencement of the works often has an advantage. Forte – in which the last shot won – is a case in point. However, it would be an exaggeration to suggest that the last shot always wins.8 Instead, the courts have regard to the parties’ words (including the language used in any forms exchanged between them) and to their conduct, to determine whose terms the parties agreed to, which (depending on the circumstances) may be the last shot, or may be a form that was exchanged at an earlier stage.
This article was written by Alex Ottaway, Special Counsel and Michael Graziano, Solicitor.
Suggested Further Reading
Battle of the forms – may the best shot win – HWL Ebsworth Lawyers
Are you sure your terms and conditions apply? – HWL Ebsworth Lawyers
1[2022] NSWCA 186.
2Trollope & Colls Ltd v Atomic Power Constructions Ltd [1963] 1 WLR 333 (Trollope) at 337 per Megaw J, cited with approval in Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1972] 1 WLR 401 (Butler) at 404 per Denning MR.
3(1862) 142 ER 1037.
4Forte at [89].
5(1988) 14 NSWLR 523.
6Forte at [90].
7Trollope at 337 per Megaw J, cited with approval in Butler at 404 per Denning MR.
8Heydon on Contract at [2.390].
