Whose terms and conditions prevail when a contract dispute arises is a common issue. In Australia the current test is referred to as “the last shot rule”, which originates from the English common law case of Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd. The rule applies the contractual principles of offer and acceptance. Each set of terms exchanged are an offer or counteroffer. If the other party sends terms after you have provided yours, that is likely to be a counteroffer.
Proceeding with the contract after receipt of the other party’s terms can be construed as acceptance of them. If you disagree with any terms received in response to your offer you must notify the other party in writing that you are proceeding based on your terms or you may be bound by the terms of the counteroffer. The ‘last shot’ refers to the last offer accepted by the counterparty.
An example scenario is as follows:
- 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 provided 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 formed, based on the Purchaser’s terms and conditions (Acceptance).
In the above scenario, the purchaser has made the last shot, because their purchase order (including its terms and conditions) is the last document put forward. As the last shot rule derives from English common law, historically the UK position has been consistent with the Australian position. However, in a recent UK case the court found that the terms and conditions of the party that fired the first shot should prevail.
In this case, Panasonic and TRW entered into a commercial relationship for Panasonic to supply TRW with automotive resistors. TRW signed Panasonic’s customer file document which included the following words under the signature panel:
‘…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’.
Upon signing, TRW did not place orders for some time. When the orders eventually commenced, TRW issued them on its standard purchase order form, which included their own terms and conditions that were to apply to the order. The court held that the seller’s ‘first shot’ had won by creating an overarching ‘master’ agreement which bound all subsequent purchases by the buyer.
The significance of this decision is that the party to fire the last shot will not always prevail, and that parties should ensure that when drafting standard terms, that they are drafted in a way that prevents any other terms from applying. The court must examine the evidence of the parties’ objective intention as to whether the last shot should or should not prevail.
AUSTRALIA’S CURRENT POSITION
There have been no recent developments in Australian law adopting the Panasonic case. Therefore, Australia’s position still remains to be that 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.
Our experienced commercial and litigation lawyers will assist you to determine who fired the last shot, and whose terms and conditions prevail in a contract dispute; or alternatively to assist you in drafting your standard terms and conditions. At Cohen Legal, our business is protecting yours.