Battle of the Forms Australia: Does the Last Shot Rule Apply?

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.

A practical example of the last shot rule

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 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 “last shot” rule is not absolute. Carefully drafted standard terms and conditions may operate to prevent later conflicting terms from being incorporated into a contract, even in situations where those later terms appear in purchase orders or invoices.

For businesses that regularly trade on standard terms, this case highlights the importance of considering how and when terms are accepted, rather than adopting the assumption that the final document issued will always prevail.

Australian courts are yet to adopt the United Kingdom’s approach to the last shot rule. Instead, when deciding disputes related to a “battle of the forms”, the court generally focusses on the objective intention of the parties, assessed by reference to:

• the sequence of documents exchanged;
• whether terms were expressly accepted or rejected;
• the parties’ conduct following the exchange of documents; and
• any established course of dealing.

Although decisions from the United Kingdom are not binding on Australian courts, there is always a possibility that the approach from the United Kingdom may be considered as guidance in similar scenarios.

To minimise the risk of inadvertently having less favourable terms and conditions in a commercial transaction, businesses should ensure they:

• have their standard terms and conditions drafted by a legal professional to protect the interests of the business;
• where possible, have the counterparty formally acknowledge the terms and conditions with a signature to confirm their agreement;
• draft standard terms to explicitly prevent conflicting or additional terms from taking effect;
• ensure standard terms are referenced in all quotes, purchase orders, and supporting documents are either attached or clearly noted;
• keep detailed written records of every stage of contract negotiations. Ensure that any rejection of the other party’s terms and conditions is clearly documented;
• secure acceptance (preferably in writing) of terms and conditions from the counterparty prior to the commencement of supplying or purchasing goods or services; and
• consider implementing master services agreement or a framework agreement, prepared by a legal professional, for ongoing relationships.

While the “last shot” rule remains an important consideration, it does not automatically determine which terms will govern a contract. Courts will closely examine how and when terms are incorporated, the parties’ conduct, and the overall intention behind their dealings. Businesses should proactively manage the use and acceptance of their standard terms to reduce the risk of uncertainty or dispute.

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: Laura Martin

Position: Lawyer

Practice: Transactions

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