When a purchaser and supplier exchange documents such as quotes, purchase orders and invoices it is common that those documents contain each parties respective terms and conditions of the supply/purchase. In those supply arrangements each party often proceeds on the basis that the other party has agreed that their terms and conditions apply.
In actual fact, there is no real resolution on whose terms apply and as each party’s terms and conditions will generally be favourable of themselves, the two sets of terms and conditions are likely to be inconsistent.
The problem that arises is commonly referred to as a ‘battle of the forms’.
In the event of a battle of the forms, the answer to the question of ‘whose terms and conditions prevail’ is not straight forward.
In Australian Law, priority is generally determined by the ‘last shot rule’. However, the courts will also examine the conduct of the parties to determine if any circumstances of the supply arrangement override this rule.
The last shot rule applies the principles of contract law in that an offer can only be accepted if the terms of the acceptance reflect the offer.
In a scenario where the terms of acceptance do not reflect the terms of the offer, the purported acceptance is likely to be considered a counter offer. This would mean that it is now back on the party who made the initial offer to accept or reject the counter offer.
For example:
1. A supplier has provided a purchaser with a quote on the supplier’s set of terms and conditions of the supply (offer).
2. The purchaser has provided the supplier with a purchase order which attaches the purchaser’s terms and conditions of the purchase (counter offer).
3. The supplier proceeds to supply the goods without disputing the purchaser’s terms and conditions (acceptance).
In the above scenario the purchaser has made ‘the last shot’ and would likely win a battle of the forms.
However, as noted above, some scenarios may be more complex and it may not be possible to apply the last shot rule as there is no clear offer or acceptance. In those scenarios, the court will consider the conduct of the parties to determine which party will win the battle of the forms.
Our Commercial Lawyers work with a number of manufactures and suppliers of commercial goods and services to advise on the potential risks and pitfalls associated with not having appropriate terms and conditions in place.
Contact us to advise you on your terms and conditions of trade to better protect your business.