Battle of the forms: Last shot wins?

In today’s typical commercial transactions, businesses often communicate with each other using standardised forms. For example, purchasers and suppliers will often exchange documents (such as quotes, purchase orders and invoices) which contain their respective terms and conditions. As both parties draft their standard terms with different interests in mind, it is not uncommon for these terms to conflict.

A battle of the forms arises when a party makes an offer subject to its standard terms and conditions and the other party accepts the offer, but according to its own terms and conditions. Assuming that the terms and conditions are inconsistent, in the event of a dispute, which party’s terms and conditions prevail?

Historically, the legal rule used to determine who wins such a battle is known as the “last shot rule”. As the name suggests, the party who fires the “last shot”—or who makes the last offer—will have their terms and conditions applied to the contract. To demonstrate the application of this rule, consider the following scenario:

• Anna gives Ben a purchase order for the supply of apples. The purchase order contains Anna’s terms and conditions.
• Ben receives the purchase order and delivers the apples the next day. At the time of delivery, Ben provides Anna with an invoice. The invoice contains Ben’s terms and conditions.
• Anna accepts the invoice and begins to sell the apples.

In the above scenario, Ben has fired the “last shot” because his invoice (containing his terms and conditions) was the last document put forward and has not been explicitly rejected by Anna. As such, Ben is likely to have won the battle of the forms and would have his terms and conditions applied to any dispute about the contract between the parties.

A recent decision from the United Kingdom considered the “last shot rule” and found that a party can avoid the application of the “last shot rule”. In this case, a dispute arose between the German company Panasonic Industry Europe GmbH (Panasonic) and the English company TRW Ltd (TRW) in relation to the supply by Panasonic of alleged faulty resistors to TRW. The key issue before the court 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).

In 2011, TRW had signed the seller’s ‘customer file’ which stated, ‘legally binding signature of the Customer’ below the buyer’s signature and that the buyer had ‘received and acknowledged’ the seller’s standard terms, which terms were printed on the reverse of the document. TRW subsequently placed orders with Panasonic in 2015 and 2016 which orders provided that the resistors were to be delivered ‘in accordance with’ the purchaser’s standard terms. The documentation stated that the supplier was aware of and was deemed to have accepted those terms. TRW commenced proceedings before the English High Court, as provided for in the jurisdiction clause in its standard terms, for damages for alleged defects in the resistors supplied. Panasonic asserted that the English courts lacked jurisdiction on the basis that the jurisdiction clause in its standard terms (providing for jurisdiction in Germany) applied.

The court held that, Panasonic’s standard terms and conditions had been drafted in such a way that it protected against the last shot doctrine and created a barrier against any further “shots” being fired.

Therefore, in this battle, the “first shot” won. Although this is a decision from the United Kingdom courts, there is a possibility that Australian courts may follow a similar approach.

This decision demonstrates that the party firing the “last shot” will not always have their terms and conditions enforced. To mitigate the risk of not having its more favourable terms and conditions applied should a battle of the forms situation arise, businesses should ensure that they:

• keep written records of all contract negotiations;
• review all terms and conditions that pass between contracting parties;
• draft its standard terms and conditions carefully and deliberately to prevent any other terms and conditions from applying; and
• secure acceptance (preferably in writing) of its terms and conditions from the counterparty
  
  

This article provides general commentary only. It is not legal advice. Before acting on the basis of any material contained in this article, seek professional advice.

Author: Stephanie Maurangi

Position: Lawyer

Practice: Transactions

We work with our clients on every aspect of business activity, from front-end strategic advice to transactional work and corporate governance, and we regularly advise in-house legal teams and boards about compliance and governance matters.

From private, family-owned enterprises to not-for-profits and ASX-listed entities, we have been the trusted advisor to major South Australian companies for more than 20 years. These long-standing relationships are a testament to our ability to genuinely understand our clients’ businesses, anticipate their legal needs and solve problems for them – whilst minimising risks and maximising commercial opportunities.

Find out how our expert commercial team can assist your business.